The company released its 2024 quarterly report, and the profit side exceeded expectations. 1) Single-quarter revenue has recovered over the same period in 22 years. 24Q1 revenue of $80 billion (+14.8% YoY), net profit attributable to mother of $78 million (+45.2% YoY), net profit of non-attributable net income of $75 million (YoY +46.1%). 24Q1 revenue increased 11% compared to 22Q1, reflecting the end of downstream inventory removal and a return to the company's growth. 2) Gross profit has risen steadily and rates have improved, showing net profit elasticity. The 24Q1 gross profit margin was 37.9% (+0.2pct year over year), and the fee rate for the period was 26.5% (-2.3 pct year over year). Of these, financial expenses decreased by 2.06 million yuan year on year, contributing 2.8 pct to the cost rate improvement, mainly net exchange earnings for the current period. The net exchange loss amount for the same period last year was tens of millions, and interest income for the current period increased year on year and interest expenses decreased year on year. In the end, 24Q1 net profit margin was 9.7% (+2.0pct year over year).
Digital manufacturing reduced costs and increased efficiency significantly, reflecting the continued expansion of profitability. According to the 23 annual report, the company needed to invest in expenses first during the international expansion period. The cost rate for the 23-year period was 24.0% (+1.4pct year over year), with a sales expense ratio of 9.1% (+0.5pct year over year), and management/R&D expenses did not change much year over year. However, due to net exchange earnings of only 8.67 million yuan in 23, a sharp decrease of more than 39 million yuan over the previous year, the financial expenses ratio was 0.4% (+1.0pct year over year). However, thanks to improved efficiency in digital manufacturing, internal exploration of cost control, and high added value in the product structure, the gross profit margin for 23 years was 40.9% (+1.9pct year on year), and the net interest rate to mother was 14.3% (+0.8pct year over year). Profitability bucked the trend, and there is still potential for improvement.
Product by product: 1) Zipper: 23-year revenue of 2.14 billion yuan (+6.8% YoY), spin-off sales volume of 50 billion meters (YoY +5.7%), average price 4.3 yuan/meter (YoY +1.1%), gross profit margin 41.0% (YoY +3.0pct), pioneering the foothold of digital and intelligent transformation, which translates into a sharp rise in gross margin. It is also an important driving force for future growth. 2) Buttons: 23 billion yuan in revenue (+9.0% YoY), split sales volume of 8.91 billion grains (+4.6% YoY), average price 0.18 yuan/grain (+4.1% YoY), gross profit margin 42.2% (YoY +1.0pct). The sales scale has continued to grow steadily in the past three years, and the gross margin is relatively stable. 3) Other apparel accessories: Revenue of 120 million yuan (+8.8% year over year), gross profit margin of 10.4% (YoY -3.6 pct). Among them, we expect the revenue scale of the new ribbon business to increase by more than 25% year on year, but the profit margin is still low in the early stages of production.
We look forward to further internationalization in 24 years, and the overseas market space will be broad. According to the 23 annual report, the company now has a total production capacity of 11.6 billion buttons and 850 million meters of zipper. Its production capacity in China and overseas (Bangladesh) accounts for 85%/15% respectively, and the capacity utilization rate is 69.5%/50.6%, which is +3.0 pct/+10.9 pct compared to 22, respectively, reflecting that the Bangladesh base is in a period of rapid climbing.
The company's second overseas industrial park, Vietnam base was put into operation in March '24, and customers visited the factory at the same time. We believe that the Vietnamese base will benefit from a relatively mature level of advanced equipment, and its subsequent business will climb faster than the previous Bangladesh base.
Facing the world, national enterprises in the Chinese apparel accessories industry use internationalization to open up room for growth and maintain a “buy” rating. We are optimistic about the continued transformation of digital intelligence results and maintain profit forecasts. We expect net profit to be 6.5/7.6/890 million yuan in 24-26 years, corresponding to PE of 22/19/16 times, maintaining a “buy” rating.
Risk warning: global clothing consumption continues to be sluggish; international strategies fall short of expectations; new business development falls short of expectations; risk of fluctuations in raw material prices and exchange rates.