Core views:

The company announced its 2024 quarterly report. According to the company's financial report, the company's revenue for 2024Q1 was 1,834 billion yuan, up 23.45% year on year, net profit to mother was 80 million yuan, down 4.51% year on year, net profit after deducting net profit from non-mother - 0.07 billion yuan, down 109.76% year on year. The difference between 2024Q1's net profit and net profit not attributable to mother is mainly due to a year-on-year increase of 99 million in the company's 2024Q1 asset disposal revenue.

The company's profitability increased sequentially in 2024Q1, and its operating capacity improved. According to the company's financial report, the company's 2024Q1 gross margin/net margin was 5.89%/4.38%, up 3.11pct/7.06pct from 2023Q4. Mainly since the beginning of 2024, overseas market demand gradually recovered, product structure improved, and the share of color spinning products with high gross margins rebounded (according to the 2023 annual report, the gross margins of colored spinning yarn/blended yarn in 2023 were 12.82%/2.41%, respectively). The number of inventory turnover days/accounts receivable turnover days for the 2024Q1 company was 244 days/31 days, respectively, a decrease of 135 days/4 days compared with the previous year.

I am optimistic that the company's 2024 performance will rise at an inflection point. (1) According to the company's financial report, due to sluggish downstream demand since 2022, the company's share of high-margin product colored spinning has declined, lowering the company's overall gross profit margin; entering 2024, overseas market demand is recovering, and the company's share of revenue from high-unit price and high-gross margin colored spinning is expected to increase. (2) Before and after the 2023 base (according to Wind, gross margin of 2023Q1/Q2/Q3 was 13.31%/16.30%/3.57%, respectively, and net profit after deducting non-return to mother was 0.77/1.24/ -94 million yuan, respectively), the 24H2 performance growth rate is expected to accelerate compared to 2024H1. (3) According to the company's financial report, the company plans to continue to invest in Vietnam's Blum 390,000 spindles yarn expansion project with its own capital.

Profit forecasting and investment advice. The company's earnings per share for 2024-2026 are expected to be 0.37/0.63/0.69 yuan, respectively. Referring to comparable company valuations, the judgment that the company's reasonable value is 6.82 yuan/share remains unchanged, corresponding to the company's 2024 price-earnings ratio of about 18 times, maintaining a “buy” rating.

Risk warning. The risk of major customers stopping or reducing procurement; the risk of fluctuating raw material prices; the risk of rising labor costs; the risk of international operation and management.