Introduction to this report:
In 2023, due to poor downstream demand, the company's profits were under pressure; 2024Q1 performance pressure is still present, and the company actively controls the cost side. In the future, as demand for downstream inventory replenishment increases, the performance is expected to gradually recover.
Key points of investment:
Investment advice: Considering that the company's Q1 performance fell short of expectations and the company actively shrank the network chain business scale, the 2024-2025 EPS forecast was lowered to 0.06/0.13 yuan (0.34/0.41 yuan before adjustment), and the 2026 EPS was added to 0.18 yuan. According to the PB valuation, the 2024 PB was given 1.4 times lower than the industry average, and the target price was raised to 5.52 yuan to maintain the “gain” rating.
Incident: In 2023, the company achieved revenue of 13.66 billion yuan, and realized net profit/deducted non-return to mother of 0.7/-250 million yuan (-3.5/-370 million yuan in 2022); of these, 2023Q4 revenue/net profit attributable to mother/net profit without return to mother were 26.1/-0.2/-270 million yuan respectively, +125% /loss/loss reduction over the same period last year. 2024Q1 revenue/net profit attributable to mothers/net profit after deduction were $39.2/0.1 billion, respectively, -13.4%/-74.0%/-81.2% year-on-year. Performance fell short of expectations.
Poor downstream demand weighed on the company's results in 2023. In 2023, the company's revenue fell 5.5% year on year, and gross margin was -1.0pct year on year. By region, domestic/overseas sales revenue was 11.98/1.64 billion yuan, -6.2%/+3.0% year-on-year, and gross margin -0.1/-6.3 pct year over year. Due to insufficient domestic demand and weak foreign demand, company orders were under pressure. At the same time, profits declined due to rising raw materials and labor costs. By business, the revenue of the yarn/net chain/hosiery products business was $58.4/740/380 million, respectively, -2.2%/-7.9%/+8.0% year-on-year, and gross margin was -0.8/-0.7/-5.3 pct.
2024Q1 performance pressure is still ongoing. The company is actively controlling fees and waiting for downstream demand to be repaired. In 2024Q1, the company's revenue fell 13.4% year on year, mainly affected by the company's reduction in network chain business. At the same time, due to intense competition in the industry and poor transmission mechanism for raw material price increases, gross margin was -0.4 pct year on year.
The company has good control on the cost side. The sales expense ratio was flat year on year, and the management/R&D/finance expense ratio improved slightly year over year. The cost ratio was -0.5 pct year over year, but due to the increase in asset impairment losses and the decrease in return from fair value changes, the company's profit declined significantly. In the future, as demand for downstream inventory replenishment increases, the company's orders are expected to gradually improve, and performance is expected to reach an inflection point.
Risk warning: Downstream demand improvement falls short of expectations, risk of rising raw material prices