Core views

In 2023, the company's revenue was 6.913 billion yuan/ -1.09%, net profit attributable to mother was 504 million yuan/ -67.75%, after deducting non-return net profit of -121 million yuan/ -102.69%. The 24Q1 company's revenue was 1,834 million yuan/ +23.45%, net profit attributable to mother was 80 million yuan/ -4.5%, net profit not returned to mother - 7.496 million yuan/ -109.76%. Looking at volume and price breakdown, the sales volume in 23 was 217,000 tons/ +22.4%, the average sales price was 29,800 yuan/ton/ -17.7%, and the 24Q1 estimated sales volume was +37%. The average price declined year-on-year and recovered from quarter to quarter. Under the 23-year price-for-volume sales strategy, the company achieved production and sales balance, and profits were under pressure. Looking ahead to the year 24, demand from overseas customers will warm up at the end of the day, and the company's order acceptance situation will be full. Follow-up attention to overseas cotton price trends will determine the company's profit improvement.

occurrences

The company released its 2024 quarterly report. In the first quarter of 2024, the company's revenue was 1,834 million yuan/ +23.45%; net profit attributable to mother was 80 million yuan/ -4.5%; net profit after deducting non-return to mother - 7.496 million yuan/ -109.76%; and net operating cash flow of 283 million yuan. The basic EPS was 0.05 yuan/share, down 16.67% year on year; the weighted average ROE was 0.82% /-0.02pct.

The company released its 2023 annual report. In 2023, the company's revenue was 6.913 billion yuan/ -1.09%; net profit attributable to mother was 504 million yuan/ -67.75%; net profit after deducting non-return to mother -121 million yuan/ -102.69%; net operating cash flow of 809 million yuan/ +228.62%. The basic EPS was 0.34 yuan/share, down 67.92% year on year; the weighted average ROE was 5.08% /-11.33pct.

The company plans to distribute a cash dividend of RMB 3 (tax included) to all shareholders for every 10 shares, with a cash dividend ratio of 88.65%.

Looking at a single quarter, 23Q4's revenue was 1,822 million yuan/ +44.38%; net profit due to mother was -49 million yuan/ -109.32%; net profit after deducting non-return to mother was 128 million yuan/year-on-year loss (22Q4 was -196 million yuan).

Brief review

23Q4/24Q1 revenue was +44%/+23.5% YoY. Non-recurring profit and loss were mainly income from the disposal of illiquid assets. 22Q4-23Q4, the company's revenue in a single quarter was -43.1%, -24.8%, -12.8%, +6.2%, +44.4%, and 24Q1 revenue +23.5% year-on-year. Under the influence of overseas customers leaving the warehouse, the company's orders declined from 22Q4, and the company adjusted its sales strategy to exchange price for volume in the second half of '23. The revenue growth rate was corrected starting in 23Q3, and the demand from downstream customers was repaired. Non-recurring profit and loss of $525 million in 2023 (769 million yuan in '22), of which profit and loss from disposal of illiquid assets amounted to 400 million yuan (mainly the contribution of Ningbo Blong Textile's equity disposal revenue)

The year-on-year decline in non-recurring profit and loss was mainly due to the high base of earnings on futures investment in '22. 24Q1 Company's non-recurring profit and loss was 88 million yuan, of which the non-current asset disposal income was 111 million yuan (mainly the contribution of Caoxian Blum's land and housing collection and storage).

In the context of 23 years of downstream inventory removal, the company's sales strategy was adjusted, and profitability was pressured by exchanging price for volume. 1) Volume and price split: In 2023, the company's sales volume was 217,000 tons/ +22.4%, with an average sales price of 29,800 yuan/ton, a year-on-year decrease of 17.7%; in 24Q1, we estimate that the company's sales volume was about +37% year-on-year, and the average price still declined, but there was a month-on-month recovery trend. 2) Profitability: In 2023, the company's gross margin was 8.65% /-18.23pct. In a single quarter, the gross margin of the 23Q1-Q4 company was 13.31%, 16.30%, 3.57%, 2.78%, and the 24Q1 company's gross profit margin was 5.89% /-7.41pct, +3.11pct month-on-month. Starting in the second half of '23, the company adjusted its sales strategy and price in exchange for volume (the share of low gross margin yarn increased). The gross margin was under pressure, but the 24Q1 company's spinning ratio increased, and production capacity utilization increased Improvements and compounding the recovery of some discounts led to a month-on-month improvement in gross margin. At the end of 23, the company's inventory was 4.71 billion yuan/ -11.9%, and the inventory turnover period was 286.5 days/shortened by 47.9 days. On the cost side, the company's sales, management, R&D, and financial expenses rates were 0.59% /-0.12pct, 4.79% /-0.83pct, 1.45% /-0.17pct, and 2.23% /-0.01pct, respectively.

With overseas demand recovering in '24, performance is expected to improve. Profit flexibility focuses on overseas cotton price trends. By product, the company's color spinning sales revenue in '23 was 3.14 billion yuan/ -13.5%, with a gross profit margin of 12.8% /-14.3pct, accounting for 45.4%/-7.6pct of revenue; yarn sales revenue was 3.32 billion yuan/ +19.4%, and gross profit margin 2.4% /-22.1pct. Demand for textiles and clothing was under pressure in '23, especially for higher-end, more profitable colored spinning. Downstream demand gradually recovered in '24, and orders for color spinning have now been repaired. In terms of cotton prices, yarn prices rose after the sharp rise in overseas cotton prices during the Spring Festival. The 24Q1 cotton CotLooka index was 99.74 cents/pound, up 8.1% from the previous month. The company's cost-side inventory has been in stock for more than 6 months. If cotton prices rise sharply, profit elasticity can be expected. Overseas cotton prices have recently rebounded. Subsequent profit flexibility can be followed by cotton price trends.

Vietnam's Blum outperformed domestic performance, and production capacity construction continued to advance. By region, Vietnam's Blum achieved revenue of 5.305 billion yuan/ +11.9%; realized net profit of 126 million yuan/ -81.7% in '23. It is estimated that domestic revenue was about 1,609 billion yuan/ -28.4%, and operating net profit loss. The company's original plan is to expand the production capacity of 390,000 spindles of yarn in Vietnam. Although the fixed increase approval has failed, the company plans to invest in other methods such as self-financing, and put into operation 80,000 spindles each in August '22 and the end of the 3rd quarter of '23. Currently, the company's cotton yarn production capacity is 1.62 million ingots (1.26 million spindles in Vietnam and 360,000 spindles in China). The other three production lines will be put into operation depending on overseas demand.

Profit forecast: We expect the company's revenue for 2024-2026 to be 78.2, 85.3, and 9.23 billion yuan, respectively, up 13.1%, and 8.2%; net profit to mother will be 4.67, 5.82, and 711 million yuan, respectively, up -7.3%, 24.6%, and 22.2% year on year; corresponding P/E will be 18.5x, 14.8x, and 12.1x, maintaining the “increase” rating.

Risk warning: 1) Demand fluctuation risk: The textile industry is closely related to the macroeconomic environment and relevant national policies. The downstream textile and garment market demand in the company's industry is affected by multiple factors such as the country's macroeconomy and domestic textile import and export policies. At the same time, factors such as overseas inflationary pressure and European and American customers leaving inventory will also bring uncertainty to the company's manufacturing business. 2) Risk of fluctuations in raw material prices: The company's production costs mainly include cotton, energy, labor, etc. Among them, cotton costs account for about 70% of production costs. In recent years, due to changes in world climate conditions, changes in national policies, and commodity price fluctuations, cotton prices have fluctuated greatly, posing a challenge to the company's raw material cost management. 3) Overseas business risk: The company's overseas business continues to advance, and the scale of overseas assets continues to expand. Due to differences between the countries and regions where overseas subsidiaries are located and China in terms of legal environment, economic policy, market situation, culture, language, customs, etc., such as changes in the economic situation of overseas countries and regions mentioned above and changes in related economic policies, this may adversely affect the company's business situation.