Key points of investment

The company released its 2024 quarterly report. In a single quarter, it achieved revenue/net profit attributable to mothers/net profit without return to mother +14.8%/+45.3%/+46.1% to 80,000/75.23 million, and net cash flow from operating activities increased 1066.6% year-on-year to 94.31 million.

Net profit to mother surged 45.3% in 24Q1, leading growth

In Q1 2024, the company achieved revenue of 80 billion, up 14.8% year-on-year from 2023Q1 and 10.7% from 2023Q1; achieved net profit of 77.93 million in a single quarter, 45.3% year-on-year increase over 2023Q1, and 19.5% increase over 2023Q1; and achieved deducted non-net profit of 75.23 million in a single quarter, up 46.1% from Q1 2023, up 19.8% from 202Q1. The single quarter's performance hit a record high of nearly three years.

The net cash flow from operating activities increased by 1066.6% in the current period compared to the same period of the previous year, mainly due to a large increase in cash received by the company from selling goods and providing services during the reporting period compared to the same period of the previous year, which is highly consistent with performance.

Profitability continued to improve. The net profit margin for the single quarter hit a new high in nearly three years. 2024Q1 achieved a gross sales margin of 37.9%, up +0.2pp from the same period in 2021; the net profit margin for the single quarter was 9.85%, up 2.3 pp year on year, and 0.7 pp compared to 202Q1. The profitability of the single quarter reached a new high in Q1 in nearly three years.

We believe the reasons include: 1) the scale effect brought about by continued order growth; 2) the number of financial expenses decreased by 119.58% compared to the same period of the previous year. On the one hand, due to the international exchange rate, the reporting period was net exchange gain, while the same period of the previous year was net exchange loss; on the other hand, interest expenses during the reporting period decreased compared to the same period of the previous year, and interest income increased compared to the same period of the previous year. 3) The amount of other income for the current period increased by 305.49% over the same period of the previous year, mainly due to an increase in VAT deductions during the reporting period.

The high dividend characteristic is still prominent

In 2023, the company plans to pay a cash dividend of 530 million yuan for the full year, net profit of 560 million yuan, and a dividend payment ratio of 94.3%, which is a significant increase from 74.3% in the same period last year. Since its listing in 2004, the company has accumulated dividends 19 times. The dividend payment rates for the past three years were 94.3%/78.3%/88.9%, respectively, and continued to share the company's growth dividends with shareholders.

Profit Forecast and Valuation:

As one of the largest and most comprehensive apparel accessories companies in the world, the company has been in the field of accessories production for more than 30 years and has actively sought change over the past ten years. The results have entered a period of releasing volume dividends, and it already has the ability to challenge YKK upward.

We raised our profit forecast. We expect revenue to increase 15%/16%/16% to 45.0/52.0/6.04 billion yuan in 24/25/26, respectively, and net profit to mother of 6.5/7.7/90 billion yuan, up 17%/18% year on year. The current market value corresponds to PE of 22X/19X/16X. The company has a clear competitive advantage in the field of accessories production, and continues to recommend and maintain the “buy” rating.

Risk warning: risk of raw material price fluctuations; production safety risk;