The company released its report for the first quarter of 2024

The company's 24Q1 revenue was 359 million yuan, up 10.4%; net profit to mother was 0.37 million yuan, up 15.4%; after deducting non-return to mother, 0.32 million yuan, up 4.7%, non-operating profit and loss of 5.14 million yuan (23Q1 was 1.64 million), of which 5.51 million was government subsidies (90,000 for 23Q1).

The gross profit margin in Q1 in '24 was 32.8%, up 0.1 pct; the net profit margin was 10.3%, the same increase of 0.4 pct; the sales/management/ R&D/financial expense ratios were 12.7%/7.9%/7.3%/3.8%, respectively, and +4.3pct/+2.4pct/+2.5pct, of which management expenses were 17 million yuan, an increase of 46.5%, mainly due to the additional costs of entering and operating the 24Q1 Ultra High Phase II project; financial expenses of 0.08 billion yuan, up 89.7% Initial interest payment on 24Q1 convertible bonds.

By business segment: (1) The 24Q1 worsted wool business revenue was 189 million yuan, a slight decrease over the previous year. The gross margin was 34.76%, an increase of 3.1 pct. Domestic trade revenue is relatively stable, and foreign trade declined due to the high 23Q1 base. Looking at the worsted wool business as a whole, the company continues to consolidate its leading position and first-mover advantage in the worsted textile industry, increase investment in research and development of differentiated functional fabrics, focus on superior functional fabric products, and increase the added value of products. (2) The clothing business grew significantly in 24Q1, achieving revenue of 130 million yuan, 20% increase, gross profit margin of 33.71%, and 2.23pct. 23H2 orders were delivered one after another in 24Q1, and the customers were mainly large, high-volume and high-quality customers. (3) The 24Q1 ultra-high molecular weight polyethylene business revenue was about 34.6 million yuan, an increase of 194% over the same period. The second phase of the 3,000-ton project was fully put into operation at the end of August 23. Currently, the project is in the climbing phase, and the company continues to promote the upgrading of the first grade rate to the superior yield of the second phase project. (4) The nylon project equipment has entered the factory one after another, and civil construction has been completed. It is expected that some products will be produced before the end of 24, which will open up a new path for the company's performance growth.

Stable cooperation with major customers in the main business, and continuous development of new material categories

B-side sales of the company's traditional business have formed a stable customer base, mainly including enterprises and institutions such as public prosecution and law enforcement, local tax and financial institutions; at the same time, the initial intelligent transformation project was completed, and the digital transformation and upgrading of traditional business not only met the production process requirements of the custom tailoring business, but also realized a flexible organization of mass production and single-batch customized production, meeting the needs of enterprises for large-scale customized production.

In terms of ultra-high molecular weight polyethylene, the manufacturing rate of the company's main products, 800D bulletproof fiber and 1600D cable fiber products, continues to increase. From project construction to stable production of high-quality products, the time period is 2-3 months faster than the average time in the same industry. Currently, the company has made breakthrough progress in the four new product fields of fine denier, high-strength wire, high-concentration color and colored yarn, which is expected to further increase the market penetration rate of ultra-high molecular weight polyethylene fiber. Among them, the performance of high-strength wire and fine denier wire has met market requirements; colored wire and high-concentration wire have mastered basic production processes, and product manufacturing rate and product quality are steadily improving.

Raise profit forecasts and maintain “buy” ratings

The wool-worsted wool and garment industry is the company's traditional dominant business. With the completion of the first fund-raising technical improvement project, the company has further consolidated its industry position and market competitive advantage in the worsted wool and workwear segments. Technological reforms have completed the improvement in the profitability of the company's main business, and the manufacturing rate of ultra-high molecular products continues to increase. We have raised our profit forecast. The net profit for 24-26 is 2.5/2.9/330 million yuan (24-26 years ago was 2.3/2.6/290 million yuan), EPS was 0.7/0.8/0.9 yuan/share, respectively (the value before 24-26 was 0.65/0.72/0.81 yuan/share), and the corresponding PE is 14/12/11X.

Risk warning: risk of price fluctuations of traditional wool raw materials; risk of exchange rate fluctuations; risk of product export; risk of increased market competition, etc.