Deeply involved in sports shoe manufacturing and building high barriers on the racetrack, operating efficient rate control, and excellent profits steadily increasing. Huali Group is the world's leading professional manufacturer of sports shoes. It has been deeply involved in the main business for decades, and has accumulated rich experience in shoe development, design, production and sales related business, as well as customer resources for many leading downstream sports brands. Furthermore, under scale effects and efficient management, the company has excellent sales and management cost control, while continuously increasing R&D investment to improve operating efficiency, and long-term profit growth is guaranteed.
The development of the sports footwear industry combined with the recovery in customer demand to replenish stocks is expected to drive up the company's orders. Looking at the demand side of order volume, the company's order repair is mainly driven by three aspects: 1) the development of the sports footwear market; 2) the end of the downstream brand storage cycle drives the order volume to switch from left to right; 3) the continuous increase in order demand for brands with good growth potential. Looking at order volume and supply side, the company announced that 2 new shoe manufacturing plants will be put into operation in 2024Q1. The commissioning of the new plants will release production capacity and is expected to meet the needs of new customers. The company's future plans to launch new plants are stable. Under the “sales to determine production” model, the capacity utilization rate and production and sales rate remain stable, and long-term performance can be expected to increase.
The operation management industry is leading, and customer and product structure upgrades have boosted ASP's rise. The company's sales and management rate remains around 4%-6% all year round. Compared with other companies in the same industry, the company's focus on main business, large-scale operation and rational use of location advantages to bring efficient operation management, help the company efficiently control various rates and drive overall profit upward; in addition, the customer and OEM product structure determine the average price of product sales. In addition, the share of high unit price products and high-quality customers within the company has continued to rise in recent years, driving the company's product ASP to continue to rise.
Profit forecasting and valuation: First coverage, giving a “buy” rating. As a leading sneaker foundry company in China, the company has room for long-term improvement in valuation due to steady growth in industry demand, high gross profit under large-scale and global operation, and expectations of both product ASP and production energy prices. We expect the company's net profit for 2024-2026 to be 38.24/44.93/5,069 billion yuan respectively. We selected Fengtai, Juyang Industrial, and Ruhong as comparable companies with similar business layouts. The average PE in 2024 was 23.0X, and Huali Group's corresponding PE was 20.7X in 2024. Considering that the company's profitability is superior to comparable companies under scale and globalization, leading customers have strong stickiness, and have medium- to long-term volume and price increases logic, the first coverage was given a “buy” rating.
Risk warning: risk of changes in the international situation; risk of rising labor costs; risk of customer demand recovery falling short of expectations; risk of choosing comparable companies across markets.