As a global leader in wool spinning, the company has entered the broadband strategy and global development stage. It continues to accelerate the deployment of new domestic and Vietnamese production capacity, develop a wider variety of yarn products with greater functionality and a wider range of application scenarios, and continues to seize domestic and foreign wool market share with its advantages of low cost, high quality, multiple categories and excellent service. The company's net profit scale from 2024 to 2026 is estimated to be 0.45 billion yuan, 0.526 billion yuan, and 0.591 billion yuan, respectively. The current market capitalization corresponds to 24PE12.5X and 25PE11X, maintaining a highly recommended rating.

Demand in the wool spinning industry is gradually recovering, and small and medium-sized production capacity is being cleared at an accelerated pace.

1) Demand side: Overseas demand trends are improving. In March, April, and May 2024, the year-on-year growth rates of China's wool raw materials and products were -24%, -10%, and -2%, respectively. The decline narrowed month by month, and the export performance of upstream intermediate goods such as yarn was better than that of finished wool products. The application of wool clothing in functional scenarios such as outdoor sports has increased significantly, and demand for wool consumption is diversifying.

2) Supply side: The revenue and profit levels of the wool spinning industry gradually recovered. From January to November 2023, the revenue of wool textile enterprises increased 9% year-on-year, and the average profit margin of the industry recovered to 4.0% (average profit margins for 2020-2022 were 1.9%, 3.8%, and 3.7%, respectively). The polarization of the industry is intensifying, the clearance of small production capacity is accelerating, and leading enterprises with scale, technology, and financial strength are expected to gain a larger share.

3) Gross price: Wool prices have been at a historical low for nearly 3 years, mainly due to weak downstream demand. As the supply-side loss-making herders continue to withdraw, gross prices will be supported. As demand improves in the future, gross prices will be resilient.

New Zealand is deeply involved in integrated wool textiles and has entered a new stage of multi-category and global development. The company was founded in 1991-2000, and an integrated industrial chain from wool processing to spinning and dyeing was formed in 2001-2010. In 2011-2019, a number of production expansion projects began with the company's listing, accelerating production expansion while also focusing on improving quality and efficiency. Since 2020, the company has adjusted its strategy into its fourth decade: ① broadband strategy to develop the cashmere business; ② management renewal, adjustment of sales strategies, and strengthening sales assessment incentives; ③ settling in Vietnam to launch a global production capacity layout; ④ equity incentives to increase the enthusiasm of management and key employees.

Future growth logic: expand production capacity & develop brands & expand products and services to achieve the goal of seizing share.

1) Increase global production capacity and seize market share. The company has continued to expand production since its launch at the end of 2014, and has a timely and accurate grasp of the pace of production capacity investment; the per capita income generation and profit generation level is at the top of yarn manufacturers, leading production efficiency. Up to now, an annual production capacity of 0.15 million spindles of wool worsted yarn is expected. In the construction of the New Zealand, Australia and Vietnam project, the global layout is beginning to show. It is expected to seize competitors' share and increase market share with the advantages of low cost and scale expansion.

2) Multi-channel marketing network layout to enhance brand awareness in New Zealand and Australia. The company has a complete global marketing network and a mature market operation system. In 2023, New Australia upgraded its brand image, strengthened brand marketing through multiple channels, and enhanced brand influence among terminal consumers. Designer contests have been held for 10 consecutive years, enabling designers to learn about New Australian brands since they were students.

3) Innovative products and quality services to enhance competitive advantage. In terms of products, the company is guided by market demand, opening up new fields such as woven yarn and outdoor sports yarn to increase the added value of products, and at the same time drive order growth with diversified supply. In terms of service, it has won the favor of high-end brand customers at home and abroad with high-quality services such as personalized customization, small-batch quick response, and on-site technical support.

4) Cashmere is the second growth curve, and blended products further broaden the market. In 2020-2023, with the continuous improvement of production capacity utilization and the reform and efficiency of various parts of the business after the acquisition, the company's cashmere business revenue increased from 0.196 billion yuan to 1.222 billion yuan, accounting for 8.6% to 27.5% of the company's total revenue. In the future, New Zealand and Australia will further expand the cashmere market through differentiated competition through more cashmere-blended products.

Profit forecast and investment suggestions: The company continues to accelerate the deployment of new domestic and Vietnamese production capacity, develop a wider variety of yarn products with more functionality and a wider range of application scenarios, and continue to seize domestic and foreign wool spinning yarn market share with its advantages of low cost, high quality, multiple categories and excellent service. The company's revenue from 2024 to 2026 is estimated to be 5.031 billion yuan, 5.722 billion yuan, and 6.376 billion yuan, respectively, with year-on-year growth rates of 13%, 14%, and 11%, respectively. Net profit to mother was 0.45 billion yuan, 0.526 billion yuan, and 0.591 billion yuan, respectively, with year-on-year growth rates of 11%, 17%, and 12%, respectively. The current market value corresponds to 24PE12.5X and 25PE11X, maintaining a highly recommended rating.

Risk warning: risk of large price fluctuations of raw materials such as wool; risk of capacity expansion falling short of expectations; risk of exchange rate fluctuations, etc.