Incident: The company released its 2024 semi-annual report. During the reporting period, it achieved operating income of 3.795 billion yuan, a year-on-year increase of 11.43%, net profit of 0.151 billion yuan, a year-on-year increase of 1228.25%, after deducting 0.152 billion yuan in non-net profit, an increase of 5899.32%; of these, the second quarter achieved revenue of 1.828 billion yuan, a year-on-year increase of 16.74%, a year-on-year decrease of 7.06%, and a net profit of 0.089 billion yuan. 1581.12%, up 43.43% month-on-month.

The total amount of credit impairment and asset impairment losses calculated by the company during the reporting period was $22.54 million.

Viscose filament revenue and sales have increased significantly, and profitability has increased significantly over the same period last year. In the first half of 2024, the company increased sales of viscose filament according to external market conditions, and both domestic and foreign sales increased significantly; internal cost control was strengthened, and costs such as raw materials and energy were reduced. During the reporting period, the company's viscose filament achieved revenue of 1.471 billion yuan, a year-on-year increase of 26.80%, a gross profit margin of 25.46%, and a year-on-year increase of 9.01 pct.

After years of reshuffle in the domestic viscose filament industry, industry concentration increased dramatically. By the end of 2023, there were only four domestic manufacturers, with Xinxiang chemical fiber production capacity of 0.09 million tons/year, accounting for nearly 40% of the domestic market, with strong market control. After the Russian-Ukrainian conflict broke out, European viscose filament companies faced high energy cost pressure and their competitiveness declined, and domestic viscose filament companies are expected to continue to seize global market share.

Guochao culture has greatly boosted demand for viscose filaments, and tightening supply and demand are driving up prices. In recent years, with the revival of Guochao culture and traditional culture, Hanfu has become more and more popular among young people. The size of the domestic Hanfu market has continued to rise, reaching 14.47 billion yuan in 2023, an increase of 15.4% over the previous year, and a compound annual growth of 33.8% since 2019. Hanfu sales have risen sharply since this year. Viscose filament is the first choice for making medium and high-end horse mask skirts, and the rapid increase in demand for Hanfu will also greatly boost demand in the domestic viscose filament market.

Since the end of March, domestic viscose filament companies have raised their prices several times. Due to limited supply in the industry and strong downstream demand, the relationship between supply and demand in the industry continues to tighten, and further price increases are expected in the future.

The price of spandex is at the bottom of recent years, and there are expectations for a marginal improvement in the supply and demand relationship. In the first half of 2024, the company's spandex achieved revenue of 2.143 billion yuan, a year-on-year increase of 1.72%, a gross profit margin of 2.05%, and a year-on-year decrease of 0.05 pct. Currently, the market price of spandex is basically at the bottom. In recent years, leading domestic spandex companies have continued to expand production, some small and medium-sized enterprises have withdrawn, and industry concentration has increased markedly. Currently, the spandex industry is planning to build a lot of new production capacity, but due to the sharp drop in spandex prices, there is great uncertainty about the actual commissioning. It is expected that the industry's new effective production capacity will slow down after 2024, and there is a marginal improvement in the supply and demand relationship of spandex.

Maintain an “overweight” investment rating. The company's net profit for 2024-2026 is estimated to be 0.407 billion yuan, 0.566 billion yuan, and 0.716 billion yuan, EPS 0.24, 0.33, and 0.42 yuan respectively. The PE corresponding to the current stock price is 16.1, 11.5, and 9.1 times, respectively, maintaining the “increase in holdings” investment rating.

Risk warning: falling product prices, fluctuating raw material prices, downstream market demand falling short of expectations.