Core views
24H1 achieved revenue of 2.556 billion yuan/ +10.1%; net profit due to mother 2.6.6 billion yuan/ +4.5%; 24Q2 achieved revenue of 1.457 billion yuan/ +8.4%; net profit to mother was 1.7 billion yuan/ +3.4%. In terms of profitability, 24H1's gross profit margin was 20.84% /+0.50 pct, net profit margin 10.88% /-0.68pct; 24Q2 company's gross profit margin was 21.55% /+0.42pct, and net profit margin was 12.24% /-0.67pct. By business, revenue from 24H1 worsted yarn, cashmere, wool, and finishing business was +10.0%, +19.6%, -5.3%, and +44.7%, respectively. Wool worsted yarn double-digit growth, driving high growth in post-finishing business. The cashmere business capacity utilization rate climbed rapidly, depreciation and financial costs put pressure on profits. The wool business was dragged down by falling raw material prices. We are waiting for the bottom of wool prices to rise and profit to improve.
occurrences
The company released its 2024 semi-annual report. 24H1 achieved revenue of 2.556 billion yuan/ +10.1%; net profit due to mother 0.266 billion yuan/ +4.5%; net profit after deducting non-attributable net profit of 0.26 billion yuan/+5.8%; and net cash flow from operating activities of 0.063 billion yuan/year on year. The basic EPS was 0.37 yuan/share, up 2.8% year on year; the weighted average ROE was 8.14% /-0.19pct.
Looking at a single quarter, 24Q2 achieved revenue of 1.457 billion yuan/ +8.4%; net profit to mother was 0.17 billion yuan/ +3.4%; net profit after deducting non-return to mother was 0.166 billion yuan/ +5.4%.
Brief review
By business: Double-digit growth in worsted yarn in the first half of the year led to a high increase in post-finishing business, putting pressure on profits in the cashmere and wool business.
1) Wool worsted yarn business: 24H1's worsted yarn business achieved revenue of 14.7.9 billion yuan/ +10.0%, accounting for 57.9% /-0.1pct of revenue, gross profit margin of 27.09% /+1.40pct, sales volume of 9285 tons/ +13.3%. In the first half of the year, the company's wool-worsted yarn production and sales were booming. Revenue and sales both increased by double digits. Although the average price declined slightly year on year, raw material costs were low, and gross margin increased year on year. Affected by the long delivery period, orders declined slightly in Q3. The company is guided by market demand, implements a broadband strategy, and develops new tracks in new fields. It is expected to seize business opportunities under consumption downgrade and accept cost-effective brand orders in an asset-light manner.
2) Modification treatment, dyeing and cashmere processing: 24H1 achieved revenue of 0.022 billion yuan/ +44.7%, gross profit margin of 30.83% /+1.24pct. The scale of worsted yarn and external orders has expanded, driving the rapid development of post-finishing business, good cost control, and increased profit levels.
3) Cashmere: 24H1 achieved revenue of 0.677 billion yuan/ +19.6%, gross profit margin 14.21%/-2.06pct, sales volume 1,178 tons/ +40.8%. Among them, the subsidiary Ningxia Xinao Cashmere (holding 70% shares) earned 0.533 billion yuan/ +25.2%, net profit of 33.55 million/ -9.6%, net interest rate of 6.8% /-2.6 pct, and sales volume of 1,029 tons/ +39.0%. Cashmere in New Zealand was affected by depreciation and rising financial costs. Profits declined year on year, but the capacity utilization rate continued to rise, and the product structure was continuously optimized. The decline in the share of pure cashmere led to a month-on-month increase in gross margin in 24Q2. The subsidiary Duncan UK (holding 100% of the shares) earned 0.16 billion yuan/ -0.1%, net profit 2.58 million/ -61.0%, and a net interest rate of 2.6%/-4.1pct. Profits were mainly pressured by declining demand and higher costs in overseas high-end markets.
4) Wool wool strip: 24H1 achieved revenue of 0.361 billion yuan/ -5.3%, gross profit margin of 5.45% /-0.30pct. Affected by the drop in the price of wool raw materials, gross margin is under pressure, waiting for the inflection point of wool prices.
Project construction is progressing steadily, and the global manufacturing capacity layout is being implemented. By the end of '23, the company's wool-worsted yarn production capacity was about 0.13 million spindles. Currently, the production capacity mainly revolves around the wool-worsted yarn business layout: ① The second phase of the “0.06 million spindles high-grade worsted eco-yarn project”: 0.015 million spindles have been put into operation one after another on 24H1. ② Subsidiary company New Australia Vietnam “0.05 million spindles high-grade worsted eco-yarn textile dyeing and finishing project”: the first phase of 0.02 million ingots is expected to be completed from the end of 24 to 25 years and put into operation one after another.
③ The subsidiary started a 0.02 million spindle high quality worsted wool (velvet) yarn construction project in Yinchuan, New Australia, and is scheduled to be put into operation one after another in the second half of '25.
Gross margin rebounded year on year, and increases in equity incentive expenses, interest expenses, and exchange losses affected net profit performance. 24H1's overall gross profit margin was 20.84% /+0.50 pct, net profit margin 10.88% /-0.68pct; 24Q2 company gross profit margin 21.55% /+0.42pct, net profit margin 12.24% /-0.67pct. On the expense side, 24H1's sales expense ratio was 1.68% /-0.06pct, the management expense ratio was 2.69% /+0.04pct, the R&D cost rate was 2.33% /-0.02pct, and the financial expense ratio was 0.97% /+1.68pct (financial expenses 24.84 million yuan, an increase of 41.23 million yuan over the same period of 23H1, mainly due to increased bank interest expenses and increased exchange losses, including 23.22 million yuan/ +63% net exchange losses 9.33 million yuan, 23H1 net exchange gain of 23.14 million yuan for the same period). 24Q2 The company's sales expense ratio is 1.65% /-0.09pct, the management expense ratio is 2.41% /+0.09pct, R&D expenses rate is 2.32% /-0.10pct, and the financial expenses ratio is 0.71% /+1.93pct.
Profit forecast: We expect the company's revenue for 2024-2026 to be 4.92, 5.5, and 6.11 billion yuan, respectively, up 10.9%, 11.7%, and 11.2% year-on-year; net profit to mother will be 0.445, 0.502, and 0.561 billion yuan, respectively, up 10.2%, 12.6%, and 11.9% year-on-year; corresponding to the latest P/ E, 11.2x, 9.9x, and 8.9.x, maintaining a “buy” rating.
Risk warning: 1) Risk of fluctuations in raw material prices: The main raw materials of the company's products are wool, cashmere, etc., and material costs account for a high proportion of the main business costs. If raw material prices fluctuate greatly in the future, the company is unable to transfer the risk of raw material price fluctuations downstream in a timely manner, and there will be a risk that gross margin will decline and performance will decline due to fluctuations in raw material prices. 2) Production capacity construction progress falls short of expected risk: Subsidiaries New Australia and Vietnam 0.05 million high-grade worsted eco-yarn textile dyeing and finishing projects are under construction, and are gradually entering the commissioning stage. Falling production progress as expected will affect the company's revenue growth. 3) Downstream demand falls short of expectations risk: The sales volume and price of the company's products depend on the demand situation in the downstream market. If downstream demand falls short of expectations, it will affect the company's order volume and product price, which in turn affects the company's revenue and gross margin level.