Introduction to this report:
The Q2 performance was in line with expectations. Wool-worsted yarn performed well, the profitability of cashmere yarn continued to improve, and there was strong certainty about annual performance growth.
Key points of investment:
Investment advice: As a global leader in wool spinning, the company clearly lays the foundation for growth. The wool broadband strategy opens the ceiling, releases cashmere production and sales, and improves profits. Considering exchange rate fluctuations in 2024 and the impact of equity incentive costs, we lowered the 2024-2026 EPS forecast to 0.62/0.73/0.84 yuan (0.64/0.75/0.84 yuan before adjustment, respectively). Considering that the company is a global leader in wool yarn, the PE was given 14 times higher than the industry average in 2024, maintaining a target price of 9.23 yuan and a “gain” rating.
Q2 The performance was in line with expectations. Excluding exchange and equity incentive expenses, the performance achieved a high increase. H1's revenue was 1.457 billion yuan, up 8.4% year on year, in line with expectations; net profit to mother was 0.17 billion yuan, up 3.4% year on year, in line with expectations; management expense ratio was 2.41%, up 0.09pct year on year, mainly due to increased equity incentive expenses, financial expenses were 0.01 billion yuan (2023Q2 was -0.016 billion yuan), mainly due to exchange earnings of about 0.02 billion yuan in 2023Q2, compared to 2024Q2 Exchange gains and losses have basically leveled off, and interest expenses have increased due to an increase in short-term loans (for new production capacity construction); excluding the impact of exchange and equity incentive expenses, we estimate that the Q2 company's net profit increased by 20%.
The supply of H1 wool yarn was in short supply, and the profitability of Q2 cashmere yarn improved month-on-month. 1) Wool yarn: H1 revenue was 1.479 billion yuan, an increase of 10% over the previous year. Production capacity was in short supply. The company actively adjusted the order structure and prioritized high-margin orders, driving H1's gross margin to increase by 1.4 pct. 2) Cashmere yarn: H1 revenue was 0.677 billion yuan, up 19.65% year on year; the merger of 2023H2 into cashmere assets led to an increase of 0.03-0.04 billion yuan in annual depreciation, so H1 gross margin decreased by 2 pct year on year, but the quarter-on-month period was still improved along with increased capacity utilization and increased cost control measures. 3) Wool: H1 revenue was 0.361 billion yuan, a year-on-year decrease of 5.32%, mainly due to the decline in wool prices.
Since Q3, orders have continued to be steady, and we look forward to the commissioning of new production capacity. Q3 So far, the company has continued to receive orders for wool yarn and cashmere yarn. The delivery time for white yarn is over 70 days, and the delivery time for colored yarn is over 50 days, which is significantly higher than previous years. The current delivery period means that orders for Q3 are already full. Q4 is a low season. The expected risk of order demand is low, and the annual performance growth is more certain. Furthermore, Vietnam will begin trial production in Q4, and the Ningxia New Zealand production capacity construction plan continues to advance, which is expected to ease the company's shortage of production capacity.
Risk warning: Production capacity expansion falls short of expectations, large fluctuations in raw material prices, etc.