Incidents:
The company's 2024H1 revenue increased 10.14% year on year to 2.556 billion yuan, net profit to mother increased 4.52% year on year to 0.266 billion yuan, net profit before non-return to mother increased 5.77% year on year to 0.26 billion yuan; single Q2 revenue increased 8.44% year on year to 1.457 billion yuan, net profit to mother increased 3.38% year on year to 0.17 billion yuan, net profit after deducting non-return net profit increased 5.43% year on year to 0.166 billion yuan billion yuan.
Comment:
Sales drive steady growth in the company's revenue. By business, in the first half of 2024, the company's worsted yarn business achieved sales volume of 9285 tons, an increase of 13.3% over the previous year. Contributing revenue also increased 10% to 1.48 billion yuan; sales of the cashmere business increased 39% year-on-year to 1,029 tons, and revenue also increased 19.7% to 0.68 billion yuan; revenue from the wool wool strip business also fell 5.3% to 0.36 billion yuan; and the modified treatment, dyeing and cashmere processing business increased revenue by 44.7% due to order growth. By region, 2024H1's domestic and export sales revenue increased 9.5%/11.5% year-on-year to 1.67/0.88 billion yuan, respectively.
The medium- to long-term capacity expansion plan is progressing smoothly. In terms of worsted yarn, the second phase of the “0.06 million spindles high-grade worsted eco-yarn project” continued to advance in 2023. Among them, the 0.015 million spinning technical improvement project was successfully put into operation. Subsequent 0.015 million ingots are expected to contribute to the increase in the second half of 2024. Vietnam's “0.05 million spindles high-grade eco-yarn textile dyeing and finishing project” is expected to be completed by the end of 2024; the “annual addition of 6,000 tons of wool bars and 12,000 tons of functional fiber modification processing production line project” has been completed, driving an increase in wool wool yarn production capacity by 3,000 tons and an increase in post-finishing production capacity by 6,000 tons.
Profitability has remained generally stable. 2024Q2's gross margin increased by 0.4 pct to 21.6% year on year, and the gross margin of worsted yarn and cashmere was +1.4pct/-2.1pct year on year to 27.1%/14.2%, respectively. The sales/management expense ratio was -0.1 pct/+0.1 pct to 1.7%/2.4%, respectively, and the financial expense ratio increased 1.9 pct to 0.7%, mainly due to an increase in interest expenses and exchange losses. As a result, net profit margin fell 0.7 pct year over year to 10.9%. Overall gross margin for the first half of the year increased by 0.5 pct to 20.8%, and net margin decreased by 0.7 pct to 10.9%.
Maintain healthy operating conditions. By the end of the reporting period, the company's inventory had remained stable at 1.83 billion yuan. The number of inventory turnover days decreased by 13 to 164 days, and inventory turnover accelerated. The turnaround days for accounts receivable and payable remained flat year-on-year /+5 days to 41/40 days. At the end of the period, the company had monetary capital of 0.86 billion yuan. The net cash flow from operating activities was 0.06 billion yuan in the first half of the year, and the cash flow remained healthy.
Investment proposal: As a leading enterprise in the worsted textile industry, the overall operation of Xinao Shares remains steady, and production capacity expansion is expected to be sufficient. The company is expected to achieve a year-on-year increase of 15%/13.8%/11.7% in 2024-2026 to 0.47/0.53/0.59 billion yuan. The corresponding PE is 11/9/8 times. Covered for the first time, giving it a “buy” rating.
Risk warning: international macroeconomic fluctuations; fluctuations in raw material prices; customer inventory removal results fall short of expectations; capacity construction falls short of expectations; profit forecasts and valuations fall short of expectations, etc.