Description of the event
The company achieved revenue, net profit to mother, and deducted non-net profit of 2.56, 0.266, and 0.26 billion yuan in 2024H1, with year-on-year changes of 10.1%, 4.5%, and 5.8%. Among them, Q2 achieved revenue, net profit attributable to mother, and deducted non-net profit of 1.46, 0.17, and 0.166 billion yuan, with year-on-year changes of 8.4%, 3.4%, and 5.4%. The Q2 performance is expected to be at the upper end of expectations, mainly due to continued increase in gross margin at a high base, and boosted by increased other earnings and reduced inventory impairment losses.
Incident comments
The gross margin of worsted spinning continued to increase under a high base, and sales in the cashmere business increased. 2024H1, the company's overall revenue increased 10.1% year over year. Among them, worsted yarn/cashmere/wool stripe was +10%/+20%/-5%, respectively, and gross margin was +1.4%/-2.1%/-0.3% yoy to 27.1%/14.2%/5.4%, respectively. Looking at specific product categories, wool-worsted yarn H1 sales volume was +13.33%. The average price declined year-on-year, but the decline was far less than the decline in raw material prices, mainly due to continuous optimization of the product structure, and gross margin continued to increase year-on-year. Cashmere H1 sales volume was +39.01% year-on-year, and the average price decline is expected to be mainly due to product restructuring. The year-on-year decline in gross margin is mainly due to cashmere assets combined with increased depreciation costs. If this effect is excluded, gross margin is expected to increase year-on-year along with increased utilization of cashmere production capacity. The 5% year-on-year decline in revenue from the wool business was mainly due to a 14% year-on-year decline in the price of wool, the H1 raw material, while sales increased year-on-year along with capacity expansion, and gross margin was basically stable year on year.
Q2 Net interest rate declined due to a year-on-year increase in financial expense ratios, and increased other earnings & reduced inventory impairment losses boosted profits.
2024Q2's gross margin was +0.4pct to 21.5% year-on-year, mainly driven by an increase in the gross margin of the wool business. The cost ratio for the period was +1.84pct to 7.09% year over year, with sales/management/R&D/finance expenses rates of -0.09/+0.09/-0.10/+1.93pct to 1.65%/2.41%/2.32%/0.71%, respectively. The overall sales, management and R&D expenses ratio were steady, and the year-on-year increase in financial expense ratios is clearly expected to be mainly affected by the increase in interest on cashmere asset purchases and the high exchange earnings base for the same period last year. In addition, the company's Q2 other earnings increased by 6.77 million year-on-year mainly due to the year-on-year increase in value-added tax deductions; in Q2, when the price of wool raw materials was relatively stable, inventory price drop losses and contract performance cost impairment losses decreased by 6.04 million year-on-year.
Based on the above, the net interest rate/deducted non-net interest rate of 2024Q2 company was -0.6/-0.3pct to 11.7%/11.4% year-on-year.
Outlook: Profit elasticity is expected to be excellent under the Q3 low base, and continued expansion under a long-term broadband strategy. The bottom of wool prices fluctuates slightly in the short term and gross margin is expected to rise steadily under the optimization of worsted yarn product structure. Q3 is compounded by the low profit base caused by the fall in wool prices in Q3 last year, and the company's H2 performance is expected to accelerate sequentially. Long-term companies continue to drive growth by expanding production capacity+expanding categories under the broadband strategy, and leaders continue to gain market share. The company's net profit for 2024-2026 is estimated to be 0.45, 0.52, and 0.59 billion yuan, +12%, +14% year-on-year, and the PE corresponding to the current price is 10, 9, and 8X.
Furthermore, the company's 2023 cash dividend ratio was 54.2%, corresponding to the 2023 dividend rate of 4.7%. It also has deterministic growth, high dividends, and undervaluation attributes, maintaining a “buy” rating.
Risk warning
1. Production capacity expansion falls short of expectations;
2. The recovery of terminal clothing retail fell short of expectations;
3. Prices of raw materials fluctuate greatly;
4. Exchange rate fluctuations.