Key points of investment
The company released its 2024 semi-annual report. The company's revenue for the first half of 2024 was +10.1% to 2.56 billion, net profit to mother +4.5% to 0.27 billion, after deducting +5.8% to 0.26 billion; the company's revenue for the second quarter was +8.4% to 1.46 billion, net profit to mother +3.4% to 0.17 billion, and net profit from non-return to mother +5.4% to 0.17 billion.
Production and sales of the worsted yarn business were strong in the first half of the year. Exchange fluctuations and equity payments increased. The company released the 2024 semi-annual report. The company's revenue for the first half of 2024 was +10.1% to 2.56 billion. Looking at the split business, the woolen yarn business revenue was +10.0% to 1.48 billion, achieving sales volume of 9,285 tons, an increase of 13.33% over the previous year; cashmere business revenue +19.6% to 0.68 billion. Capacity utilization increased steadily, and self-operated sales increased 19.23, respectively. %, 39.01%
From a profitability perspective, the gross margin of the company's worsted yarn business in the first half of the year was +1.4pp to 27.1%; the gross margin of the cashmere business was 2.1pp to 14.2%. From an expense perspective, in the first half of 2024, the company's sales costs/management expenses/R&D expenses were +6.3%/+11.6%/+9.3% to 42.99 million/68.78 million/59.59 million. Sales expenses increased due to an increase in sales scale; the increase in management expenses was mainly due to an increase in share payments included in management expenses due to the company's stock incentive plan; financial expenses increased 41.23 million due to increased interest on bank loans and exchange rate changes. In this context, the increase in expenses was slightly higher than the growth rate of revenue, resulting in a slower growth rate of net profit attributable to mother than the growth rate of revenue.
Production capacity expansion is progressing steadily. Vietnam's production capacity is expected to be put into operation one after another in 2025 in the first half of 2024. The company is steadily advancing project construction, speeding up the construction of a global production capacity layout, and various engineering projects are progressing smoothly. The 15,000 spindle equipment involved in the second phase of the “60,000 spindles high-grade worsted eco-yarn project” has been put into operation; the subsidiary's “50,000 spindles high-grade worsted eco-yarn textile dyeing project” is progressing steadily according to the plan. The first phase of the 0.02 million spinning project is expected to be completed and put into operation one after another from the end of this year to 2025. After the project is put into operation, it will help enhance the company's overall competitiveness and risk resistance level, and reserve production capacity for medium- to long-term company growth.
Profit forecasting and valuation
We expect the company's revenue to increase 14%/12%/11% year on year to 5.05/5.64/6.28 billion yuan in 2024/2025/2026, and net profit to mother will increase 11.7%/13.6%/12.9% year on year to 0.45/0.51/0.58 billion yuan, corresponding to current PE 10X/9X/8X, respectively. As an undervalued, high-dividend, and high-growth target, we believe that under the guidance of broadband strategy development, the share of industry leaders is expected to increase at an accelerated pace, have great potential, and maintain a “buy” rating.
Risk warning: downstream demand pressure; capacity expansion falls short of expectations;