Non-net profit in the first half of the year increased 5.77% year over year. In the first half of the year, the company achieved revenue of 2.56 billion yuan, a year-on-year increase of 10.1%, net profit of 0.266 billion yuan, a year-on-year increase of 4.5%, a year-on-year increase of 5.77%, a gross profit margin of 20.8%, a year-on-year increase of 0.50pct, a year-on-year decrease of 0.56pct, a year-on-year decrease of 0.42pct. The sales/management/R&D/finance expense ratios were 1.7%/2.7%/ 2.3%/1.0%, the total 4 fees increased 1.63pct year over year.

The second quarter achieved revenue of 1.46 billion yuan, up 8.44% year on year, net profit up 0.17 billion yuan year on year, up 3.38% year on year, net profit without return to mother 0.166 billion yuan, up 5.43% year on year, gross profit margin 21.5% year on year, up 0.42 pct year on year, net profit margin 11.7% year on year, down 0.57 pct year on year after year, net profit margin of 11.4% year on year, down 0.33 pct year on year. Sales/management/ R&D/finance expense ratios were 1.7, respectively %/ 2.4%/2.3%/0.7%, the total 4 fees increased 1.84pct year over year.

While raw material prices are declining, the gross margin of worsted spinning is still increasing, showing the competitiveness of the industry. The company's wool spinning business had revenue of 1.48 billion yuan in the first half of the year, up 10.0% year on year, sales volume of 9285 tons, up 13.3% year on year, gross profit margin of 27.1%, up 1.40 pct year on year. As a business accounting for 58% of the company's revenue, its steady revenue and gross profit growth contributed to the company's main profit. Raw material prices declined slightly in the first half of the year. The average price in the first half of the year fell 14% year on year, down 10% year on year in the second quarter, and 1.5% month on month. We believe that under the downward environment of the industry, the company's gross margin increased in both the 1st and 2nd quarters, which indicates that the company provides customers with quality services in terms of products, quality, and delivery, thus gaining higher recognition in weak markets.

Incentive fees and exchange losses affect profit margins. The company's gross margin both increased slightly in the first half of the year and the second quarter of a single quarter, while deducting non-net interest rates declined slightly. The incentive fee for additional shares was 7.2 million yuan during the fee split, accounting for 0.28% of total revenue and 9.33 million yuan in exchange losses, accounting for 0.36% of total revenue. Compared with the exchange income of 23.14 million yuan for the same period last year, accounting for 1.00% of revenue, we think the company showed a steady upward trend on the business side. The increase in incentive fees and changes in exchange rates caused the net profit margin not to synchronize with gross margin Increase. In the future, as incentive costs are reduced and the exchange rate fluctuates in reverse, the company's apparent net profit margin will further reflect actual operating conditions.

Expand overseas bases in Vietnam to cope with the complex international environment. The international political and economic environment is becoming complex. The global monetary policy is divided, the geopolitical environment is tightening, and trade protectionism is on the rise. Various instabilities and uncertainties will limit the improvement of international market demand. Maintaining a stable and orderly operation of the global textile supply chain is also facing a major test. The company is building a “0.05 million spindles high-end eco-worsted yarn textile dyeing and finishing project” in Vietnam. The first phase of 0.02 million is expected to be completed and put into operation one after another from the end of this year to 2025.

Risk warning. The risk of sharp fluctuations in raw material prices, the risk of exchange rate fluctuations, the risk of downstream customer order fluctuations, the risk of new customer expansion falling short of expectations, and the risk of changes in international trade policies.