Key points of investment
The company announced its 2024 mid-year report: 24H1 revenue of 2.556 billion yuan/yoy +10.1%, net profit to mother of 0.266 billion yuan/yoy +4.51%. The lower net profit growth rate was mainly due to changes in exchange profit and loss. On a quarterly basis, 24Q1/Q2 revenue was 1.1/1.46 billion yuan, +12.5%/+8.4%, respectively, and net profit to mother was 96.05 million/0.17 billion yuan, respectively, +6.6%/+3.4% year over year, respectively.
The growth of wool and cashmere is mainly driven by volume growth. 1) By business, 24H1 worsted yarn/cashmere/wool yarn revenue was +10.0%/+19.6%/-5.3%, respectively, accounting for 58%/26%/14%, respectively. Among them: ① wool worsted yarn: 24H1 sales/average price was +13.3%/-2.9%, respectively. The increase came from the continued promotion of the broadband strategy, and the price pressure was mainly due to the year-on-year decline in Australian wool prices (24H1 Australian wool average price fell by about 14% year on year); ② cashmere: 24H1 sales/average price fell by +39.0%/-13.9%, respectively. The cashmere production capacity utilization rate steadily increased, and the average price declined due to the increase in the blending ratio of the cashmere business (24Q2 Ningxia) Australian pure cashmere accounts for 45%, 23Q2 50%). ③ Wool wool strips: Revenue declined due to falling prices. 2) By region, 24H1 domestic/export sales were +9.4%/+11.5%, respectively, and revenue accounted for 65%/35% respectively. Export sales grew slightly faster than domestic sales.
Gross margin remained flat and increased slightly, expense ratios increased, and net profit margins declined slightly. 1) Gross profit margin: 24H1 +0.5pct to 20.8%, with gross margins of wool spinning yarn/cashmere yarn +1.4/-2.1pct year on year, respectively. The increase in gross margin of woolen yarn was mainly due to lower raw material gross prices to promote cost savings. The decline in cashmere wool margin was mainly due to the increase in related depreciation and amortization costs due to the acquisition of cashmere assets in 23, compounded by intense market competition. 2) Expense rate for the period: 24H1 +1.63pct year-on-year to 7.67%, mainly due to changes in exchange profit and loss, the financial expense ratio increased. 3) Net interest rate to mother: Combined with a gradual increase in government subsidies and VAT, the 24H1 net interest rate to mother was -0.56pct year-on-year to 10.41%.
Actively promote production expansion to meet market demand. The second phase of 24H1's “0.06 million ingot high-grade worsted eco-yarn project” involved 0.015 million spinning equipment; at the same time, the subsidiary New Australia and Vietnam's “0.05 million high-grade worsted eco-yarn textile dyeing and finishing project” is progressing steadily. It is expected that the first phase of 0.02 million ingot production capacity will be completed and put into operation one after another from the end of 24 to 25; the subsidiary “0.02 million spun high quality worsted wool (velvet) yarn construction project” is scheduled to be put into operation on 25H2.
Profit forecast and investment rating: The company is the leading producer of wool spinning yarn in China. 24H1 production and sales are strong. The increase in wool and cashmere volume led to steady revenue growth. The decline in Australian wool prices led to a decline in wool business ASP, a decline in cashmere ASP due to market expansion strategies, and a year-on-year decline in net profit and loss due to changes in exchange profit and loss. Considering that gross prices are currently still low, we slightly lowered net profit to mother in 24-26 from 0.464/0.529/0.608 billion yuan to 0.444/0.515/0.6 billion yuan, and the corresponding PE is 10/9/8X, maintaining the “buy” rating.
Risk warning: Market demand fluctuates, raw material prices fluctuate greatly, and production capacity expansion falls short of expectations.