1H24 results are in line with our expectations

The company achieved total operating income of 17.661 billion yuan in the first half of 2024, an increase of 6.33% over the previous year; net profit to mother was 0.491 billion yuan, or -26.18%. 1H24 fair value change losses and credit impairment losses were 0.59 million yuan and 42 million yuan respectively. The negative cash flow from operating activities was mainly due to business growth, the balance of accounts receivable increased, and payment payments increased compared to the same period last year. Looking at a single quarter, the company achieved revenue of 9.566 billion yuan (QoQ +18.16%) and net profit to mother of 0.278 billion yuan (QoQ +30.67%) in 2Q24.

By business, the import and export trade business of textiles, clothing, toys, etc. achieved revenue of 16.524 billion yuan, +14.12% year over year, gross margin of 14.85%, -0.57 pcts year on year; the chemical business achieved revenue of 1.052 billion yuan, -49% year on year, gross margin of 19.54%, and -1.36 pcts year on year. The subsidiary Ruitai New Materials 1H24 achieved revenue of 1.052 billion yuan, a year-on-year ratio of -49.13%, and realized net profit to mother of 0.108 billion yuan, or -61.47% year-on-year. The profit level of the company's 1H24 electrolyte sector is superior to the industry average. The main textile trade business is growing steadily, and the performance is in line with our expectations.

Development trends

The main textile and garment trade business is steady, moderate and improving. From January to June 2024, according to statistics from the General Administration of Customs, the country's textile and garment exports totaled 143.18 billion US dollars, an increase of 1.50% over the previous year. Among them, textile exports were 69.35 billion US dollars, an increase of 3.30%, and clothing exports were 73.83 billion US dollars, the same as the previous year. Although the 2H24 export situation is unclear, the layout of the company's global production base is expected to hedge against geopolitical risks and achieve steady growth in the main textile and garment trade business. During the reporting period, the company further promoted the Zhangjiagang yarn R&D and intelligent manufacturing project to optimize and increase its own production capacity. The company expects to achieve an annual output of 8800 tons of wool yarn after completion, including 4,000 tons of worsted yarn and 4,800 tons of fancy yarn, increasing the self-sufficiency rate of wool yarn by 1/3. We believe that the company's main textile trade business is gradually reducing trade attributes, the proportion of its own production capacity is steadily increasing, gradually shifting from “selling products” to “selling services”, and the valuation level of the main textile trade business is expected to gradually increase.

Ruitai's new materials electrolyte has strong profitability and toughness. During the reporting period, lithium-ion battery electrolyte production capacity was phased out, and competition was still intensifying. The company's electrolyte customer structure is excellent. The main trading supply chain system empowers the electrolyte business, and its profitability is resilient in the downward cycle. In terms of new lithium salt additives, the company specializes in various lithium salt additives such as LiTFSI\ LiDFP\ LidFOB. According to the company's interim report, the company's LiTFSI products have been used in batches in new batteries such as solid-state lithium-ion batteries.

Profit forecasting and valuation

The company's trade business is growing steadily, and the electrolyte business is profitable and resilient. We maintained a profit of 1.675/1.904 billion yuan in 2024/2025. Current stock prices correspond to 2024/2025 6.1/5.4x price-earnings ratio. The company has abundant cash flow and plans to increase mid-term dividends. We maintain our outperforming industry rating and target price of 9.2 yuan, which corresponds to a price-earnings ratio of 8.9/7.9x in 2024/2025, and has 46.0% upside compared to the current stock price.

risks

Downstream demand fell short of expectations, and industrial competition intensified.