Core views

In the first half of 2024, the company achieved operating income of 3.795 billion yuan, a year-on-year increase of 11.43%, achieved net profit of 0.151 billion yuan, an increase of 1228.25% over the previous year, and realized net profit without deduction of 0.151 billion yuan, an increase of 5899.21% over the previous year. Revenue for Q1 and Q2 was 1.967 billion yuan and 1.828 billion yuan, respectively, and net profit to mother was 0.062 and 0.089 billion yuan, respectively. The total supply-side production capacity of viscose filament is 0.235 million tons. The industry concentration is high, and the industry prohibits additional production capacity, and the supply pattern is stable. On the demand side, downstream viscose filaments are mainly silk fabrics, linings, etc. The downstream demand for new Chinese clothing such as Guofeng Hanfu is growing rapidly, and the supply and demand pattern is improving. The price spread of spandex is running at the bottom, the pace of industry expansion is slowing down, and the supply and demand pattern is expected to improve marginally.

occurrences

The company released its 2024 mid-year report

In the first half of 2024, the company achieved operating income of 3.795 billion yuan, a year-on-year increase of 11.43%, achieved net profit of 0.151 billion yuan, an increase of 1228.25% over the previous year, and realized net profit without deduction of 0.151 billion yuan, an increase of 5899.21% over the previous year. Revenue for Q1 and Q2 was 1.967 billion yuan and 1.828 billion yuan, respectively, and net profit to mother was 0.062 and 0.089 billion yuan, respectively.

Brief review

Viscose filament is booming, and performance increased in the first half of the year

In terms of viscose filaments, according to Wind, the average price of Q1 and Q2 viscose filaments in 2024 was 43253 and 44,297 yuan/ton, respectively, +233 and +915 yuan, respectively. The price differences were 28,647 and 29,394 yuan/ton, respectively, and +900 and +340 yuan, respectively. Benefiting from the widening price spread of viscose filament, and driven by demand from new Chinese Hanfu, etc., the company's gross margin of viscose filament increased in the first half of the year, and sales increased. Viscose filament revenue in the first half of the year was 1.471 billion yuan, +26.80% year-on-year, and gross margin was 25.46%, or +9.01pct year-on-year.

In terms of spandex, spandex continued to decline in the first half of 2024. According to Wind, the average market prices for 2024H1 spandex 20D and spandex 40D were 33,607 and 29,107 yuan/ton respectively, -14% year-on-year, and the price differences were 18076 and 13576 yuan/ton, respectively, -12% and -10% year-on-year respectively. In the first half of the year, spandex revenue was 2.143 billion yuan, +1.72% year over year, gross margin was 2.05%, -0.05pct year on year.

Benefiting from the rapid increase in the volume of viscose filaments, the company achieved net profit of 0.151 billion yuan in the first half of the year, an increase of 1228.25% over the previous year. Q2 achieved net profit of 0.089 billion yuan to mother, +1581.12% year over year and +43.43% month over month.

Viscose filament: The supply pattern is stable, demand is rising, and the price difference is improving. Viscose filament, also known as “rayon”, is an alternative to natural silk. It has the characteristics of being smooth, cool, breathable, antistatic, and brightly dyed. The moisture content in major textile fibers best meets the physiological requirements of human skin, and is mainly used in high-end clothing and household textiles.

Supply side: The total global production capacity in 2022 is about 0.28 million tons, of which China's production capacity is about 0.235 million tons. The main manufacturers include Jilin Chemical Fiber (0.08 million tons), Xinxiang Chemical Fiber (0.09 million tons), Yibin Celia (0.05 million tons), and Aoyuan Meigu (0.015 million tons). Among them, Jilin Chemical Fiber and Xinxiang Chemical Fiber have a combined production capacity of 0.17 million tons, accounting for 72%, and the industry concentration is high. At the same time, according to the regulations for the viscose fiber industry issued by the Ministry of Industry and Information Technology (2017 edition), it is strictly prohibited to build new viscose filament production capacity, and the transformation and expansion of viscose filament must be a continuous spinning process of 10,000 tons or more, encouraging and supporting existing viscose fiber companies to eliminate backward production capacity through technological transformation, mergers, acquisitions and restructuring of advantageous enterprises. The current production capacity under construction includes 0.01 million tons of chemical fiber in Xinxiang and 0.01 million tons of chemical fiber in Jilin, and the supply pattern is good.

Demand side: According to Baichuan, in 2023, viscose filament production, export volume, and apparent consumption were 0.2074, 0.0901, and 0.1173 million tons, respectively, +15%, -13%, and +51% year-on-year respectively. Downstream viscose filament can be used for silk fabrics, linings, etc. Demand for downstream Chinese clothing such as Guofeng Hanfu is growing rapidly. According to Ai Media, China's Hanfu market reached 14.47 billion yuan in 2023 and is showing a continuous upward trend. It is expected to reach 24.18 billion yuan in 2027. With the rapid growth in downstream demand, viscose filament is expected to usher in a boom.

Spandex: Demand is growing steadily, and the industry may usher in marginal improvements

On the supply side, according to Baichuan, in 2023, the total effective production capacity of spandex in China was about 1.24 million tons, with a net increase of 0.15 million tons, a year-on-year increase of about 14%. Many backward small production capacity had a low operating rate and were shut down or on the verge of shutdown. The industry concentration continued to increase. CR5 rose from 51% in 2012 to 79% now, and industry reshuffle further intensified. In December 2023, 0.032 million tons of Shuangliang spandex production capacity was eliminated, and industry concentration was further increased. In 2024, additional production capacity was added to the industry, including Huafeng Chemical Fiber, Zhuji Huahai, Hengshen Synthetic Fiber, Taiguang, and Hyosung. In 2023, spandex production and apparent consumption were 0.8901 and 0.8684 million tons respectively, +13% and +17% year-on-year respectively. With the steady increase in demand for spandex, the industry is expected to usher in marginal improvements.

Profit forecast and valuation: The company's net profit for 2024-2026 is estimated to be 0.415 billion yuan, 0.57 billion yuan and 725 million yuan respectively; EPS is 0.24 yuan, 0.34 yuan and 0.43 yuan respectively; PE is 15.9X, 11.6X and 9.1X, respectively, maintaining a “buy” rating.

Risk warning: Raw material prices continue to rise (if raw material prices rise further, further increasing the company's cost pressure, which in turn affects the company's profitability); industry competition intensifies (there are many domestic spandex companies, and each company has plans to expand production on different scales, thereby increasing industry competition and affecting profit margins); changes in the macroeconomic environment (changes in the macroeconomic environment have a certain impact on the chemical fiber industry. As economic globalization and integration accelerate, if the global economy fluctuates greatly in the future, China's economic growth rate continues to slow down, and downstream demand for spandex and viscose filaments falls, then there are It may adversely affect the company's operating performance).