Core views

24H1's revenue was 3.989 billion yuan/ +23.9%; net profit due to mother was 0.233 billion yuan/ -14.8%; net profit after deducting non-return to mother 0.107 billion yuan/ -46.7%. 24Q2: The company's revenue was 2.155 billion yuan/ +24.3%; net profit attributable to mother was 0.152 billion yuan/ -19.3%; net profit after deducting non-attributable net income of 1.1.5 billion yuan/ -7.7%. Looking at volume and price splitting, 24H1's sales volume is +23.8%, and the average sales price is the same year over year; among them, we estimate that 24Q1's sales volume is about +37% year over year, and the average price is down year on year. 24Q2's sales volume is about +20% year over year, and the average price has shown an upward trend year over year. 24Q2's gross profit margin was 13.50% /-2.80pct, +7.61pct month-on-month. The utilization rate of full orders increased, the color spinning ratio increased, and some discounts were recovered, and the Q2 gross margin improved markedly month-on-month. Looking ahead to the second half of the year, the company is taking orders well. It plans to increase procurement of cotton raw materials at low prices, follow up on overseas cotton price trends, and determine the company's profit improvement.

occurrences

The company released its 2024 semi-annual report. 24H1's revenue was 3.989 billion yuan/ +23.9%; net profit due to mother was 0.233 billion yuan/ -14.8%; net profit after deducting non-return to mother 0.107 billion yuan/ -46.7%; non-recurring profit and loss 0.126 billion yuan, of which 0.119 billion yuan was lost from disposal of non-current assets, mainly from land collection and storage revenue of Q1 Caoxian County. Net operating cash flow 0.886 billion yuan/+ 470.

9%. The basic EPS was 0.16 yuan/share, down 11.1% year on year; the weighted average ROE was 2.40% /-0.27pct.

Looking at a single quarter, 24Q2's revenue was 2.155 billion yuan/ +24.3%; net profit to mother was 1.5.2 billion yuan/ -19.3%; net profit after deducting non-return to mother 0.115 billion yuan/ -7.7%.

Brief review

Driven by overseas inventory replenishment demand, 24Q1/24Q2 revenue was +23.5%/+24.3% year-on-year.

Under the influence of overseas customers leaving the warehouse, the company's orders declined, and in the second half of '23, the company adjusted its sales strategy in exchange for volume. Starting at 23Q3, the revenue growth rate was corrected. As downstream customer demand was repaired at the end of storage, revenue from 23Q4 further increased to double-digit year-on-year growth, and continued to 24H1, 24Q1, and 24Q2 revenue +23.5% year-on-year, respectively. Looking at volume and price breakdown: 24H1's sales volume was +23.8% year over year, and the average sales price was the same year on year; among them, we estimate that 24Q1's sales volume was about +37% year over year, and the average price declined year on year. 24Q2's sales volume was about +20% year over year, and the average price showed an upward trend year over year.

Due to full orders, the capacity utilization rate increased, the color spinning ratio increased, and some discounts were recovered, and the Q2 gross margin improved markedly. 24H1 has a gross margin of 10.00% /-4.92pct and a net profit margin of 5.84% /-2.65pct. Looking at a single quarter, the 24Q2 company's gross profit margin was 13.50% /-2.80pct, +7.61pct month-on-month. Starting in the second half of '23, the company adjusted its sales strategy, exchanging price for volume (increasing share of blanks with low gross margin), and achieved production and sales balance. Starting 24Q1, the company's color spinning ratio increased and capacity utilization improved (the operating rate at the end of 23 was about 8-90%, 24H1 was close to full production), and 24Q2 gross margin improved markedly month-on-month. 24H1's final company inventory was 4.24 billion yuan/ -22.3%, and the inventory turnover period was 224.4 days/shortened by 110.7 days.

On the expense side, 24H1's sales, management, R&D, and financial expense ratios were 0.60% /-0.04pct, 3.97% /-1.78pct, 1.47% /+0.06pct, and 1.48% /+1.09pct, respectively (net exchange earnings decreased year-on-year in the current period).

It is proposed to increase the procurement of raw materials at low prices, and pay attention to overseas cotton price trends for profit flexibility. Demand for textiles and clothing was under pressure in '23, especially for higher-end, more profitable colored spinning. Downstream demand gradually recovered in '24. Currently, color spinning orders have been repaired. 24Q2 is expected to account for nearly 50% of sales volume (42% in 24Q1, about 60% in 21-22), which is conducive to subsequent gross margin increases. In terms of cotton prices, as of September 6, '24, the cotton Cotlook A index was 80.80 cents/pound, down 11.6% from the beginning of the year. USDA drastically lowered US cotton production expectations in August. Listed New Cotton companies plan to increase their procurement efforts at low prices in September-October. If cotton prices rise sharply in the future, profit elasticity can be expected.

Vietnam's Blum outperformed domestic performance, and production capacity construction continued to advance. The 24H1 subsidiary Vietnam Blum achieved revenue of 3.089 billion yuan/ +27.4%; net profit of 0.218 billion yuan/ +33.7%. Currently, the company's cotton yarn production capacity is 1.62 million ingots (Vietnam's 1.26 million ingots, domestic 0.36 million ingots). Currently, 77% of the company's production capacity is located in Vietnam. The Vietnamese base still has three production lines planned, which will be put into operation depending on overseas demand. Among them, a 0.08 million ingot production line in Zone C is expected to progress relatively fast.

Profit forecast: We expect the company's revenue for 2024-2026 to be 7.95, 8.68, and 9.39 billion yuan, respectively, up 15.0%, 9.1%, and 8.2% year-on-year; net profit to mother will be 0.48, 0.598, and 0.729 billion yuan, respectively, up -4.7%, 24.5%, and 22.0% year-on-year; corresponding P/E will be 14.4x, 11.6x, and 9.5x, maintaining the “increase” rating.

Risk warning: 1) Demand fluctuation risk: The textile industry is closely related to the macroeconomic environment and relevant national policies. The downstream textile and garment market demand in the company's industry is affected by multiple factors such as the country's macroeconomy and domestic textile import and export policies. At the same time, factors such as overseas inflationary pressure and European and American customers leaving inventory will also bring uncertainty to the company's manufacturing business. 2) Risk of fluctuations in raw material prices: The company's production costs mainly include cotton, energy, labor, etc. Among them, cotton costs account for about 70% of production costs. In recent years, due to changes in world climate conditions, changes in national policies, and commodity price fluctuations, cotton prices have fluctuated greatly, posing a challenge to the company's raw material cost management. 3) Overseas business risk: The company's overseas business continues to advance, and the scale of overseas assets continues to expand. Due to differences between the countries and regions where overseas subsidiaries are located and China in terms of legal environment, economic policy, market situation, culture, language, customs, etc., such as changes in the economic situation of overseas countries and regions mentioned above and changes in related economic policies, this may adversely affect the company's business situation.