Incidents:

Revenue and net profit attributable to mother for the first three quarters of 24 years were +1% and -14%, after deducting +16% of non-net profit, Lutai A released the 2024 three-quarter report. The company achieved operating income of 4.4 billion yuan in the first three quarters of 2024, up 1.3% year on year, net profit of 0.29 billion yuan, down 14.1% year on year, after deducting non-net profit of 0.35 billion yuan, up 15.9% year on year, and EPS of 0.35 yuan. The performance of deducted non-net profit in the first three quarters was better than net profit attributable to mother, mainly due to the loss of 97.58 million yuan due to changes in fair value in non-recurring profit and loss.

In Q3, the company achieved operating income of 1.57 billion yuan and net profit of 0.12 billion yuan to mother in a single quarter. On a quarterly basis, 24Q1-Q3 companies' revenue in a single quarter was +0.3%/-1.0%/+4.5%, respectively, and net profit to mother was -28.7%/-19.5%/+4.3%, respectively. Revenue and profit conditions for the third quarter improved compared to the first half of the year.

In addition, the company plans to pay a cash dividend of 0.05 yuan (tax included) per share. In addition to the interim dividend payout and the cumulative dividend rate of 43% for the first three quarters, the dividend amount and dividend ratio are already higher than for the whole of 21-23.

Comment:

Fabric/shirt revenue in the first half of the year was +4%/-12%, respectively. Looking at the Q3 steady, medium and positive revenue categories, the company's main products in the first half of '24 were fabrics and shirts, which accounted for 71.0%/21.9% of revenue, +3.9%/-11.9%, respectively. Revenue from electricity, steam, and other products accounted for 4.8%/2.4%, respectively, and revenue was +13.1%/-20.8%, respectively. Compared to the first half of the year, it is estimated that fabrics maintained small single-digit growth in the third quarter, and the decline in shirts narrowed somewhat.

By region, domestic sales and Southeast Asia accounted for a relatively large share in the first half of '24, accounting for 37.3%/28.5%, respectively, revenue +1.5%/-2.2%, respectively. Europe, America, Japan, South Korea, and other sales each accounted for 15.1%/6.2%/12.8% of revenue, and revenue was -12.3%/-7.0%/+22.4%, respectively.

Gross margin increased, financial expense ratio increased due to exchange impact, inventory reduction and cash flow surged. Gross profit margin increased 1.9 PCT to 24.4% year-on-year in the first three quarters of 24 years. On a quarterly basis, 24Q1-Q3 companies' gross margins in a single quarter were +2.8/+3.9/-0.6PCT to 23.5%/25.8%/23.9%, respectively.

Expense rate: The cost ratio increased by 0.6 PCT to 13.1% year over year during the first three quarters of 24 years. Among them, sales/management/R&D/finance expenses were 2.2%/5.7%/3.8%/1.3%, respectively, -0.1/-0.8/-0.6/+2.0PCT, respectively. Among them, the increase in financial expenses mainly affected exchange losses due to the appreciation of the RMB exchange rate, and exchange earnings for the same period last year. On a quarterly basis, the cost rates for a single quarter from 24Q1 to Q3 were -3.0/+4.7/-0.1PCT, respectively.

Other financial indicators: 1) Inventory decreased by 2.3% to 2.08 billion yuan at the end of September '24 compared to the beginning of '24, a year-on-year decrease of 10.6%; the number of inventory turnover days was 170 days, a decrease of 7 days over the previous year. 2) Accounts receivable decreased by 6.0% to 0.87 billion yuan at the end of September '24 compared to the beginning of '24, an increase of 6.8% over the previous year; the number of accounts receivable turnover days was 50 days, an increase of 12 days over the previous year. 3) Investment loss of 33.88 million yuan in the first three quarters, revenue of 55.26 million yuan for the same period last year; loss of 62.09 million yuan from change in fair value, up 45.6% year on year; 4) Net operating cash flow was 0.76 billion yuan in the first three quarters, up 373.7% year on year.

Focusing on demand trends in the short term, the undervalued high dividend attribute provides steady returns. Considering that short-term domestic and foreign demand is still uncertain, and that investment income and exchange drag exceeds expectations, we lowered the company's profit forecast for 24-26 to 0.48/0.66/0.72 yuan, respectively (43%/29%/32% lower than the previous profit forecast), and the 24/25 PE was 13/10 times higher. It has undervaluation and high dividend attributes, and maintains an “increase” rating.

Risk warning: Weakening domestic and foreign demand affects the company's commencement of construction and acceptance of orders; orders for newly expanded categories fall short of expectations; geopolitical risks; and large fluctuations in cotton prices or exchange rates.