Report guide

Huafu as the leader of color spinning, the recovery trend of the main industry at the current time is clear; at the same time, the company's leading industry has taken the first step in the landing of the industrial Internet in the textile industry.

Main points of investment

Yarn industry: the demand is stable and concentrated, and cotton prices are good for spinning enterprises. from the point of view of terminal demand, it is expected that China's clothing consumption will still rise steadily. After experiencing the brief disturbance of the epidemic, we see that 20H2 begins to gradually return to the normal growth state of medium and low digits of clothing consumption in China, and we expect that the stability of terminal demand will also lead to a steady growth of demand in the cotton yarn industry.

The increase in industry concentration will become a long-term trend. (1) the leading enterprises expand rapidly in Southeast Asia by virtue of capital and management advantages, making full use of the cost / tariff / tax advantages of Southeast Asia. (2) at present, the industry has an increasing demand for raw materials and production technology innovation, and the advantages accumulated by leading enterprises over the years and the continuous investment in R & D costs under the advantage of scale make it possible to continue to open the gap in products and production technology. We believe that the spinning industry is expected to have the same oligopoly as the home appliance industry in the future.

In terms of cotton prices, we believe that the current cotton prices have strong support in the case of recovery in demand and contraction in global supply. Therefore, the spinning faucet is expected to benefit from the low-price inventory of cotton in the past six months to achieve strong performance flexibility in the past 21 years.

Huafu has solid advantages in its main business: resources, technology and customer resources are all leading industries. As a leading global color spinning enterprise, we believe that Huafu has a leading industry advantage in terms of resource endowment, technical strength and customer resources. (1) Resource endowment: through cooperation with Xinmian Group in Xinjiang, the company controls resources in the upper reaches of cotton; (2) Technical strength: Huafu has obvious advantages in spinning technology, number of patents, product innovation, environmental protection standards, management standards and cooperation with external scientific research institutions; (3) customer resources:

Benefiting from the color advantages of color spinning, Huafu has a say in the popular trend and cooperates more closely with brand customers. Huafu has cooperated with more than 1000 overseas head brands.

Facing the future: taking the first step of landing the industrial Internet in the textile industry Huafu took the initiative to seek change as the leader of the spinning industry, and in 20H2 began to build the industry's first industrial Internet platform applied to the textile industry in Aksu, Xinjiang, hoping to comprehensively improve the operational efficiency of the company itself and even the whole industry in a digital way. (1) the current technology landing: in the IOT link, Huafu relies on the industrial gateway to collect spinning machine data, and relies on the self-developed MES system to conduct a comprehensive data analysis of production management, output, equipment status, equipment parameters and so on.

(2) the efficiency of the pilot plant has been significantly improved: comprehensive and real-time data analysis, so that the spinning mill originally manual-based, relying on experience, passive, lagging management mode, as well as decentralized and disorderly data analysis system will be significantly improved. Factories can more scientifically carry out workers and order scheduling, machine condition monitoring, and fault repair. Judging from the current 150000 spindle pilot plant in Xinjiang, the factory output has increased by nearly 10% six months after the launch of the system, we estimate that the profit margin will increase to 2pct, and the operating profit is expected to increase by more than 30%.

(3) long-term hope to carry out industrial integration industry capacity integration: in the face of the characteristics of large market and low concentration in the spinning industry, Huafu hopes to export the system to small and medium-sized factories after its own system has achieved high efficiency. on the one hand, improve the overall production efficiency of the industry, on the other hand, expand the light assets of the supply chain. After the production process of small and medium-sized factories is monitored by the online system, Huafu can distribute its orders to small and medium-sized factories to gradually form a cloud factory to build an industrial Internet platform. According to the industry 1.5 trillion scale assumption, if Huafu integrates 10% of its production capacity, the additional one-year profit from the efficiency improvement of its system is expected to reach 3 billion, which will be the long-term development direction of Huafu's future growth.

Clear recovery of the main industry + industrial Internet open long-term space, the current valuation has a margin of safety (1) the company's main business recovery is clear, cotton prices bring 21 years of performance elasticity: colleagues in downstream customer demand recovery, at present, the cotton inventory of about 150000 tons on the company's account is expected to bring the company a performance elasticity of about 2000-3000 yuan per ton. (2) Industrial Internet opens long-term space: the industrial Internet platform project that the company is trying to develop will be the only way to upgrade the textile and clothing industry in the future, which opens a new ceiling for the company's long-term growth.

We estimate that the annual return net profit of the company in 20-21-22 is-3.73 pound 465 million RMB 527 million, corresponding to the valuation 15.9X/14.0X of 21Ti 22 years. At the same time, the company has more than 8000 mu of land on the book, and the valuation cushion is adequate.

We believe that the company is currently in a large cycle of clear short-term inflection points in the main business and increased concentration of long-term benefits; at the same time, we recognize the company's action in the long-term integration of the industry, while the current valuation is still reasonable and the value of the company is adequate. Maintain a "buy" rating.

Risk hint: the epidemic repeatedly led to lower-than-expected terminal consumption, and the process of digital reform was lower than expected.