Event

On April 8, 2021, the company released its annual report for 2020: the company achieved operating income of 4.477 billion yuan in 2020, a decrease of 6.8% over 4.804 billion yuan in 2019, and a net profit of 84 million yuan, a decrease of 35.5% compared with 130 million yuan in 2019.

Brief comment

2020Q4 spandex industry boom, spandex revenue accounted for more than 60%. 2020Q1 achieved a net profit of 46.34 million yuan, an increase of 148.5% compared with 18.65 million yuan of 2019Q1. However, due to the impact of overseas epidemic, the demand for viscose filament declined, and the performance of 2020Q2 and Q3 of the company was-17.88 million yuan and-3.09 million yuan. 2020Q4's performance rose sharply, achieving a net profit of 58.21 million yuan, leading to a substantial improvement in the company's annual performance in 2020. In terms of products: the company's viscose filament production capacity is 80,000 tons in 2020, the output is 61000 tons, 107.5% of the planned production is completed, considering the actual production month of the new production capacity, the capacity utilization rate is 83.8%, and the sales volume is 41000 tons. Spandex fiber production capacity of 100000 tons, output of 94000 tons, the completion of the plan of 125.3%, capacity utilization rate of 93.4%, because the production of fine denier filament will reduce the actual output, reduce capacity utilization, spandex sales of 102000 tons.

Among them, the revenue of viscose filament products reached 1.338 billion yuan, a decrease of 10.9% compared with the same period last year, and the revenue accounted for 29.9%. The main reason is that after the second quarter of 2020, due to the influence of the epidemic situation of COVID-19, the downstream operating rate decreased significantly, resulting in a decline in the price of viscose filament. The revenue of spandex products reached 2.803 billion yuan, an increase of 8.3% over the same period last year, accounting for 62.6% of the total revenue. The main reason is that since the fourth quarter of 2020, a variety of demand factors have led to an upward trend in spandex prices, and the industry market is better. In 2020, the company's main products viscose filament exports 780 million yuan, accounting for about 40% of the country's total exports; spandex fiber exports 180 million yuan, accounting for about 10% of the country's total exports. In terms of expenses: the sales expenses in 2020 were 34 million yuan, a decrease of 67.2% compared with the same period last year, mainly due to the implementation of the new income criteria in 2020, transportation expenses were included in the "operating cost" accounting as contract performance costs, and the financial expenses in 2020 were 192 million yuan, an increase of 56.2% over the same period last year, mainly due to the increase in interest expenses and exchange losses. The R & D expenditure in 2020 was 94 million yuan, an increase of 688.7 percent over the same period last year, mainly due to the company's increased investment in research and development of new products, new processes, energy conservation and emission reduction, and the asset impairment loss in 2020 was 52 million yuan, an increase of 53.2 percent over the same period last year. It is mainly the provision for impairment of fixed assets of 30.77 million yuan in 2020.

The spandex industry maintains a high boom. Since August 2020, the price of spandex 40D has risen from 28,000 yuan / ton to the current 63,000 yuan / ton, an increase of 125%. The price difference of spandex 40D has increased from 15,000 yuan / ton to about 27,000 yuan / ton, an increase of 80%. The price of spandex 20D has risen from 35,000 yuan / ton to more than 80,000 yuan / ton, an increase of 129%. The price difference of spandex 20D has increased from 22,000 yuan / ton to about 43,000 yuan / ton, an increase of 95%. The upstream cost support, the downstream demand is exuberant, the spandex price and the price difference are easy to rise and difficult to fall under the dual drive of raw material cost and demand, and it is expected that the seller's market pattern will continue in 2021. On the supply side, the domestic spandex production capacity reached 90 tons in 2020, an increase of 3.5% over the same period last year. The supply of spandex is limited in 2021. Inventory days are as low as 16 days, a nearly four-year low. On the demand side, since Q3 in 2020, the downstream textile and clothing boom has gone up, with a substantial increase in the operating rate and new machines, leading to a rapid improvement in spandex demand. With the change of consumption concept and the upgrading of consumer demand, consumers have more and more demand for sports and leisure clothing, and the demand for clothing function is higher and higher. With the significant trend of overseas economic recovery, a substantial return of overseas orders and a significant increase in exports, spandex demand will have a steady growth rate of 6% and 10% in the future.

Spandex production capacity continues to expand in the leading position in the industry, and technology promotes cost advantage. 1 capacity: from 2014 to 2020, the company continued to increase the spandex industry, and the company's spandex production capacity increased steadily from 20, 000 tons to 120000 tons. after "returning to the city and entering the park", the company moved 20, 000 tons of old production capacity in Fengquan District, Xinxiang, with a total compensation of 1.35 billion yuan. the production capacity of 100000 tons is the new production capacity after 2015, accounting for about 11% of the national production capacity. In September 2020, Xinxiang Chemical Fiber Investment 1.048 billion plans to implement the first phase of the high-quality ultra-fine denier spandex fiber project with an annual output of 100000 tons, with an annual output of 30,000 tons of ultra-fine denier spandex fiber. Construction has started in the third quarter of 2020, and the construction period is expected to take 18 months. It is expected that the production capacity will be put into operation by the end of 2021. On February 28, 2021, the company announced that it would continue to promote the construction of the second phase of the ultra-fine denier spandex fiber project with a production capacity of 30,000 tons. The project is scheduled to start in the second quarter of 2021, with an estimated construction period of 18 months and will be put into production in the fourth quarter of 2022. At that time, the company's spandex scale will be further expanded and its production capacity will reach 160000 tons. The company's main products are 20D, 30D, 40D, of which 20D accounts for more than 30%, is the largest 20D production enterprise in China, 40D accounts for about 40%. Since August 2020, the price difference between spandex 40D and 20D has increased by 80% and 95%, respectively. As the largest spandex 20D manufacturer in China, the benefit degree of the company is significantly higher than the industry average. 2 Technical aspect: with the help of exclusive advanced technology, the company occupies the market with the advantage of low cost. Xinxiang Chemical Fiber has adopted the fourth-generation spandex production technology developed by Zhengzhou COSCO and currently leading in the industry among the 100000 tons of new production capacity after 2014. Compared with the third generation technology, the comprehensive energy consumption of this technology has been reduced by about 34%. The recovery and utilization rate of dimethylacetamide (DMAC) has been increased from less than 97% to more than 99%, and the waste liquid discharge has been reduced by about 70% compared with the third generation. The product quality is excellent and the ultra-fine denier spandex fiber less than 20D can be produced stably. In the 40,000-ton ultra-fine denier spandex second-phase project, which was put into production in 2019, Cosco's more advanced fifth-generation technology was adopted, the number of spinning heads reached 240 (3 × 80), and the production cost was further reduced, which is 2000-3000 yuan / ton lower than that of domestic small production capacity.

Xinxiang Chemical Fiber and Cosco spandex signed an exclusive technical agreement to ensure their technological leading position. Technology drives efficiency. With the new spandex production capacity since 2014, with the help of industry-leading spandex production technology, after two years of production digestion, spandex gross profit margin has continued to rise from 1.39% in 2016 to 17.1% in 2020, which is much higher than the industry average.

The production capacity of viscose filament is the first in the world, and the advanced continuous spinning technology helps the company lead the gross profit margin industry. In 2020, the national viscose filament production capacity is 200000 tons, and there are only 4 production enterprises left, of which the top three account for more than 90% of the production capacity, belonging to a significant oligopoly industry. Xinxiang chemical fiber viscose filament has a production capacity of 80,000 tons, with a market share of 38%, ranking first in the world. Xinxiang chemical fiber continuous spinning process capacity accounts for 71.4%, the domestic average level is only 42.9%. Advanced production technology helps the company to lead the industry in the gross profit margin of viscose filament products. From 2009 to 2020, the company's average gross profit margin of viscose filament was 16.3%, which was much higher than that of other companies in the same industry. Affected by the epidemic, the export volume of domestic viscose filament began to decline in March 2020, and the valley value was only 784 tons in May. Since June, with the gradual improvement of the overseas epidemic situation, the export volume has rebounded continuously. by December 2020, the average monthly export volume of viscose filament has reached more than 6000 tons, returning to the pre-epidemic level, and the company's viscose filament sales have basically returned to the pre-epidemic level. The demand of viscose filament industry is growing at an annual rate of about 4%. Because viscose filament itself is a substitute for natural silk, wood pulp as raw material, can be completely natural degradation, it is difficult to be replaced. With the recovery of the global macro-economy, the price of viscose filament, which is still at a low level, is expected to rise, further promoting the profitability of the company.

Profit forecast and valuation: the company's net profit in 2021, 2022 and 2023 is expected to be 834 million yuan, 891 million yuan and 937 million yuan respectively, EPS is 0.66,0.71 yuan and 0.75 yuan respectively, and PE is 6.9x, 6.4x and 6.1x respectively. Maintain the target price of 8.7 yuan per share and maintain "buy"

Rating.

Risk hint: the production of the project is not as expected and the demand is not as expected.