The apparel boom for downstream brands has increased since 24 years. As a leading domestic printing and dyeing company, the company has continued technical reform for many years to reduce costs and improve efficiency. It is expected to increase profit margins while receiving orders to resume growth. The gold jewelry business acquired Hangmin Baitai in 2018 and 65% of Shenzhen Shangjinyuan's shares in 2024 to open up the upstream and downstream industrial chains and grow bigger and stronger.
Without considering the impact of Shenzhen Shangjinyuan's merger on performance, the current market capitalization is 11X, corresponding to 2024 PE, which is the first time it has been covered and given a “highly recommended” rating.
Stricter environmental protection systems, fluctuating orders, and fluctuating energy prices have led to a continuous reshuffle of the industry, and the share is concentrated in leading companies. 1) Printing and dyeing plants have high pollution emissions, and wastewater treatment is difficult. In 2017, the government tightened regulations on highly polluting and energy-intensive industries, forcing dyeing plants to carry out energy-saving and emission-reduction transformation of production equipment. 2) Small and medium-sized enterprises with large order fluctuations, heavy pollution, high energy consumption, and poor profits quickly withdrew from the market in the past 3 years (according to regulations, the profit margin of printing and dyeing companies fell to less than 5%, and the loss increased from 13% in 2015 to 30% in 2023), and the share was concentrated on large and medium-sized enterprises with environmental protection, scale, and intelligence advantages.
The textile manufacturing boom began to improve in 23Q4, and corporate profit margins were restored under printing and dyeing regulations; 24Q1 export momentum was good, and the industry resumed capacity expansion. Driven by the resumption of order growth in Q4 2023, sales margins increased month by month, and industry losses continued to narrow. Demand recovered weakly in January-January '24, and there was a clear trend of export recovery. Exports of textiles and clothing increased 10% year on year to US$45.1 billion, and the cumulative total fixed asset investment growth rates of the textile and garment industry were 15% and 17%, respectively.
Hangmin Co., Ltd.: Leading enterprise with leading dyeing and finishing technology, low energy consumption & high efficiency and intelligence. The profit margin far exceeds the industry level, and the resumption of order growth in 24 years is expected to increase profit elasticity. Through technological transformation, printing and dyeing revenue grew from 2.9 billion in 2016 to 4 billion in 2023, with a CAGR of nearly 5%, gross margin between 20% and 30%, and operating profit margin between 14% and 20%. Barriers: First, leading dyeing and finishing technology. It can meet the requirements of high color fastness, uniform dyeing and shrinkage rate in dyeing and finishing of new and functional fabrics, and meet the waterproof, oil proof, stain resistant, flame retardant, and antistatic functions of the fabric. Second, digital intelligent transformation has continued over the years, in line with the trend of small-batch, multi-batch personalization of orders. Third, supporting thermal power and sewage treatment facilities, dual control of energy consumption has little impact on the company.
The gold business is the second main business. The merger and acquisition of Hangmin Baitai (gold jewelry processing and brand) in 2018, and the acquisition of 65% of Shenzhen Shangjinyuan (gold jewelry brand) shares in 2024 is expected to open up the upstream and downstream industrial chains. Hangmin Baitai is one of the top ten gold jewelry processing enterprises in China. In 2023, it achieved operating revenue of 5 billion yuan, +4% year over year; net profit of 98 million yuan, +11.6% year over year. From January to October 2023, Shang Jinyuan achieved revenue and net profit of 3,767 billion yuan/70 billion, with a gross profit margin of 5% and a net profit margin of 1.86%, an increase over the historical year.
Profit forecast and investment suggestions: Without considering the impact of Shang Jinyuan's merger, the company's revenue for 2024 to 2026 is estimated to be 10.568 billion yuan, 11.450 billion yuan, and 12.466 billion yuan respectively, with year-on-year growth rates of 9%, 8%, and 9% respectively. At the same time, considering that cost reduction in printing and dyeing brought about the release of profit flexibility, the net profit scale of 2024 to 2026 was 776 million yuan, 862 million yuan, and 952 million yuan respectively, with year-on-year growth rates of 13%, 11%, and 10%, respectively. The current market value corresponding to 24PE is 11X, giving it a “Highly Recommended” rating for the first time.
Risk warning: Downstream clothing demand recovery falls short of expectations, rising dye and energy prices erode profitability, and the risk of gold price fluctuations.