This report is read as follows:

In 2019, the network chain business developed steadily, supporting the performance, and the cotton price pulled down the yarn price. Affected by the epidemic, Q1 domestic orders declined, optimistic about the advantages of the integration of the company's industrial chain, downgraded to cautiously increase the rating.

Main points of investment:

Downgrade to prudent overweight rating: taking into account the impact of epidemic situations at home and abroad, we lowered EPS from 2020 to 2022 to 0.170.43 / 0.260.41 / 0.30,21 times PE in 2021, and lowered the target price to 5.46 yuan.

The growth of the network chain business accelerated, and the yarn sales performance was stable. In 2019, the company's revenue was 15.887 billion, an increase of 11.04%, and a net profit of 402 million (yoy-46.14%). The performance was in line with expectations. 2020Q1 was affected by the epidemic, with revenue of 2.306 billion (yoy-36.55%) and net profit of-30.44 million, with a decrease of 117.69%. In 2019, the network chain revenue reached 8.654 billion yuan (yoy+23.33%), which increased the growth rate of 16.01pct. Yarn revenue was 7.147 billion, basically the same as the previous year, sales of 259000 tons increased by 14.55%, and the price decreased by 13.48% to 27600 yuan per ton affected by the downward price of cotton.

Capacity utilization remained high, cotton price pressure gross profit margin declined, inventory turnover accelerated cash flow improvement. At the end of 2019, the company's total production capacity was 1.990 million ingots, the same as the previous year, of which Xinjiang / Vietnam was estimated to be 1.05 million ingots. Capacity utilization increased 1.94pct to 90.54%. Affected by cotton prices, overall sales gross margin fell 2.66pct to 7.86 per cent year-on-year. Inventory turnover days decreased by 10 days to 135 days, mainly due to the company's initiative to reduce cotton stocks. Benefiting from the accelerated inventory turnover, operating cash flow changed from negative to positive, reaching 1.893 billion yuan, a substantial improvement over the same period last year.

If we dig deep into the subdivided areas under the epidemic, the market share is expected to increase. In 2020, due to the impact of the epidemic, clothing terminal consumption is under pressure, and orders have declined. In the face of the test of the epidemic, the company actively expands the domestic market space, subdivides the market, excavates value customers, and increases the sales proportion of head customers by strengthening the development and cooperation of terminal brands.