Main points of investment
The company released three quarterly results: revenue in the first three quarters was 13.3 billion yuan (+ 4.6%), net profit was 301 million yuan (- 32.5%), non-net profit was 282 million yuan (- 16.7%), single Q3 income was 4.77 billion yuan (+ 14.5%), net profit was 8.05 million yuan (- 94.4%), and non-net profit was 5.71 million yuan (- 95.3%).
The demand downstream of the yarn is weak, and the cotton price is falling rapidly.
Downstream demand is weak, yarn business volume and price decline. Affected by the repeated epidemic in some parts of the country, overseas inflation and geo-crisis, the internal and external demand for Q3 yarn continues the weak trend of Q2, and the Aksu factory in Xinjiang has been suspended due to the impact of the epidemic; in addition, the decline in cotton prices has led to a sharp decline in yarn prices. Q3 yarn revenue is expected to decline by about 25% year-on-year to 1.4 billion yuan, and the cumulative yarn income in the first three quarters is about 4.5 billion yuan, down about 15% from the same period last year.
Cotton prices are falling rapidly, and high inventory prices are putting pressure on gross margins. Due to the weak demand for cotton, cotton prices have fallen rapidly from a high of 21,000 to 22,000 yuan / ton in the first half of the year in June, and have now dropped to 15,000,16,000 yuan / ton, a drop of nearly 30 percent. Q3 yarn gross margin is expected to be 7% (down 10pct from the same period last year and 5pct from the previous month) as the company rolls through the high-priced cotton inventory in the previous period.
Net chain and hosiery products grew strongly, and gross profit margin also declined compared with the same period last year.
The trading volume of net chain business increased significantly during the downward period of cotton price. It is estimated that the business income of the Q3 network chain is about 3.2 billion yuan, an increase of nearly 50% over the same period last year, mainly due to the substantial increase in the trading volume of the cotton industry chain during the downward period of cotton prices, driving the cumulative income growth rate of the network chain in the first three quarters to nearly 20%. It is estimated that the gross profit margin of Q3 network chain is 2.3%, which is lower than that of Q2, but 2pct is higher than the low base of Q2 in the same period last year.
A big socks industry has a strong growth momentum. Q3 hosiery products have got rid of the logistics and shipping impact of Q2, and the revenue per quarter is expected to be about 90 million yuan, returning to the growth rate of more than double Q1; the cumulative income in the first three quarters is expected to be 270 million yuan, an increase of more than 60 percent. Also affected by the high price of cotton in stock, the gross profit margin of Q3 hosiery products is expected to be 18.5%, which is about 7pct lower than the same period last year and month-on-month.
The expense rate has improved compared with the same period last year, and the management efficiency of the group has been improved. The gross profit margin of each business declined in varying degrees compared with the same period last year, while the proportion of the network chain business with low gross margin increased. The overall gross profit of Q3 company was 4.2%, with a year-on-year / month-on-month decline of 4.7pct/3.7pct, which is the main reason for the sharp decline in Q3 company's net profit. From the cost side, the expense rate during the Q3 period is 5.0% (- 0.4pct), and the management efficiency of the group has been improved.
Steady progress in production expansion and digital intelligence transformation, waiting for the terminal to warm up
Against the trend, the company continues to promote production expansion and digitization process. 1) capacity expansion: on the basis of the current yarn production capacity of 2.06 million spindles (1.77 million domestic spindles + 290,000 overseas spindles), continue to build the remaining 200,000 spindles in Huaibei, Anhui Province, of which 100,000 spindles are expected to be put into production by the end of the year. At the same time, start the construction of another 100000 spindle workshop. 2) Digital construction: Huafu Digital subsidiary was established in July, and the digital transformation of all yarns and hosiery machines is expected to be completed by the end of the year, as well as the construction of yarn light asset expansion model and hosiery industry trading platform. committed to improving the overall efficiency of the industry for a long time.
Profit forecast and investment advice: the company still faces the depressed pressure of downstream demand in the short term, but cotton prices have been relatively stable since August, and the downside space is limited in the future. it is expected that the gross profit margin will improve with the consumption of high-priced cotton stocks. In the long run, the company shows a trend of improvement in both order structure and production management efficiency. At the same time, the net chain business and hosiery sector show good growth. It is estimated that the net profit in 22-24 will be 3.9pm, 650pm, 770 million yuan, year-on-year growth of-32%, PE 67%, 18%, corresponding to PE 14-8-7 times, maintaining the "buy" rating.
Risk hint: the epidemic repeatedly affects downstream demand or factory opening, and cotton prices continue to decline.