Revenue in '22 and net profit of Guimu fell 10% and 94% year-on-year respectively. The profit side of the second half of the year turned into a loss-making company and released full-year results for 2022, achieving operating revenue of 23.805 billion yuan, down 10.2% year on year; Guimu's net profit was 157 million yuan, down 94.2% year on year. EPS is $0.17. Looking at the first half of the year, 2022 H1/H2 revenue was +3.9% and -22.9% year-on-year, respectively, and the net profit of the mother was -23.0% year-on-year, turned into a loss, and 22H2 lost 835 million yuan respectively.
In '22, the company's domestic sales and export revenue accounted for 62% and 38% respectively. Due to multiple effects such as the COVID-19 pandemic, the situation in Russia and Ukraine, high inflation, and interest rate hikes by central banks, demand in the textile industry declined starting in 22Q2. The middle and downstream industries faced pressure to remove inventories, and company orders were affected accordingly. At the same time, in the second half of '22, the company's gross margin fell sharply due to factors such as weakening demand, falling cotton prices and product prices, and the epidemic, and the annual profit was under pressure. In '22, the company's gross margin fell 10.5 PCT to 11.6% year on year, the operating profit margin fell 10.4 PCT to 2.5% year on year, and the net profit margin of the parent fell 9.5 PCT to 0.7% year on year.
The main product, yarn revenue accounted for 74%, showing an upward trend in volume and price, and revenue fell 14% year on year by product: the company's main product was yarn, which accounted for 74% of revenue in '22, and revenue fell 3PCT. Revenue fell 13.8% year on year, mainly due to the decline in sales due to weak demand. Looking at the spin-off, stretch-cored yarn and other yarns accounted for 37% and 37% of revenue, respectively. Revenue fell 13.9% and 13.7% year-on-year respectively; among other products, revenue fell 13.9% and 13.7% year-on-year; among other products, woven fabrics, knitwear, denim, and denim fabrics, etc. Revenue difference between trade and non-woven fabrics +24%/+3% /- 17%/-86%/+62%/-50%
In terms of price, the volume and price of the main product, yarn, fell 19.7% year on year, and sales fell 19.7% year on year to 660,000 tons. Among them, sales of stretch-cored yarn and other yarns fell 20.0% and 19.4% year on year respectively, and unit prices increased 7.6% and 7.1% year on year, respectively. In terms of other products, sales of woven fabrics, knitted fabrics, denim clothing, and non-woven fabrics fell 6.5%, 15.2%, 15.5%, 84.0%, and 51.1%, respectively. Product unit prices were +33.0%, +21.9%, -1.6%, -15.3%, and +2.8%, respectively.
Gross margin declined significantly, expense ratios increased slightly, inventory provisions increased sharply, operating cash flow decreased gross profit margin: in '22, the company's gross margin fell 10.5 PCT to 11.6% year on year, and 22H1/H2 gross margin fell 3.1 PCT and 19.7 PCT, respectively. The gross margin of yarn, the main product, fell 12.7 PCT to 10.6% year on year, mainly due to the decline in raw material prices and product prices and the decline in middle and downstream demand, compounded by poor logistics, short-term work stoppages, and rising logistics costs caused by the domestic epidemic; among other products, only woven fabrics had a year-on-year increase in gross margin.
Expense rate: The fee rate for the 22-year period increased by 1.7 PCT to 11.2% year on year. Among them, the sales, management and finance expenses rates were 3.7% (+0.1PCT), 5.5% (+0.1PCT), and 2.0% (+1.5PCT), respectively. The year-on-year increase in the financial expense ratio was mainly due to exchange losses of 193 million yuan in '22, compared to exchange gains in '21.
Other financial indicators: 1) The book value of inventory at the end of '22 increased 6.1% to 7.59 billion yuan from the beginning of '22, and the inventory provision amount was 50 billion yuan, an increase of nearly 30 times over the previous year; the number of inventory turnover days was 126 days, an increase of 31 days over the previous year; 2) Accounts receivable at the end of '22 decreased 20.7% from the beginning of '22 to $1.36 billion, and the number of days of accounts receivable turnover was 28 days, an increase of 3 days over the previous year; 3) Net operating cash flow decreased 33.6% year-on-year to $1.62 billion.
Profit forecasts, valuations and ratings: The company expects factors such as high industry inventories and inflation to ease in the first half of '23, demand is expected to gradually recover, and profit margins will improve greatly in the second half of '23. It is estimated that 750,000 tons of yarn, 110 million meters of woven fabric and 24,000 tons of knitted fabric will be sold throughout '23 (corresponding year-on-year sales growth rates of +14%, -5%, +60%, respectively). In addition, 230,000 spindles were close to completion by the end of 2022, and the company's yarn production capacity will reach about 4.4 million spindles. The company will actively restructure production capacity in '23, anticipate some disposal proceeds, and actively plan and be relatively conservative in terms of new construction investment. Currently, the projects being carried out mainly include the construction of a yarn factory in Turkey and a production base in the Americas. Considering that there is still uncertainty about the trend of midstream and downstream demand, we lowered the company's 23-24 profit forecast (the net profit returned to the mother was 58%/42% lower from the previous profit forecast, respectively), the corresponding EPS for 23-24 was 0.94 and 1.42 yuan, respectively, and added the 25-year profit forecast. The corresponding 25-year EPS was 1.57 yuan, and the 23-year PE was 6 times and 4 times, respectively, maintaining the “increase in holdings” rating.
Risk warning: Domestic and foreign demand is weak, orders are falling short of expectations; cotton prices fluctuate greatly; and the results of midstream and downstream business expansion and integration fall short of expectations.