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训修实业(1962.HK):新产能将推动2021年盈利增长发力

Xiunxiu Industrial (1962.HK): New production capacity will drive profit growth in 2021

新華匯富 ·  Jun 12, 2020 00:00  · Researches

The global hair products market is expected to reach $11 billion in 2021, with a compound growth rate of around 16% from 2019 to 21. We believe that the full operation of the new bleaching and dyeing complex in Bangladesh will enable Xunxiu Industrial to produce all types of human hair products, and capture (1) consumption upgrades and (2) an increase in demand among African American women. Revenue growth is expected to return to positive numbers in '21, achieve a compound revenue growth rate of 20% in 20-22, and the peak of capital expenditure beneficiaries has passed, and free cash flow has reversed to a positive trend. We continue to cover Xunxiu Industrial with a rating of long positions and a target price of HK$1.90 based on 11.0 times the expected price-earnings ratio in 2021, meaning there is room for 15% increase.

The improved product mix will drive the average selling price and gross margin expansion in 21/22 due to a decrease in US consumer spending during the COVID-19 outbreak. The 20-year mixed average sales price and sales volume are expected to decrease 4.7%/10.4%, respectively, but in 21/22, they recovered to 6.0%/3.8% and 20.7%/16.4%, respectively, mainly driven by the increase in the share of human hair. The gross margin for 20/21/22 is expected to expand to 33.2%/34.0%/34.6% (33.1% in '19), benefiting from an increase in the contribution of high-Maori human hair products (estimated 56.3% in '22 compared to 53.4% in '19). The ex-factory price is three times that of synthetic fiber products.

Reassigning employees to expand Bangladesh's labor cost advantage

Although the new bleaching and dyeing complex is expected to increase the number of employees by 40%/21% in 21/22 respectively, employee costs increased only 26%/17% year over year to HK$343 million/HK$400 million, thanks to (1) assigning employees to the Utra Export Processing Zone and (2) semi-automated part of the production process. (Employee costs as a percentage of sales in '22:39.0% compared to 41.4% in '19)

The third quarter of '20 showed a “V-shaped” recovery

Benefiting from the COVID-19 outbreak in China and the transfer of orders from customers in the Sino-US trade war, we estimate that sales of the training industry increased 20% year-on-year in the first quarter of '20, but the trend was reversed in the second quarter of '20 and shipments were interrupted by the spread of the virus in the US beginning in March '20. However, due to the normalization of shipments and the lack of elasticity in demand from African women, we think there will be a “V-shaped” recovery in the 3rd quarter of 2020.

Equivalent to 11.0 times the expected price-earnings ratio for 2021, the target price is HK$1.90; continuing to cover the long-term position rating, we estimate that the profit for 20/21/22 was 54 million/115 million/151 million Hong Kong dollars, respectively. The current stock price is HK$1.65 HK$1.65, which is equivalent to 9.5 times the predicted price-earnings ratio in '21. Our valuation of Xiunxu Industrial is HK$1.90, which is equivalent to 11.0 times the price-earnings ratio forecast for 21 years, with room for 15% increase.

The translation is provided by third-party software.


The above content is for informational or educational purposes only and does not constitute any investment advice related to Futu. Although we strive to ensure the truthfulness, accuracy, and originality of all such content, we cannot guarantee it.
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