Huafu Fashion Co.Ltd(002042) (002042)
The company has been deeply engaged in the color spinning industry for many years. It is a leading enterprise in the color spinning industry. It has the advantages of customer resources, capacity layout, process technology and so on. It has a stable leading position in the same industry. Under the background of strong support for cotton price, the company’s performance is expected to maintain steady growth with the production capacity at home and abroad and the improvement of efficiency in the future. Coverage for the first time, giving overweight rating.
Key points supporting rating
The world’s leading yarn supplier has built the whole industry chain business, and the cycle recovery elasticity after the epidemic is large. The company is mainly engaged in medium and high-grade color spinning yarn, and provides high-grade new blank yarn and dyed yarn. The company’s revenue in 2017-2019 was RMB 12.597/14.307/15.887 billion, with a compound growth rate of 26.12%, maintaining a relatively stable growth. In 2021q1 ~ Q3, the company’s revenue recovered rapidly, with a year-on-year increase of 46.84% to RMB 12.715 billion.
Under the background of centralized competition pattern of color spinning industry and support of cotton price, color spinning leaders are expected to benefit. Compared with traditional spinning, color spinning has prominent advantages in quality and cost, and the industry market concentration is high. The market share of Huafu Fashion Co.Ltd(002042) and Bros Eastern Co.Ltd(601339) is about 40% of China’s color spinning industry, and the advantages of leading enterprises are obvious. There is a long-term gap in China’s cotton market, and cotton prices will continue to rise. The company has about more low-cost cotton inventory. The rise of cotton price drives the rise of product price, and the performance elasticity of the company is expected to appear.
The production capacity layout outside China is mature and comprehensive, and the rise of domestic brands opens up growth space for the demand side of the company’s production capacity in the mainland. At present, the company has a production capacity of about 300000 spindles in Vietnam. In October 2021, the company completed a fixed increase project of 1.5 billion yuan for the construction of Vietnam’s industrial base. The production capacity of 500000 spindles of yarn is gradually implemented, which is expected to further open the market space. At the same time, the company began to vigorously develop and layout the high-quality raw cotton production area in Xinjiang from Aksu, coordinated and complementary with the other three industrial bases in China (Zhejiang, Yangtze River and Huanghuai bases), formed a production scale of about 1.7 million ingots, and ensured the development of the company’s production capacity. The rise of Chinese brands increased the demand of the downstream market and opened up space for the demand side of the company’s mainland production capacity.
Profit forecast and valuation
It is estimated that the company’s revenue from 2021 to 2023 will be 177.95/205.92/233.50 billion yuan respectively, and the net profit attributable to the parent company will be 538/627/727 million yuan, corresponding to EPS 0.30/0.35/0.41 yuan / share. The current stock price corresponds to 14 / 12 / 11 times of 2021e-2023e P / E. Coverage for the first time, giving overweight rating.
Main risks of rating
Consumption recovery was less than expected, epidemic control in Vietnam was less than expected, and exchange rate fluctuations were expected.
