Zhongwang Fabric Co.Ltd(605003) (605003)
Zhongwang Fabric Co.Ltd(605003) ten questions and ten answers
Question 1: how to achieve high gross margin and bind key customers?
The strong product R & D capability and the production advantages of the whole industrial chain make the company form a strong bargaining power and irreplaceable, so that it can obtain a high gross profit margin and deeply bind the customers of American head furniture brands.
Question 2: why does the current time point enter the accelerated growth period?
Supply side: the company's capacity will expand from 16.5 million meters to 31.5 million meters within two years, and the problem of insufficient capacity will be effectively alleviated. Demand side: the company has cultivated the American market for many years, the brand precipitation has ushered in a qualitative change, and the purchase amount of key customers has increased rapidly. It is estimated that the growth rate of revenue / net profit of the company in 22 / 23 years will exceed 20% / 30% respectively.
Question 3: how to view the sustainable growth of the company?
Through the growth of orders from old customers, the development of new customers, increasing the market development of functional fabrics, printing, embroidery and other categories, and some outsourcing to self-production, we believe that the company has the ability to smoothly digest the new production capacity and has long-term sustainable growth.
Question 4: how to view the change of outsourcing transfer to business quality?
After the outsourcing proportion is reduced, it will play an important role in the improvement of the company's gross profit margin, the stability of delivery date and quality and the protection of intellectual property rights. The company plans to retain the outsourcing proportion of 10% ~ 15% to reduce the risk of losing orders due to capacity constraints in the future.
Question 5: what is the company's future global market layout plan?
The company will continue to take the U.S. market as the core market, try to explore international markets such as Europe and the Middle East, and take into account the Chinese market.
Question 6: how to break through the market pattern outside China?
The company is the absolute leader of Chinese cloth art enterprises. The mode of "China's whole industry chain + American R & D and sales" better combines the geographical advantages of the two places. Therefore, whether compared with fabric enterprises in the United States or China, the company has strong competitiveness and is expected to gradually replace overseas enterprises.
Question 7: what is the impact of Sino US trade friction on companies?
Trade friction mainly affects the company's sales mode (from direct sales to indirect sales) and sales region (from exporting to the United States to exporting to Vietnam), and has relatively little direct impact on the order volume.
Question 8: how to deal with risks such as cost fluctuation and epidemic situation?
Under the epidemic, the rise in freight, raw material prices and exchange rate fluctuations are a test of the market position and bargaining power of manufacturing enterprises. With strong bargaining power, the company can generally transfer part of the price through price increase. After the impact of the Q3 epidemic in Vietnam, Ashley and other major customers plan to invest in decentralized factories in Mexico, South Africa and other places to avoid the huge fluctuations caused by the repeated epidemic in a single region.
Profit forecast and valuation
It is estimated that the company will realize an operating revenue of RMB 580 / 700 / 860 million from 2021 to 2023, with a year-on-year increase of 16% / 22% / 23%; The net profit attributable to the parent company was RMB 160 / 200 / 260 million, with a year-on-year increase of 11% / 30% / 31%, and the corresponding EPS was RMB 1.41/1.84/2.41. The current price corresponds to 20 / 15 / 12 times of PE. Considering the integration advantages of the company's industrial chain and its strong bargaining power in the upstream and downstream, we believe that the reasonable valuation in 22 years is 20 ~ 25 times, maintaining the "buy" rating.
Risk statement
Raw material price fluctuation risk, foreign trade environment deterioration risk, epidemic recurrence risk.
