\u3000\u3 Shengda Resources Co.Ltd(000603) 889 Zhejiang Xinao Textiles Inc(603889) )
Relying on its cost advantage, perfect industrial chain layout and high equipment intelligence level, the company has emerged from the wool worsted industry. With the expansion of its production capacity, the rise of wool prices, the promotion of production and the expansion of cashmere business, the company’s revenue and performance are expected to rebound rapidly and be covered with buy rating for the first time.
Key points supporting rating
The company’s main business is wool fine spinning and wool top. From 2014 to 2020, the total operating revenue increased from 1.532 billion yuan to 2.273 billion yuan; The net profit attributable to the parent company increased from 114 million yuan to 151 million yuan. The cashmere business will be officially laid out in 2020. The business model is to purchase wool, top and other raw materials, produce them independently, and then sell them to brand clothing and OEM clothing manufacturers. At present, the marketing network is distributed at home and abroad (67% in 2020 and 32% abroad), covering more than 20 countries and regions around the world, cooperating with more than 500 brands to locate the medium and high-end market. Under this mode, the profitability and income of the company have a strong positive relationship with the wool price, that is, the wool price rises moderately, the average price of products increases, and the profitability is strengthened.
The company is located in the wool worsted industry, and the main participants are: 1) International Enterprises: Italian company BARUFFA, German enterprise Nanfang wool industry; 2) Chinese Enterprises: Zhejiang Xinao Textiles Inc(603889) , Jiangsu Lugang technology Zhejiang Xinao Textiles Inc(603889) competitors are two international enterprises, whose market share in the medium and high-end wool textile industry is 15% – 20%. Zhejiang Xinao Textiles Inc(603889) stands out due to cost advantages, improved industrial chain layout and high equipment intelligence level.
Three highlights of the company in the future: 1) price: the price of Australian wool is affected by both supply and demand under macro factors. With the gradual control of the epidemic and economic recovery, the demand for wool is rising and the supply is stable. It is optimistic that the price of Australian wool will increase steadily in the future, driving the price of products up and the profitability up. 2) Volume: with the gradual release of production capacity, the production capacity of wool fine spinning, wool top and modification treatment shows an upward trend; On the other hand, after switching from sales to production promotion, the company continues to expand new customers while consolidating old customers, which is expected to show an upward trend in sales. 3) New growth curve: through the establishment of Ningxia Xinao cashmere in 2019 and the acquisition of 100% equity of Duncan in the UK in 2020, the company has arranged the cashmere business, and the two contribute nearly 3000 tons of production capacity. In addition, the incentive mechanism and assessment that the company combines performance with employee salary / bonus are expected to realize the rapid release of production capacity and contribute the driving force of growth to the company.
Valuation
It is estimated that the company’s revenue from 2021 to 2023 will be 3.47/45.9/5.48 billion yuan, and the net profit attributable to the parent company will be 293392/490 million yuan, corresponding to 11 / 8 / 6 times of PE respectively. The company is expected to benefit from the rise in both volume and price, showing a rebound in performance. Buy rating is given for the first time.
Risk tips
Macroeconomic fluctuations; Brand cooperation development is blocked; Exchange rate fluctuation risk.
