\u3000\u3 Bohai Water Industry Co.Ltd(000605) 138 Zhejiang Sunrise Garment Group Co.Ltd(605138) )
Key investment points:
In the short term, benefiting from the recovery of the epidemic, the company is expected to see the improvement of capacity utilization in 22 years, the delayed price increase of products caused by the rise of raw materials in 21 years and the improvement of gross profit margin in 22 years. According to the announcement, the net profit attributable to the parent company of 22q1 was 61-73 million yuan, with a year-on-year increase of 42% - 70%; In the medium term, the company's 22-year and 23-year raised investment projects are expected to be put into operation gradually, with an additional production capacity of 2400 tons (+ 13%) of knitted fabrics and 9.2 million pieces of knitted garments (+ 29%); In the long run, the growth of the company's old customers and the increase of procurement share have room for growth. At the same time, small customers have great growth potential. We expect the revenue of 21 / 22 / 23 to be 5.037/63.77/7.269 billion yuan respectively, the net profit attributable to the parent company to be 301 / 4.15/500 million yuan respectively, the EPS to be 0.54/0.75/0.90 yuan respectively, the closing price on March 28, 2022 to be 11.25 yuan, the corresponding PE to be 21 / 15 / 12x respectively, the target market value of 8.3 billion yuan and the corresponding target price to be 14.9 yuan respectively, and the "buy" rating will be given for the first coverage.
Company profile: the proportion of knitting has increased to 45%, driving the gross profit margin to increase year by year
Zhejiang Sunrise Garment Group Co.Ltd(605138) founded in 2007, it is an integrated OEM enterprise of fabrics and garments. The production capacity of the company is distributed in China, Vietnam, Cambodia, Sri Lanka and Romania. In 2020, the production capacity of woven fabrics / woven garments / knitted fabrics / knitted garments was 64 million meters / 28.5 million pieces / 188 million tons / 31.43 million pieces respectively.
Since 2017, the company has accelerated the production expansion of knitted fabrics and knitted garments. The proportion of knitted products has increased from 26% in 2017 to 45% in 2020, driving the gross profit margin to 20% from 18.5% in 2017. With the further production expansion of raised investment projects, the proportion of knitted products will further increase.
Industry analysis: the gross profit margin is lower than that of peers, which is mainly affected by mass production efficiency
In 2020, the income scale of Zhejiang Sunrise Garment Group Co.Ltd(605138) reached 4.7 billion yuan, which was only lower than that of Shenzhou International and Jingyuan international. The income CAGR in 17-20 years was 1%, which was only lower than that of Shenzhou International and Anhui Huamao Textile Company Limited(000850) . Only from the perspective of knitwear, the growth rate of Zhejiang Sunrise Garment Group Co.Ltd(605138) knitted fabrics and knitted garments in 17-20 years was 33% and 19% respectively. In terms of gross profit margin, Zhejiang Sunrise Garment Group Co.Ltd(605138) gross profit margin is only lower than that of Shenzhou International and Luthai Textile Co.Ltd(000726) . The gross profit margin is lower than that of Shenzhou International mainly due to: 1) Shenzhou fabrics are mainly chemical fibers, while the company's raw materials are mainly cotton yarn and the price of raw materials is higher; 2) Shenzhou products are highly standardized, so the mass production efficiency is higher; Most of the company's customers are luxury customers, and the degree of product standardization is low; 3) In addition to ready-made clothes, Shenzhou International also produces sneaker uppers with higher gross profit margin. The higher gross profit margin of Lutai A is mainly due to the manufacturing cost advantage brought by the larger production scale and the construction of supporting equipment such as energy supply.
The non net profit margin of the company fluctuates between 2-5%. We analyze that the net profit margin of the company is low
It is mainly affected by gross profit margin, sales expense rate and financial expense rate. The higher sales expense rate is mainly due to: 1) the scattered factories and businesses and the long transportation distance of products, resulting in higher storage and transportation expenses; 2) The company's sales teams in the United States, Hong Kong and other regions with high salary levels account for a relatively high proportion, resulting in a large amount of employee salary. In addition, the company's debt ratio has been at a high level, resulting in a high financial expense ratio.
Company advantages: leading fabric research and development, high-quality and stable customers
The advantages of the company are: 1) high quality customers, stable cooperation, 2) leading fabric technology, 3) Chinese factories mainly serve Chinese customers, high service quality, short product delivery time, foreign factories mainly serve foreign customers, and obvious cost and tariff advantages.
Risk tips
Exchange risk; Risk of losing key customers; Market competition risk; Risk of product quality control; Risk of fluctuation of gross profit margin of main products; Risks associated with overseas operations; Tax risk of remitting overseas operating profits back to China; The uncertainty of epidemic development; Capacity expansion is less than expected; Trade friction risk; Customer concentration risk; Systemic risk.
