\u3000\u30 Shaanxi Zhongtian Rocket Technology Co.Ltd(003009) 79 Huali Industrial Group Company Limited(300979) )
Core view
Strong downstream demand boosted the annual performance by 47%, with a strong momentum in the fourth quarter. In 2021, the revenue reached 17.47 billion yuan, a year-on-year increase of 25.4%, mainly driven by the strong increase of 28.3% in the revenue of the top five customers (accounting for 92%); The net profit attributable to the parent company was 2.77 billion yuan, a year-on-year increase of 47.3%, mainly due to the improvement of profit margin and efficiency of various products. The company’s accounting standards changed in 2021, resulting in a decrease of nearly 1% in gross profit margin and sales expense rate; The gross profit margin was 27.2%, an increase of 3.4 percentage points under comparable standards, mainly due to the optimization of product structure and the increase of profit margin of each product; The four expense rates decreased by 2.2 percentage points to 5.4%, mainly due to changes in accounting standards and exchange gains during the year. In the fourth quarter, the revenue growth momentum was good, with a revenue of 4.84 billion yuan, a year-on-year increase of 33.5%; The net profit attributable to the parent company was 770 million yuan, a year-on-year increase of 37.4%, and the growth rate was accelerated month on month.
Strong customer demand, capacity release and efficiency improvement will continue to promote the growth of the company. The impact of the epidemic in February was slight. The global supply chain tension continues and the customer demand is strong. The original major customers such as Nike will still be out of stock in 2022. The orders of new customers Arthur, on and NewBalance have been mass produced and shipped, which is expected to continue in large quantities. The company actively expands production and improves efficiency to meet the strong demand of customers. In 2021, three new plants (with a total capacity of 36 million pairs / year) were put into operation in Vietnam. The capacity continues to climb and there is still much room for release. In addition, the company will also improve production efficiency by popularizing automation equipment. In addition, the company will build new plants in northern Vietnam and Indonesia, which are expected to be put into operation after 2022. The company’s production capacity has been expanded in an orderly manner and its production efficiency has been continuously improved. In the medium term, the production capacity has increased rapidly and has strong certainty. The epidemic situation in Vietnam in February 2022 affected the short-term attendance rate and had a slight impact on the annual performance.
Risk tips: capacity expansion is less than expected, the epidemic lasts too long, affecting downstream demand, and international political and economic risks
Investment suggestion: excellent performance, strong growth certainty, and maintain the “buy” rating.
The company achieved high-quality and rapid growth in 2021, with strong operation ability and outstanding competitive advantage. In the future, with the ramp up of new production capacity, the continuous improvement of the share of core brands and the volume of new brands, we are optimistic about the company’s sufficient growth potential and high-quality return on investment. As the upgrading of the company’s product structure and unit price are better than previously expected, we slightly raised the profit forecast. It is estimated that the company’s net profit from 2022 to 2024 will be RMB 3.65/46.7/5.75 billion (formerly RMB 3.55/4.44 billion), with a year-on-year increase of 31.9% / 27.8% / 23.1% and EPS of 3.13/4/4.92 respectively. The current share price corresponds to PE of 23.6x/18.5x/15x. The company has strong certainty of medium-term growth and maintains a reasonable valuation of RMB 107110 (corresponding to 34-35xpe in 2022), Maintain the “buy” rating.
