\u3000\u30 Shaanxi Zhongtian Rocket Technology Co.Ltd(003009) 79 Huali Industrial Group Company Limited(300979) )
Key investment points
The company released its annual report for 2021. In 2021, the revenue was 17.47 billion yuan / yoy + 25.4% (excluding the influence of exchange rate yoy + 34.09%), and the net profit attributable to the parent company was 2.77 billion yuan / yoy + 47.3% (excluding the influence of exchange rate yoy + 57.55%). The higher growth rate of net profit than revenue is mainly due to the improvement of capacity utilization and production efficiency, driving the gross profit margin to increase by 3.4pct to 27.2%. Quarterly, the revenue of 2021q1 / Q2 / Q3 / Q4 was + 7.8% / 28.5% / 31.5% / 33.5% year-on-year respectively, and the net profit attributable to the parent company was + 42.3% / 93.2% / 30.2% / 37.4% year-on-year respectively. The decline of gross profit rate affected by the epidemic in Vietnam in 2021q3 slowed down the growth of net profit, and the gross profit rate of 2021q1 / Q2 / Q3 / Q4 was 28.4% / 27.9% / 26.0% / 26.9% respectively.
New and old customers and rising volume and price jointly drive high income growth. 1) In terms of customers, in 2021, the top five customers Nike, Deckers, VF, Puma and UA contributed + 43.7% / 57.8% / 13.4% / 26.1% / 44.9% year-on-year respectively, accounting for 35% (year-on-year + 2pct) / 22% (+ 4pct) / 18% (- 4pct) / 11% (- 1PCT) / 6% (+ 1PCT). Head customers Nike and Deckers have maintained rapid growth, while new customers on running, ASICs and NewBalance have achieved mass production and shipment in 2021. 2) By category, the revenue of sports casual shoes / outdoor boots / sports sandals in 2021 was + 25.9% / 6.2% / 46.6% year-on-year respectively, and the revenue proportion was 81.4% / 9.1% / 9.4% respectively. The higher growth of sports sandals was mainly driven by ugg home wool slippers. 3) In terms of component price, the product sales volume in 2021 increased by 29.45% year-on-year to 211 million pairs, and the unit price increased by 4.5% year-on-year. The growth of sales volume comes from the increase of production capacity & the utilization rate of production capacity has been improved. In 2021, three new factories in Vietnam, Yongshan, Weilin and Hongxin, were put into operation, and the production capacity climbed rapidly, with a year-on-year capacity of + 21.16% to 219 million pairs. At the same time, the company’s production capacity is mainly located in northern Vietnam, and the attendance rate of workers is less affected by the epidemic. The utilization rate of production capacity in 2021 was + 5pct to 95.9% year-on-year. The increase in unit price is mainly due to changes in customer structure and product structure, such as the upward price range of Nike’s expanded product line and the increase in the proportion of Deckers, a brand with high unit price.
The profitability was further improved and the inventory structure remained healthy. 1) Gross profit margin: in 2021, the gross profit margin increased from + 3.4pct to 27.2% year-on-year, of which the gross profit margin of sports leisure / outdoor boots / sports sandals increased from + 3.4pct/1.5pct / + 4.9pct to 28.88% / 18.66% / 20.52% year-on-year respectively. Since the company adopts the cost plus pricing model, the gross profit margin has little correlation with the price of raw materials and product prices. In 2021, the gross profit margin will still increase under the appreciation of RMB exchange rate, mainly due to the recovery of capacity utilization + the improvement of production efficiency brought by technology R & D investment. 2) Inventory: by the end of 2021, the inventory was 2.67 billion yuan / yoy + 27.9%. The inventory turnover days were 71 days, all of which were within one year. The downstream demand of the company was tight and the inventory turnover was fast.
Profit forecast and investment rating: the company is a leading professional manufacturer of sports shoes in the world. Its customer resources are high-quality and viscous. According to the order demand, it is expected to maintain a positive pace of capacity expansion in the future. With the enhancement of scale effect, the high profit level is expected to be maintained. In 2022, new factories in Vietnam will reach production capacity one after another. At the same time, phase I factories in Indonesia are expected to start production at the end of the year and produce capacity contribution in 2023. We expect that the net profit attributable to the parent company from 2022 to 2024 will increase by 26.8% / 23.1% / 18.9% year-on-year respectively, and the EPS will be 3.01/3.70/4.40 yuan / share respectively, corresponding to PE 25 / 20 / 17x respectively, maintaining the “buy” rating.
Risk tips: Vietnam’s rising labor costs, exchange rate fluctuations, repeated overseas epidemics, etc
