\u3000\u3 China Vanke Co.Ltd(000002) 674 Xingye Leather Technology Co.Ltd(002674) )
China's cattle leather production leader Xingye Leather Technology Co.Ltd(002674) is a high-quality producer of cow leather. It has four production bases: Anhai headquarters, Anton plant, wholly-owned subsidiaries Ruisen leather and Xingning leather, with a production capacity of 150 million square feet. The company focuses on domestic sales and has actively expanded export sales in recent years. The export revenue in 2021h1 accounts for 14%. In 2020, affected by the epidemic, the income and net profit attributable to the parent company were - 7.98% and - 2.11% year-on-year respectively. Since 2021, with the improvement of the epidemic situation, the performance has recovered. In the first three quarters, the revenue is yoy + 44.91% / compared with the same period in 2019 + 12.71%, and the net profit attributable to the parent is yoy + 290.15% / compared with the same period in 2019 + 88.32%. The increase of the net profit attributable to the parent is higher, mainly benefiting from the sharp increase of the gross profit margin. The company's performance forecast shows that the net profit attributable to the parent company in 2021 will be RMB 185210 million, an increase of 60.12-81.76% at the same time.
The recovery of capacity utilization promotes revenue growth. In recent years, the company's production capacity has remained stable and the utilization rate of production capacity fluctuates greatly. Affected by the trade friction between China and the United States in 2019 (the company's raw materials cow skin are mainly imported from the United States), the capacity utilization rate was - 8.3pct to 63.8% year-on-year, and 66.3% in 2020. In 2021, benefiting from the recovery of demand and the transfer of orders in Southeast Asia, the capacity utilization rate in 2021h1 increased by 33pct to 74.15% year-on-year. We expect that the capacity utilization rate of the whole year is expected to be significantly improved and effectively drive revenue growth. In addition, affected by the rising price of raw materials, the selling price of the company's products increased in 2021, which also contributed to the growth of revenue.
In 2021, the increase in the price of raw cow skin promoted a significant increase in gross profit margin. In the first three quarters of 2021, the company's gross profit margin increased by 8.89pct to 26.14% year-on-year, mainly benefiting from the rise in the price of raw cow skin. The company mainly relies on imports of raw cow hide as its raw material. In recent years, the supply of overseas cow hide has been stable, but the demand side is not high, resulting in the price of imported cow hide falling year by year. From 2014 to 2020, the average monthly price of imported salted cow hide fell from a high of $3.13/kg to $0.63/kg in 2020 / 07. With the improvement of the epidemic situation, the recovery of demand and the recovery of cow leather price, it rose from 0.85 to $1.39/kg in 2021, an increase of 62%. The company's products adopt the raw material plus pricing mode, and the price fluctuation of raw materials has a great impact on the gross profit margin. In the process of rising the price of raw materials, the product price rises, and the company has relatively low inventory, which is conducive to the increase of gross profit margin. In addition, the increase in gross profit margin in 2021 also benefited from the increase in capacity utilization, dilution of fixed costs and expansion of high gross profit product categories. The price of raw cow skin is still at a historical low, but it will increase greatly in 2021. We expect it to remain stable in 2022.
Categories and customers continue to expand and make diversified investment. 1) Category expansion: in the past two years, the company has expanded military, sofa furniture, electronic product coated leather and other categories on the basis of the original vamp and bag. Among them, the gross profit rate of military and electronic coated leather is high, which is expected to promote the improvement of profitability. 2) Customer expansion: from 2021 to August, the wholly-owned subsidiary of the company took shares in harvestglorylimited. Hg has maintained stable cooperative relations with many international shoe and clothing brands. At present, it is an important customer of the company, which plays a role in promoting the company's expansion of overseas markets. 3) Diversified investment: on October 2021, the company participated in the investment and establishment of Xiamen xingniu Borui Fund (the company subscribed 98% of its share), acquired 4.388% equity of Anyu stomatology in December, and widened investment channels.
Profit forecast and investment rating: the company is the leader in China's cattle leather production, and its performance shows recovery in 2021. The stricter environmental protection supervision of the leather industry is expected to promote the industry concentration in the long term, and the company is expected to benefit as a leader. At present, the company's capacity utilization rate is 70% + there is still room for improvement, and the gross profit margin is expected to continue to improve with the expansion of categories in 2021. We expect that from 2021 to 2023, the net profit attributable to the parent company will increase by 70.2% / 19.2% / 16.8% year-on-year respectively, and the EPS will be 0.67/0.80/0.94 yuan / share respectively. The corresponding PE will be 15 / 12 / 11x for the first time, and will be rated as "overweight".
Risk tips: price fluctuations of raw materials, exchange rate fluctuations, repeated epidemics, stricter environmental protection, etc.
