\u3000\u3 Shengda Resources Co.Ltd(000603) 337 Jack Sewing Machine Co.Ltd(603337) )
The company released the annual report of 2021 in the evening. The annual revenue was RMB 6.054 billion, a year-on-year increase of + 72%, and the net profit attributable to the parent company was RMB 466 million, a year-on-year increase of + 49%, which was basically consistent with the performance express.
In the 21st year, the prosperity of the sewing industry is high, and in the 22nd year, intelligent complete sets and overseas markets will usher in opportunities. In terms of business, the company’s sewing business achieved an annual revenue of 5.4 billion yuan, a year-on-year increase of + 74%, and the output increased by 117%, higher than the industry level of 71%. The annual sales of industrial sewing machines reached 2.44 million units, a year-on-year increase of + 63%. It is estimated that the average sewing price is about 2200 yuan, a year-on-year increase of + 7%. China’s revenue increased by + 107% year-on-year, which is better than overseas. It is mainly due to the return of clothing orders to China under the influence of the epidemic in 21 years, which has brought a higher prosperity of Chinese sewing. We calculate that the company’s market share in China has increased from 33% last year to nearly 40%. In terms of intelligent complete set business, the company’s automatic equipment revenue is rapidly repaired, the revenue of cutting bed and cloth laying machine is + 54% year-on-year, the revenue of shirt and denim automatic sewing equipment is + 62% year-on-year, and new products such as hanging are expected to gradually contribute to the revenue from 22 years. In terms of future prospects, the company believes that China’s sewing market will return to normal in 2022. At the same time, the downstream digital and intelligent transformation is expected to accelerate, and the complete set of Zhilian solutions will usher in opportunities. In the overseas market, with the continuous mitigation of the epidemic, garment orders are expected to continue to return overseas, and the sewing export market will develop steadily.
We should look forward to the improvement of profitability and increase investment in R & D of intelligent complete set business. The company Q4 achieved gross profit margin of 28.95% in the single quarter, net interest rate 9.27%, and Q3 growth 2.92 and 2.75pct respectively. According to the company’s official account, the price of the company’s products rose in December 1st 21, and the pressure of the upstream raw materials increased further downstream, and the profitability is expected to continue to improve. In terms of expense rate, the scale effect brought about the decrease of the company’s sales and management expense rate, and the annual R & D expense rate increased by 0.48pct to 6.35%, mainly due to the increase of R & D personnel and related expenses invested in building a complete set of Zhilian solution service provider. Among the equity incentive targets previously released by the company, the 22-year return to parent net interest rate target is about 10%, significantly higher than the level of 7.7% in the whole year of 21 years. It is worth looking forward to cost reduction and efficiency increase.
The increase of inventory affects the performance of short-term cash flow, and the high hedging repurchase maintains the product price. At the end of the year, the company’s inventory was about 2.2 billion, an increase of 122% over the beginning of the year, including 990000 sets of industrial sewing machines, a record high, mainly because the company expects the overseas market to continue to improve in 2022 and prepares some strategic reserves in advance. High inventory leads to poor cash flow performance of operating activities. We believe that the follow-up of high inventory is expected to be gradually digested through the slowdown of production rhythm. There is no need to worry too much about the potential destocking means of price reduction and promotion. According to official account China Jack, the company recently launched a high value repurchase activity aimed at maintaining product prices in the downside of China’s demand through the management of the price of two mobile phone products.
Investment suggestion: we are optimistic about the continuous development of the overseas market of sewing in the past 22 years. At the same time, the potential of the company’s intelligent complete set business is worth looking forward to. Maintaining the previous judgment on the performance of the company for 22-23 years, it is expected that the net profit attributable to the parent company from 2022 to 2024 will be RMB 722 million, RMB 951 million and RMB 1.285 billion respectively, corresponding to 12, 9 and 7 times of PE under the current share price, which is at the bottom of history and maintains the “buy” rating.
Risk tips: 1. The overseas demand for repair is less than expected due to repeated outbreaks; 2. The expansion of intelligent complete equipment is less than expected; 3. Raw material prices rose more than expected.
