\u3000\u3 Shengda Resources Co.Ltd(000603) 558 Zhejiang Jasan Holding Group Co.Ltd(603558) )
Key investment points
Cotton socks + seamless underwear leader, the performance fluctuated greatly in recent 2 years, turning losses in 21 years and high growth in 22q1. The company is a leader in the production of socks. In 2017, it entered the seamless underwear track through the acquisition of Qiao Er Tingting. Its main customers include decathlon, UNIQLO, puma, UA, etc. in 2021, the production capacity of cotton socks / seamless clothing exceeded 390 million pairs respectively (domestic / Vietnam accounted for 45% / 55% respectively) / 20 million pieces, and the export revenue accounted for 88%. The performance has fluctuated greatly since 2020: 1) the impact of the epidemic in 2020 and the self built factories of delta, the main customer, led to a 25% decline in the revenue of seamless underwear, dragged down the overall revenue by 11.12%, a sharp decline in the gross profit margin + the loss of goodwill of Qiao Er Tingting was about 550 million yuan, and dragged down the net profit to – 528 million yuan. 2) In 2021, the performance recovered significantly, with a revenue of RMB 2.052 billion / yoy + 29.65%, of which cotton socks revenue + 41.78% contributed to the main growth, and a net profit of RMB 167 million (excluding the impact of equity incentive expenses and goodwill impairment loss of about 46 million, the adjusted net profit was about RMB 213 million / compared with – 22% in 2019 and still not returned to the pre epidemic level). The significant increase in net profit was mainly due to the low base in the same period, the increase of gross profit margin of 6.66 PCT and the decrease of expense rate of 1.14 PCT Asset impairment losses basically returned to normal level. 3) 22q1 in the context of the gradual establishment of immunization against the epidemic in Vietnam, the revenue and net profit increased by 28.54% / 74.10% respectively, mainly benefiting from the recovery of seamless orders and the improvement of capacity utilization.
Cotton socks business: the increase in volume and price has promoted the revenue to maintain a good growth in the past 21 years. The production capacity of the company’s cotton socks ranks first in the world. It has been deeply engaged in the field of cotton socks for many years and has rich customer resources. In 2021, the revenue of the first three customers puma / UA / Bombas accounted for about 23% / 15% / 11%. At the performance end, the historical growth was steady, and the revenue from 2011 to 2019 was cagr13.5% 70%。 Under the impact of the epidemic in 2020, the income of cotton socks decreased slightly by 4.01%, the income increased by 41.78% in 2021, accounting for + 36.10% compared with 2019, and the main income accounted for 74.25%. The volume and price rose together to reverse the downward trend (the sales volume increased by 34.4% and the average price increased by 5.5%). The revenue of 22q1 cotton socks continued to grow by 17%, mainly driven by the increase of average price (the sales volume decreased by 1-2%). In 2021, we optimized the customer structure, raised the product price based on the rise of raw materials and other factors, and promoted the remarkable effect of 22q1 price increase strategy. We expect that the production capacity and average price of cotton socks are expected to reach low double digits / unit growth in 2022.
Seamless underwear business: the inflection point of 22q1 revenue has been realized. After the acquisition of Qiaoer Tingting in 2017, the seamless business continued to expand. However, due to the Limited Customer reserves, high concentration and insufficient anti risk ability, the impact of the epidemic in 2020 and the self built factories of delta, the main customer, dragged down the revenue by 25.24% (the sales volume decreased by 20.7% and the average price decreased by 5.7%). Due to the large decline of delta revenue compared with 2019 and the long development cycle of new customers, the revenue recovery in 2021 is slow, with an increase of 4.84% / compared with – 21.62% in 2019, mainly driven by sales volume (sales volume increased by 23.1% / average price decreased by 14.8%), the total revenue accounts for 24.79%, and the revenue contributed by decathlon and delta accounts for more than 60%. 22q1 seamless revenue increased by more than 56% at the same time, mainly driven by new customer expansion (H & M, ikar) and new brand & product cooperation with old customers (UNIQLO (new series cooperation) / delta (new brand cooperation) revenue increased by more than 200% / 68% respectively), driving the sales volume to increase by about 68.3% year-on-year. At present, Vietnam’s production capacity is in the climbing stage, and the certainty of new orders is high, which is expected to continue to push up the growth rate of revenue side.
Gross profit margin: cotton socks reached an all-time high, and seamless business is still recovering. From 2015 to 2019, the gross profit margin basically fluctuated in the range of 26-30%. In 2020, the gross profit margin decreased by 9.09pct to a historical low of 20.10%, and significantly recovered by 6.66pct to 26.76% in 2021. In terms of products, the gross profit margin of cotton socks reached the highest level in recent years in 2021, with a year-on-year increase of -4.97 / + 8.64pct in 2020 / 2021, and 22q1 remained at a high level of 31.5%; Seamless gross profit margin fell 18.52/2.60pct to 11.67% from 2020 to 2021, and increased to 21% in 22q1. Due to the low capacity utilization, the gross profit margin has not returned to the normal level. In view of the good utilization rate of seamless capacity and the high average price of seamless products in 2022, which provides profit improvement flexibility, it is expected that the gross profit margin of seamless products is expected to gradually return to the level higher than that of cotton socks before the epidemic in the future.
Profit forecast and investment rating: the company is the leader of cotton socks. In recent years, the impact of seamless underwear business on net profit fluctuates greatly. It has shown a bottom recovery trend since 2021. Among them, the cotton socks business increased sharply in 2021, the income of 22q1 seamless business recovered significantly and the profit margin is in the process of recovery. 2022q1 still achieved brilliant growth under the adverse factors such as the impact of the epidemic on Vietnam’s production. With the depreciation of RMB and the recovery of capacity utilization, the annual performance is expected to continue to improve. It is estimated that from 2022 to 2024, the net profit attributable to the parent company will increase by 75.93% / 26.94% / 9.38% respectively, and the EPS will be 0.75/0.95/1.04 yuan / share respectively, with the corresponding PE of 15 / 11 / 10x. The “buy” rating will be given for the first time.
Risk tips: exchange rate fluctuations, overseas production expansion fails to meet expectations, the epidemic situation worsens, and the orders of key customers fluctuate.
