\u3000\u3 Bohai Water Industry Co.Ltd(000605) 003 Zhongwang Fabric Co.Ltd(605003) )
Event: the company released the annual report and the first quarterly report: in 2021, it achieved a revenue of 587 million yuan (+ 18.5%) and a net profit attributable to the parent company of 147 million yuan (+ 4.8%); The revenue of single Q4 was 172 million yuan (+ 14.7%), and the net profit attributable to the parent company was 38.13 million yuan (- 14.2%); 22q1 achieved a revenue of 152 million yuan (+ 7.6%), and a net profit attributable to the parent company of 38.29 million yuan (- 9.1%).
In the 21st year, the sales achieved high growth against the trend, and the profit margin was under pressure in the short term
Against the trend, the annual income achieved a high growth of 19%. In 2021, the supply side of sofa in the United States faced multiple pressures: for example, the shortage of electricity in the United States and the epidemic in Vietnam led to the reduction and shutdown of sofa supply chain manufacturers, and the obstruction of port logistics made it difficult to deliver orders. Relying on its own brand strength, the irreplaceable nature of products and the stickiness with core customers, the company successfully overcame the fluctuations in downstream industries. At the same time, the company opened up new markets and new printing categories in Mexico during the year, driving the annual revenue growth of 18.5% to 587 million yuan. In terms of products, the income of decorative fabrics / sofa covers was 520 million / 60 million respectively, with a year-on-year increase of 18% / 23%, accounting for 89% / 10%. In terms of regions, the revenue of Chinese Mainland, the United States and Vietnam was 96 million, 193 million and 255 million respectively, with a year-on-year increase of -1%/19%/21%, and the proportion of export sales increased by 3.2pct to 83%.
Raw materials and exchange rate fluctuations caused a large decline in the current gross profit margin. In 2021, the gross profit margin was 36.8% (- 5.1pctc), and the main reasons for the decline were as follows: 1) the prices of POY and DTY, the main raw materials, rose sharply, with an increase of more than 30% in early October compared with the beginning of the year; 2) The company’s loans are mainly settled in US dollars, and the depreciation of US dollars in 21 years is large; 3) Sea freight soared: freight at the end of the year rose to 3-4 times that at the beginning of the year. Although the company actively responded by raising prices and hedging, it failed to cover the rising costs in a timely and complete manner.
During the period, the cost rate improved by 1.9pct to 6.4%. In 2021, the company’s sales rate / management expense rate / R & D expense rate was 2.72% / 4.28% / 3.44%, a year-on-year decrease of 0.18/0.34/0.09pct, highlighting the scale effect.
The business delivery period is stable, the new production capacity will be released, and the 22-year performance is flexible
The profit side of 22q1 is under pressure, and the production and operation operates stably, which is conducive to the improvement of market share for a long time. The revenue of 22q1 company increased by 7.6%, the net profit attributable to the parent company decreased by 9.1%, and the gross profit margin / net profit margin decreased by 1.0/4.6pct to 37.5% / 25.1% respectively. The main reason is also the price fluctuation of raw materials and exchange rate. In addition, since the middle and late March, the epidemic in Shanghai has led to a large increase in logistics costs. At present, the company’s production side is not affected by the epidemic. While its own production capacity is operating at full capacity, the outsourcing proportion is still at a high level. In addition, the company maintains a normal shipping rhythm through multiple channels (from Shanghai port to Huzhou and Ningbo Zhoushan Port Company Limited(601018) ), and a stable production delivery date will promote the company’s share in major customers for a long time.
The raised investment capacity will be put into operation in June, and the reduction of outsourcing ratio will bring profit elasticity. The company raised and invested 15 million meters of decorative fabric capacity (the existing capacity is 16.5 million meters), which has entered the equipment commissioning stage at the end of 21, and is expected to be put into operation by the end of June 22. After the launch of new production capacity, it is expected that the outsourcing proportion of the company will decrease from the current 30% to about 10%. According to our calculation, it is expected to drive the overall gross profit margin to increase by about 2pct, and the quality and delivery stability of the company will be further strengthened.
Profit and valuation forecast
It is estimated that the company will realize an operating revenue of RMB 700 / 870 / 1.04 billion from 2022 to 2024, with a year-on-year increase of 20% / 23% / 21%; The net profit attributable to the parent company was RMB 190 / 240 / 300 million, with a year-on-year increase of 28% / 29% / 24%, and the current price corresponding to PE was 11 / 9 / 7 times. Considering the integration advantages of the company’s industrial chain and its strong bargaining power in the upstream and downstream, we believe that while the company has the ability to smoothly digest new production capacity, the profit margin will be steadily improved and the “buy” rating will be maintained.
Risk tips
The price of raw materials or exchange rate fluctuates, the foreign trade environment deteriorates, and the epidemic situation repeats
