\u3000\u3 China Vanke Co.Ltd(000002) 042 Huafu Fashion Co.Ltd(002042) )
Key investment points
Event: the company released the 21st Annual Report and the first quarterly report of the 22nd year: in 2021, the company achieved a revenue of 16.71 billion yuan (+ 17.4%), a net profit of 570 million yuan attributable to the parent company and a non net profit of 350 million yuan deducted, turning losses into profits; 22q1 achieved a revenue of 4.15 billion yuan (+ 7.9%), and a net profit attributable to the parent company of 150 million yuan (+ 14.4%).
The resilience of the main yarn industry has increased greatly, and we look forward to the full implementation of digital transformation
Yarn orders in 21 years have warmed up as a whole, and overseas orders have been under short-term pressure since March. In the past 21 years, the global clothing consumption has recovered, and the epidemic in Southeast Asia has led to the return of overseas orders to China. At the same time, after the Xinjiang cotton incident, the company has established cooperation with a number of Chinese brands to effectively make up for the gap of overseas orders and promote the yarn revenue to increase by 16.2% to 6.63 billion yuan. With the development of the Chinese market, the company’s domestic sales revenue increased by 68.5% and the proportion increased by 4.0pct to 13.1%. Since the beginning of the year, due to the repeated epidemic in China and the recovery of production capacity in Southeast Asia, the trend of overseas order return has weakened, especially since March, the trend of order outflow has increased, and the growth of yarn revenue is expected to slow down.
Cotton prices and capacity utilization rose, driving the rapid recovery of gross profit margin. The gross profit margin of the company’s yarn in 21 years was 15.6% (+ 14.1pct), close to the historical high. The main reasons are as follows: 1) the price of cotton continued to rise from 15000 yuan / ton at the beginning of 21 years to 22000 ~ 23000 yuan / ton. The company’s low-cost cotton inventory for 3 ~ 6 months (about 250000 ~ 350000 tons of cotton per year) brought significant profit space; 2) Full orders drive the company’s capacity utilization rate to 93% from 71% in 20 years; 3) By the end of 2021, the company has completed the digital transformation of 1 million ingot capacity in Aksu, Xinjiang, and the production efficiency has been greatly improved.
The full implementation of industrial Internet is imminent, and it is expected to realize asset light expansion in the long term. At present, the company has a yarn production capacity of 2.06 million spindles (1.77 million spindles in China + 290000 spindles in Vietnam), and 200000 spindles factory is under construction. It is expected that in 22 years, the company will complete the digital transformation of all yarn production capacity and begin to promote to small and medium-sized spinning factories. Through production monitoring and unified order output, the company will solve the problem of capacity order mismatch, promote the overall profit margin and improve its own asset structure.
The network chain business has developed steadily, and breakthroughs have been made in new categories of socks industry
Net chain business volume increased simultaneously, significantly thickening the company’s performance. The online chain business is mainly a complete set of supply chain service business from cotton planting, processing, warehousing to final transaction. In the first three quarters of 21 years, the company grasped the market situation and achieved rapid growth. In 21q4, due to the rapid rise of cotton price in the short term, the trading volume decreased. The gross profit margin of the business increased to 8 pct.6 billion yuan, an increase of 96.5% year-on-year.
Continue to promote the sock industry sector and create the second growth curve. In 2021, it completed the merger and acquisition of three sock industries, namely, kalalara (brand), Boyi (OEM manufacturing) and Yifu (material), and realized the extension from yarn to downstream sock industry. The annual sock revenue was 270 million yuan (+ 80%), and the gross profit margin increased significantly by 20.6pct to 37.4%. At present, three independent brands with distinct positioning have been arranged to achieve a certain head effect on tmall and other platforms, and quickly spread channels with the help of Watson, Coole trendplay, box horse and so on. Based on the current 2000 hosiery machines, the company plans to put into operation 5000 hosiery machines within five years, with an annual output of 300 million pairs.
Profit forecast and valuation
Cotton prices still have strong support under the background of shrinking supply and strong demand, and the company’s main yarn industry is expected to maintain steady growth; At the same time, the industrial Internet and socks sector will have great prospects. It is estimated that the net profit attributable to the parent company in 22 / 23 / 24 will be RMB 610 / 7.0 / 790 million, with a corresponding growth rate of 6% / 16% / 13% and a corresponding valuation of 10 / 9 / 8x. We believe that the company’s revenue structure, asset structure and other business models will gradually change, and the valuation system will be gradually switched to maintain the “buy” rating.
Risk tip: the epidemic situation is repeated, and the terminal demand is less than expected
