\u3000\u3 Bohai Water Industry Co.Ltd(000605) 003 Zhongwang Fabric Co.Ltd(605003) )
Event: Zhongwang Fabric Co.Ltd(605003) released the annual report of 2021 and the first quarterly report of 2022. In 2021, the company achieved an operating revenue of 587 million yuan, a year-on-year increase of 18.49%; The net profit attributable to the parent company was 147 million yuan, a year-on-year increase of 4.77%; The net profit attributable to the parent company after deduction was 130 million yuan, with a year-on-year increase of 4.22%. In 2021q4, the company realized an operating revenue of 172 million yuan, a year-on-year increase of 14.72%; The net profit attributable to the parent company was 38 million yuan, a year-on-year decrease of 14.24%; The net profit attributable to the parent company after deducting non-profit was 29 million yuan, a year-on-year decrease of 24.03%.
In addition, in 2022q1, the company achieved an operating revenue of 152 million yuan, a year-on-year increase of 7.63%; The net profit attributable to the parent company was 38 million yuan, a year-on-year decrease of 9.05%; The net profit attributable to the parent company after deducting non-profit was 37 million yuan, a year-on-year decrease of 2.22%.
In the past 21 years, the company has demonstrated its performance toughness and continued to cultivate overseas markets
In the face of external pressures such as the depreciation of the US dollar, the power outage in the cold wave in the United States, China’s double control power restriction and repeated epidemics at home and abroad, the company achieved rapid growth against the trend in 21 years, with an annual revenue of 587 million yuan, a year-on-year increase of 18.49%. The company actively negotiated with customers to raise prices, adjust the cycle of foreign exchange settlement, carry out long-term foreign exchange settlement and sales to offset the impact of some adverse factors, strengthened R & D and innovative design, increased product added value, actively explored new markets and categories, and contributed new growth points to the Mexican market and printing business.
In terms of subregions, in 2021, domestic sales, the United States, Vietnam and other countries achieved revenue of RMB 0.96/1.93/255039 million respectively, with a year-on-year increase of -1.16/18.79/20.88/89.30%. The bright growth of export sales led to the growth of revenue. In the future, the company will continue to cultivate the American market, strengthen the development of high value-added customers, and further expand the markets in Mexico, the Middle East, Europe and China. By category, in 2021, the income of decorative fabrics, sofa covers and others was 520 / 59 million yuan respectively, with a year-on-year increase of 18.10/23.40%, and the sales volume was 241542 million meters / 187500 sets, with a year-on-year increase of 20.99/16.36%.
Steady expansion of production capacity and continuous improvement and consolidation of design and R & D capabilities
The company’s existing production capacity is close to saturation. The fund-raising project “construction project of high-grade decorative fabrics and R & D center with an annual output of 15 million meters” has entered the stage of equipment commissioning by the end of 2021 and is expected to be put into operation by the end of June 2022, which is expected to drive performance growth. In terms of R & D, the company pays attention to fashion training and has increased design investment in the past 21 years. The proportion of design cost in R & D cost is 39.31%. The company sends design and R & D personnel to participate in China’s external material exhibition and furniture exhibition, cooperates with well-known painting companies around the world, obtains drawings at the forefront of the industry trend, learns new ideas, new materials and new processes of foreign product design, and launches fabrics in line with the style of customers’ furniture products, with continuous leading design ability. At the same time, the company closely followed the market trend, launched functional fabric products, and solved more than 10 technical problems such as the flame retardant performance of fabrics. The main technical indicators of products remained at the forefront of the world. The company will continue to consolidate the advantages of design and R & D, develop new products and enhance the added value of products.
The rise of raw materials and the appreciation of exchange rate put short-term pressure on profitability
The company’s comprehensive gross profit margin was 36.83% in 21 years, with a year-on-year decrease of 5.11pct, mainly due to the continuous rise of main raw materials POY, DTY and sea freight in 21 years, superimposed with the depreciation of the US dollar and other comprehensive effects; In 22q1, the company’s comprehensive gross profit margin was 37.52%, down 1.02pct year-on-year.
The company’s expense control performance was good. During the 21 years, the expense rate was 9.83%, a year-on-year decrease of 2.00pct, and the expense rates of sales / management / R & D / finance were 2.72/4.28/3.44 / – 0.61% respectively, a year-on-year decrease of -0.19 / – 0.34 / – 0.09 / – 1.38pct respectively. During 2022q1, the expense rate of the company was 9.04%, with a year-on-year increase of 2.39pct. Under the comprehensive influence, the net interest rate of the company in 21 years was 25.07%, a year-on-year decrease of 3.28pct. In 2022q1, the net profit margin of the company was 25.15%, a year-on-year decrease of 4.61pct.
Investment suggestion: the company is the leader of decorative fabrics in China. It has significant advantages in design and R & D, continues to promote capacity expansion and is optimistic about long-term performance growth. We estimate that the operating revenue of Zhongwang Fabric Co.Ltd(605003) 2022-2024 will be 705, 868 and 1036 million yuan, with a year-on-year increase of 20.10%, 23.12% and 19.35%; The net profit attributable to the parent company was 186 million yuan, 235 million yuan and 282 million yuan, with a year-on-year increase of 26.61%, 26.20% and 20.05%. The corresponding PE was 12.2x, 9.6x and 8.0x, and the investment rating of Buy-A was given.
Risk warning: order expansion is not as risky as expected; Price fluctuation risk of raw materials; Exchange rate fluctuation risk; Industry competition intensifies risks, etc.
