\u3000\u30 Shenzhen Quanxinhao Co.Ltd(000007) 26 Luthai Textile Co.Ltd(000726) )
Key investment points
Vertical integration of medium and high-end yarn dyed fabric faucet. The company is the world’s leading medium and high-end color woven fabric company, which covers the whole industry chain of vertical integration. Its products include color woven fabrics, shirts, etc. in 2021, the fabric revenue accounted for nearly 80%. At present, the production capacity of fabrics / clothing is 294 million meters / 20.3 million pieces respectively, and the overseas production capacity accounts for 17% / 53% respectively, mainly distributed in Cambodia, Myanmar and Vietnam. Early products are mainly exported. In recent years, the proportion of domestic sales has increased, and the proportion of exports has decreased from 79% in 2006 to 54% in 2021. From 2000 to 2011, capacity expansion driven the company’s rapid development (revenue CAGR 25.82%), and the growth tended to be stable from 2011 to 2019 (revenue CAGR 1.41%). Under the impact of the epidemic in 2020, weak demand and pressure on orders led to a 30.14% decline in revenue and a 8.23 PCT decline in gross profit margin, which was superimposed with large changes in fair value and asset impairment losses, resulting in a sharp decline in parent net profit of 89.78%.
Over the past 21 years, the income side has recovered quarter by quarter, and the net profit attributable to the parent has increased significantly. 1) The recovery of European and American demand promoted the quarterly improvement of income in 2021, and the net profit attributable to the parent company increased significantly on the basis of low base. In 2021, the revenue increased by 10.25% (fabric / shirt increased by 19.6% / 1.7%, domestic / overseas increased by 9% / 14%), and the deduction of non parent net profit / parent net profit increased by 850% / 257% to 190 million / 348 million yuan respectively. From the perspective of trend, the revenue side improved quarter by quarter. Q1-Q4 were – 20.68% / + 18.61% / + 24.26% / + 21.04% year-on-year, and – 35.70% / – 25.21% / – 17.21% / – 15.99% year-on-year, respectively. The decline was gradually narrowed compared with 19 years, mainly benefiting from the recovery of European and American demand in major overseas markets since the second half of 2021. However, due to the low utilization rate of overseas production capacity in 21 years (4 months of shutdown due to the epidemic in Vietnam and 5-6 months of shutdown due to the coup in Myanmar), the overall income has not yet returned to the level before the epidemic. The growth rate of net profit attributable to the parent company greatly exceeded the revenue, which was mainly due to the same decrease in the expense rate of the period by 3.03 PCT, the total year-on-year decrease of 175 million yuan in the net income from changes in fair value, credit and asset impairment losses, and the same increase in the income from asset disposal by 57 million yuan. The high increase in net profit deducted from non attributable to the parent company was mainly due to the fact that non recurring items accounted for 79% of net profit attributable to the parent company in the same period, which reduced the base of net profit deducted from non attributable to the parent company. 2) The improvement of capacity utilization has accelerated the growth of 22q1, and the net profit attributable to the parent company has achieved high growth. In the past 22 years, the market demand in Europe and the United States continued to be strong, the production capacity in Southeast Asia returned to normal and the capacity utilization rate increased, which promoted the revenue of 22q1 to increase by 59.05% to 1.580 billion yuan (the sales volume / average price increased by about 39% / 14%) and the deduction of non parent net profit / parent net profit increased by 786% / 114% to 137 / 159 million yuan respectively. The revenue scale is expected to return to a historical high, and the gross profit rate / expense rate is + 6.45 / – 3.16pct respectively year-on-year, promoting the high growth of parent net profit.
The gross profit rate increased significantly quarter by quarter in Q1. In recent years, the gross profit margin of the company has stabilized at about 30%. Under the epidemic, the gross profit margin of the company decreased by 8.23pct to 21.33% in 2020. In 2021, it continued to decline by 0.61pct to 20.72%, mainly due to the low capacity utilization rate caused by the shutdown of fabric and garment factories in Vietnam due to the epidemic (the capacity utilization rate of fabric / garment in 2021 was 76% / 70% respectively), the rise of cotton price, the appreciation of RMB exchange rate and other factors. Quarterly, the gross profit margins of 21q1-q4 were 17.93% / 18.82% / 20.74% / 23.75% respectively, with a clear quarterly improvement trend. 22q1 benefited from the continued recovery of European and American demand in major markets and the recovery of fabric / garment capacity utilization to about 90% / about 80%, which promoted the gross profit margin to increase by 6.45pct to 24.38%. We judge that there is still room to improve the gross profit margin, which mainly benefits from: 1) the cotton price has been at a relatively high level, and the probability of continuing to rise sharply in 22 years is small; 2) the RMB has a depreciation trend; 3) strong demand is conducive to improving the sales of high value-added products.
Gradually expand categories and continue to promote capacity expansion. In recent years, the company has gradually expanded its product categories, arranged high value-added knitted fabrics and functional fabrics dominated by chemical fiber materials, and continued to expand its production capacity. According to the company’s plan for the next five years, the garment production capacity is expected to double (the new production capacity is basically located overseas) and the fabric production will also be expanded. At present, the projects under construction are mainly focused on fabrics: 1) overseas: the preliminary preparations for the production base of woven and knitted fabrics in Vietnam are in progress. It is expected that the construction of 22q4 can be started. At present, the planned production capacity is 60 million meters, and the production capacity of phase I project is 30 million meters; 2) Domestic convertible bond raised investment project: the functional fabric project is expected to have a monthly output of 1 million meters in the second half of 22 years, and the expansion project of high-grade printing and dyeing fabrics is in the early stage of investment.
Profit forecast and investment rating: the company is a global leader in yarn dyed fabrics. It has benefited from the recovery of European and American market demand since the second half of the year, the return of Southeast Asia production line to normal in 22 years, the improvement of capacity utilization, the improvement of revenue and gross profit margin quarter by quarter, the high growth of performance in 21 years and 22q1, showing a beautiful and good trend. At present, orders are full, and the continued recovery of capacity utilization in the future + the production of new capacity will promote revenue growth. The adverse factors restricting the gross profit margin in 21 years are expected to be eliminated. At the same time, the depreciation of the exchange rate is favorable (the depreciation of the exchange rate by 1% can increase the company’s net profit by 4%), and the performance growth in 22 years is highly uncertain. It is estimated that from 2022 to 2024, the net profit attributable to the parent company will increase by 61.70% / 19.64% / 16.38% respectively, and the EPS will be 0.63/0.76/0.88 yuan respectively, with the corresponding PE of 10 / 8 / 7X. The “buy” rating will be given for the first time.
Risk tip: repeated outbreaks, exchange rate fluctuations, rising cotton prices and capacity expansion outside China did not meet expectations.
