\u3000\u3000 Bros Eastern Co.Ltd(601339) (601339)
Event overview
The company released the performance forecast for 2021. The net profit attributable to the parent company was 1.33-1.39 billion yuan, a year-on-year increase of 263% – 280%, deducting 1.28-1.34 billion yuan, a year-on-year increase of 346% – 367%; In 21q4, the net profit attributable to the parent company was 538-598 million yuan, with a year-on-year increase of 188% – 220%, deducting the net profit not attributable to the parent company of 525-585 million yuan, with a year-on-year increase of 245% – 284%. The performance exceeded expectations. Our analysis mainly came from the higher than expected recovery of capacity utilization and the higher than expected price increase in Q4.
Analysis and judgment:
According to our analysis, the substantial growth of the company’s net profit attributable to the parent company is mainly due to: 1) the significant improvement of capacity utilization in 2021. We estimate that the capacity utilization in 2021 will be about 88%. Quarterly, the capacity utilization in 21q3 has decreased to 70% due to the epidemic in Vietnam, but 21q4 has recovered to 90 +%. 2) The rise of cotton price and the improvement of product structure drive the price increase of products. We estimate that the sales volume / unit price of the company will increase by 10% / 20% respectively in 2021 (average cotton price in 2021 + 38%). 3) The improvement of low-cost cotton inventory and product structure drive the improvement of profitability. We estimate that the annual gross profit margin is about 22.5%, with a year-on-year increase of 11.6pct (in which we estimate that the gross profit margin of color spinning / blank yarn is 25% / 17% respectively).
Investment advice
In the medium and short term, (1) the company’s fixed increase project will add 390000 ingots in Vietnam, and we estimate that 200000 ingots are expected to be put into operation in 22 / 23 years respectively; (2) The company’s low-cost cotton inventory in Vietnam is expected to continue. According to Q3 data, we estimate that the company’s cotton inventory is about 8 months, so Vietnam’s low-cost cotton inventory is expected to remain until the first half of 22 years. It is expected that the net profit in 23 years will decline, mainly affected by the increase of cotton price cost side. In the long run, we put more emphasis on the company’s non cyclical growth logic, that is, the improvement of bargaining power brought by the increase of the company’s share. In addition, focus on the company’s growth with the expansion of Shenzhou, the largest customer.
Considering the reasons why the performance in the 21st year exceeded the expectations, the revenue forecast for the 21st / 22nd / 23rd year was raised from RMB 7859 / 9394 / 11039 million to RMB 7993 / 9595 / 11306 million, the net profit attributable to the parent company was raised from RMB 1320 / 1567 / 1431 million to RMB 1366 / 1626 / 1526 million, and the EPS was raised from RMB 0.88/1.04/0.95 to RMB 0.91/1.08/1.02, corresponding to the closing price of RMB 6.34 on January 17, 2022, and the PE was 7 / 6 / 6x respectively, Maintain buy rating; The safety margin refers to the average repurchase price of the company (RMB 3.7) and the exercise price of equity incentive (RMB 3.93 / 4.33).
Risk tips
Downside risk of cotton price; Epidemic risk in Vietnam; Exchange rate fluctuation risk; Risk that the commissioning progress is lower than expected; Systemic risk.
