\u3000\u3000 Bros Eastern Co.Ltd(601339) (601339)
Key investment points
The performance increased significantly in 2021. The company is the leader of color spinning in China. Since the epidemic, its performance has experienced a process of decline first and then recovery. In 2020, the global epidemic had an impact on the company's business from both sides of supply and demand, and the revenue fell by 1.4% year-on-year to 6.135 billion yuan. Since 2021, with the weakening of the impact of the epidemic and the gradual recovery of demand, the revenue in the first three quarters increased by 32.95% year-on-year to 5.557 billion yuan, up from + 21.61% in the same period in 2019. According to the announcement of the company on January 17, 2022, the net profit attributable to the parent company is expected to be 1.33-1.39 billion yuan in 2021, with a year-on-year increase of 263% - 280%. We judge that the high performance increase mainly benefits from strong orders, recovery of capacity utilization and rise of cotton price.
Production capacity expanded steadily and capacity utilization picked up. 1) In terms of production capacity, by the end of 2021, the company had a total production capacity of 1.7 million ingots (1.1 million ingots in Vietnam + 600000 ingots in China), and Vietnam's production capacity accounted for more than 60%. Since 2013, the company has started to lay out Vietnam's production capacity and continued to increase investment. From 2015 to 2021, Vietnam's production capacity was 40 / 50 / 50 / 70 / 90 / 100 / 1.1 million ingots respectively. In July 2021, the company issued a fixed increase plan and planned to expand the 390000 yarn project in Vietnam by raising no more than 1 billion yuan in private. The company expects to put into operation about 200000 spindles in 2022 / 2023 respectively. 2) In terms of capacity utilization, Vietnam's average capacity utilization rate is only 60% - 70% due to shutdown and sluggish demand in 2020. Since 2021, it has gradually picked up. The aggravation of the epidemic in Vietnam in the third quarter led to the shutdown and dragged down the capacity utilization rate of Vietnam to about 50% (at the lowest, it was only 32%) and recovered to 90% in the fourth quarter. We expect the average capacity utilization rate of Vietnam in 2021 to be about 80%. 3) Comprehensive capacity expansion + the recovery of capacity utilization in Vietnam. We expect the company's output to increase by about 10% year-on-year in 2021.
The rise of cotton prices has led to a significant increase in product prices and gross profit margin. Due to the impact of the epidemic on the pattern of supply and demand, global commodity prices have started to rise since April 2020. The price of national cotton 328 began to rise from the low point of 11100 yuan / ton, accelerated in October 2020, and rose to 22100 yuan / ton by December 2021, with an increase of 48% in 2021. The sharp rise in cotton prices has led to an increase in product prices. On the one hand, it has contributed to the growth of revenue. On the other hand, the company has 6-8 months of low-cost cotton inventory reserves, driving the gross profit margin in the first three quarters of 2021 to increase by 11.95pct to 22.14% year-on-year. We expect the average selling price of the company's products to increase by about 20% year-on-year in 2021.
Profit forecast and investment rating: as one of China's color spinning duopoly, the company has outstanding capacity scale and customer resource advantages (the main supplier of Shenzhou International). According to the performance forecast, the company's 2021q4 net profit is 540-600 million yuan. We believe that the 2021q4 capacity utilization level can be used as a reference for the period of relatively stable epidemic situation. At the same time, the cotton price is expected to remain high in the first half of 2022, and the company's beautiful performance is expected to continue until at least the first half of 2022. At the same time, considering that the fixed value-added projects in Vietnam will increase the production capacity in 2022 / 2023, we expect that the company's revenue will increase by 31.0% / 18.5% / 15.3% year-on-year respectively from 2021 to 2023, and the net profit attributable to the parent company will increase by + 269.8% / + 10.5% / - 1.2% year-on-year respectively. The corresponding PE will be 7.6x/6.9x/7.0x respectively, and the "buy in" rating will be given for the first time.
Risk tip: the repeated epidemic in Vietnam, the risk of significant fluctuations in cotton prices, and cotton futures contracts affect performance.
