Comments On The Mid-Term Performance Of Tianhong Textile (02678. HK) In 2020

Everbright Securities released the Research Report on Tianhong textile on August 27, which is summarized as follows:

In the first half of the year, the company realized 8.214 billion yuan of revenue and a 19.4% year-on-year decrease, mainly due to the reduction of market demand caused by the outbreak of new crown pneumonia in 20 years, which had a negative impact on the company's order receiving; the company's gross profit rate decreased by 2.1 PCT to 11.4%, and the net profit decreased by 4.6 PCT to 0.2%; and the net profit attributable to the parent company was 10 480000 yuan, a year-on-year decrease of 97.8%, which was mainly caused by the decrease of income and the decrease of gross profit rate as well as the rigidity of expenses. Eps0.01 yuan.

The company's main products include yarn, grey cloth, fabric and clothing, etc. in terms of business: 1) yarn revenue accounted for the largest proportion, accounting for 75.9% in the first half of 20 years, with revenue of 6.239 billion yuan, a year-on-year decrease of 19.3%. In terms of volume price of spin off, volume price decreased by 9.77% and 11% respectively year on year. 2) The revenue of grey fabric, woven fabric, knitted fabric and clothing of other smaller businesses were - 41.9%, - 8.3%, - 18%, - 36.3% year on year, respectively. In addition, the sales of non-woven fabrics increased this year, accounting for 15.67 million yuan.

The gross profit rate of main products such as yarn decreased greatly, which affected the overall gross profit rate and increased the expense rate

Gross profit margin: the gross profit margin of 20h1 decreased by 2.1 PCT to 11.4% year-on-year, mainly due to the impact of the epidemic situation, and the decline in the gross profit rate of main products was dragged down. Among them, the gross profit rate of yarn, grey cloth, woven fabric, knitted fabric and jeans are 10.6% (- 3.5pct), 8.8% (- 6.5pct), 17.1% (+ 4pct), 12% (+ 1.2pct) and 10.6% (+ 3.5pct), respectively.

In terms of products, the decline in yarn gross margin is mainly due to the fact that the company produces more ordinary yarns to maintain capacity utilization under the influence of the epidemic situation, and the gross profit rate has been damaged. In addition, the company's main raw material is cotton, and the domestic cotton 328 price index fell by 12.76% in the first half of 20 years. The overall recession in the upstream and downstream of the textile industry also has an adverse impact on the company's pricing.

Expense rate: during the first half of 20 years, the expense rate increased by 3.9 PCT to 14.3%, of which the sales, management and financial expense rates were 4.1% (+ 0.3pct), 6.2% (+ 2.0pct) and 3.9% (+ 1.6pct) respectively. The total cost of the period was 11.72 million yuan, with a year-on-year increase of 11.2%.

External demand uncertainty remains, focus on short-term order side marginal change

We believe that: 1) affected by the epidemic situation at home and abroad, the orders and profitability of the company were damaged in the first half of 20 years, but from the impact point of view, it is estimated that the impact of the second quarter is the largest. The proportion of the company's export and domestic sales revenue is about 3:7 (some of the domestic sales are indirect exports). Since the second half of the year, with the gradual control of the domestic epidemic situation and the gradual digestion of the early impact and panic of the foreign epidemic situation, the company is expected to gradually improve its order receiving, but it will still take time to return to the normal level. The company expects that the revenue in 2020 will drop by about 20% year-on-year.

2) in the medium and long term, the company's leading position in the industry will not change, and under the background of increasing uncertainty such as epidemic situation, the company's anti risk ability will be highlighted. In addition, the company's production capacity is global. At the end of June 20, there are about 2.51 million and 1.6 million spindles at home and abroad (mainly Vietnam). In the context of changing international trade environment, the company will also have comparative advantages and cope with instability.

3) in terms of finance, the company's account capital at the end of June 20 was 4.118 billion yuan, significantly higher than that of 1.852 billion yuan at the end of June 19. The company adopts a more cautious strategy to retain more cash, and its financial strength, adaptability and sustainable development ability will be stronger than that of the industry.

Considering that the performance of the first half of the year has declined significantly, and there are still uncertainties in the macro-economy and demand at home and abroad under the influence of the current epidemic situation, we have reduced the EPS of 20-22 years to 0.22, 0.93 and 1.33 yuan, corresponding to 20 times of PE and 0.6 times of PBX in 20 years to "neutral" rating.

Risk tips: the impact of domestic and international epidemic situation continued to lead to weak demand and orders received less than expected; increased trade friction between China and the United States led to orders less than expected; cotton prices fluctuated; business expansion and integration in the middle and lower reaches were slower than expected.