Xingye Technology (002674): Profitability Continues to Enhance Shareholder Repurchase Shows Confidence

Xingye Technology (002674): Profitability Continues to Enhance Shareholder Repurchase Shows Confidence

In 19H1, revenue decreased by 10%, net profit increased by 106%, and profitability continued to recover. In the first half of 2019, the company realized revenue7.

00 ppm, with a decrease of 9.

64%, net profit attributable to mother 6,933.

620,000 yuan, an increase of 105.

69%, deducting non-net profit of 6,800.

790,000 yuan, an increase of 158.

00%, EPS is 0.

23 yuan.

The higher growth rate of deducted non-net profit than income was mainly due to the increase in gross profit margin, and the higher than net profit was mainly due to the gradual decline in government subsidies included in the current profit and loss.

In terms of quarters, 2018Q1-19Q2 company’s revenue increased by -19.

99%, -11.

14%, 5.

20%, -26.

29%, -6.

50%, -12.

05%, net profit attributable to mother increased by -16.

71%, 88.

73%, 106.

13%, 473.

56%, 134.

16%, 94.


In the first half of 2019, downstream demand was severely weak and the company proactively abandoned some low-margin product orders. The revenue continued to decline. With the continuous decline in the price of raw cow hides, the adjustment of product structure led to the increase in added value, which led to the company’s profitability significantly rebounded.

In the first half of 2019, the company’s period expense ratio increased by 1.

82PCT to 7.

41%, of which the sales expense ratio increased by 0.

43PCT to 1.

10%, mainly due to the increase in sales staff 深圳桑拿网 salaries and export costs, the management expense ratio (including research and development expenses) increased by 1.

05PCT to 8.

06%, mainly due to the company ‘s R & D investment, personnel expenditures and other significant additional and reduced revenue, the financial expense ratio increased by 0.

33PCT to -1.

76%, mainly due to increased interest rate expenditure.

The adjustment of order structure affects the growth of revenue. From the perspective of rapid ordering of foreign orders by product: 2019H1 cow leather, other products achieved revenue6.

7.5 billion, 2519.

250,000 yuan, an increase of -12.

03%, 231.


The decrease in the company’s cattle leather revenue was mainly due to the decrease in sales volume and the change in the fashion trend of downstream footwear consumption. The sales of some brands have weakened significantly and the company has actively adjusted its product structure to reduce low-cost orders.The income of other products is mainly the sales of leather by-products such as scraps, and the revenue accounted for a relatively small proportion.

By region: 2019H1’s main leather business is domestic and foreign revenue is 5 respectively.

8.4 billion, 9085.

460,000 yuan, an increase of -15.

69%, 21.


The company’s domestic Zhejiang, Sichuan, and Fujian regions saw their revenues fall by 32.

69%, 36.

31%, 23.

90%, mainly due to the company’s optimization of product and customer structure, reducing some traditional customer orders, Guangdong area also increased by 10.


The company’s export revenue has grown rapidly, mainly due to entering the export chain of Zara, Prada, Bally and other internationally renowned brands after dating the export team. Delivery, quality and design meet customer needs, and the order volume continues to increase.

The adjustment of product structure promoted a significant increase in gross profit margin. The price of cow hides remained low in 19 and the company’s gross profit margin increased by 7 in the first half of 2019.

98PCT to 18.

01%, of which domestic and foreign gross profit margin is 17.

73%, 22.

02%, the same increase of 7 respectively.

47PCT, 13.


The increase in the company’s gross profit margin was mainly due to the fact that the average price of US beef raw hide exports in 2019H1 also decreased by 37.

82%. In this context, the company continues to optimize the order structure. The increase in the proportion of high gross profit margin customers, especially foreign customers, has made a positive contribution to product prices.

In terms of quarters, the gross profit margin of the company from 18Q1 to 19Q2 was 9.

44% (-0.

03PCT), 10.

48% (+0.

09PCT), 11.

76% (+3.

32PCT), 21.

14% (+14.

94PCT), 15.

81% (+6.

73PCT), 19.

80% (+9.

32PCT). After the second quarter of 2018, the company’s gross profit margin increased, mainly due to the increase in the proportion of foreign customers’ income, and the product structure continued to optimize.

Cattle raw leather and cattle blue wet leather account for about 70% of the company’s production costs, and its price fluctuations have a conductive effect on gross profit margin.

The company purchases cowhide mainly for the United States. Because the import of cowhide from the United States to the final production usually takes about six months, the price of US cowhide has a lagging effect on the gross profit margin.

In terms of inventory, companies generally have more than 3 months of raw material inventory to meet production needs.

The adjustment of raw material price fluctuations affects the gross profit margin in the following two aspects: 1) directly affects the company’s product pricing. If the product price is difficult to cover changes in raw materials, it will cause the company’s cost to rise or fall; 2) the process of rising or falling raw material prices, its inventoryWill benefit or suffer.

In 2014, the price of U.S. beef hides rose from 90 cents / lb to 110 cents / lb and has continued to decline since then.

On the supply side, the United States is the world’s largest exporter of raw hides and hides. After 2015, due to the impact of the strength of the U.S. economy, per capita consumption of beef has increased, which has led to a continuous increase in cattle breeding and slaughtering, and continuous increase in leather feed. On the demand side, China is the largest source of raw hides in the United StatesThe importing country is affected by the shift of fashion trends to sports styles after 2015. The demand for terminal leather is severely weak. After the trade friction between China and the United States intensified in September 2018, China imposed a 5% tariff on beef exports to the United States, affecting the United States.The export demand for raw cow hides. The annual US tariffs on Chinese exports include leather products, which further affects downstream demand for leather.Therefore, under the influence of the demand and supply pattern, the price of raw beef hides in the United States will continue to decline. In the future, the US economy will maintain a steady growth. The supply of American kraft paper is expected to remain high. Downstream demand is expected to be stable.

From the historical performance of the company’s gross profit margin: 1) The company’s gross profit margin fell by 5 in 2014-15.

04PCT, 3.

82PCT, mainly due to excessively weak downstream demand after the rise in raw material prices, the price increase of products has decreased, and the effect of raw material prices on the gross profit margin has a lag effect.

2) The price of raw materials continued to decline after 2015. In the process, the inventory was reduced and the company’s reserves replaced high-priced inventory in 2015, which resulted in higher costs. The downstream leather demand continued to be sluggish. The gross profit margin was still low in 2016-17.

3) The company’s gross profit margin continued to increase in 2018-19, mainly due to the increase in the stock of high-priced cow hides after 2017, and the effect of inventory damage logic on the change in gross profit margin has been reduced. Although the downstream demand has not improved, the company has continued for a long time.Develop high-value-added customer orders, and in 2018 introduced an export team to develop high-margin overseas customers, which will support product prices and promote gross margin improvement.

The profitability of the leather faucet is restored, and the repurchase shows significant confidence. The company expects to achieve net profit of 9376 attributable to mothers on January 9, 2019.

RMB 470,000-11031.

140,000 yuan, an increase of 70% -100%, of which the net profit attributable to mothers was 2442 from July to September.

850,000 yuan-4097.

520,000 yuan, an increase of 13.

90% -91.

05%, mainly due to a ten-year increase in gross profit margin.

We think: 1) The company is a leader in the leather industry and owns 1.

With a production capacity of 500 million U.S. dollars, the company’s optimized order structure in 2019H1 has improved revenue. It is expected that the company’s products and customer structure adjustment will be basically completed in the second half of the year, and new leather categories such as furniture, military and Anta, China Lilang, etc.The volume of orders and the continued growth of orders from foreign customers are expected to drive revenue growth back.

2) U.S. beef consumption will continue to grow in 2019, and the supply of raw beef hides will be sufficient. Sino-US trade frictions have not yet been fully resolved. The downstream demand is severely weak. It is expected that the price of raw beef hides will remain low in the future and product structure optimization will be carried out., Driving the growth of net profit.

3) The company announced on July 22, 2019 that it intends to use its own funds to repurchase shares, with a repurchase amount of 2 billion parts per billion and a repurchase price of no more than 18.

00 yuan / share, repurchase of shares does not exceed 11.5 million shares, accounting for 3 of the total share capital.

81%, within a period of 6 months after the adoption of the shareholders’ meeting, the repurchase of shares is used to replace and reduce registered capital.

This repurchase shows that leaders have confidence in the company’s future development.

As the company’s profitability recovers higher than expected, we raise the company’s EPS forecast for 2019-21 to 0.



71 yuan, corresponding to 25 times PE in 19 years.

The company’s profitability has gradually recovered, its performance has achieved rapid growth, and internally highly valued product design and research and development advantages have enhanced the added value of the product. It has long benefited from the increase in the share of leading cities brought by the supply-side reform of the leather industry.Hold “rating.

Risk warning: sharp fluctuations in raw material prices, increased competition in the industry, and continued sluggish downstream demand.