A 290% Increase In Single Business Revenue Has Failed To Stop The Decline In Net Profit Of Tianhong Textile?

This year, the upstream companies in the textile industry are generally affected by the international trade friction, which has made the upstream textile industry less profitable.

Recently, 02678-HK, which has just announced its first half results announcement in 2019, is also affected by trade friction, and its net profit data has dropped sharply. Specifically, the business income of Tianhong textile in the first half of the year was 10 billion 191 million yuan (RMB, the same below), an increase of 15.66% over the same period last year, and net profit of 471 million yuan, a decrease of 21.81% compared with the same period last year. The gross profit margin decreased from 16.76% in the first half of 2018 to 13.55%, down 3.21 percentage points, and the net interest rate decreased from 6.88% in the first half of 2018 to 4.77%.

Revenue figures were good, two digits rose, and net profit figures were not very good. Instead, there was a 21.81% slide. This was mainly due to the decline in gross margin, which made the net interest rate that was not high at that time even more substantially reduced.

Next, we will see why the company's revenue growth and why the gross profit margin slipped. Is this stage or continuous?

Trade friction is the main cause.

Let's take a look at the revenue data. The revenue of Tianhong textile is made up of seven parts. The main reason for the revenue growth is that the income of woven fabric business has increased by 290.4%. However, the growth of this income is not sustainable. Why? In April 2019, the sales revenue of woven fabrics exceeded RMB 1 billion 200 million yuan due to the merger of the woven fabric business of the Qing Ye group.

In addition, the gross profit margin of this business increased significantly from 2.8% in the same period last year to 13.1% in the first half of the year, mainly due to the promotion of the Qing Dynasty Group business with high gross margin. This is also the only concern in the first half of the company's report. The acquisition of the business has led to the growth of revenue and the gross profit margin of the company's business. If the takeover effect is aside, the company's revenue will remain unchanged.

Woven fabric business volume and raise price, is a half year report of the company, but this business income after all, the proportion of total income is not high, and after the gross profit margin is raised, there is no company's average gross profit rate is high, so this revenue growth has a relatively limited impact on the overall performance of the company.

The real impact on the company's performance is the yarn business income of 7 billion 730 million yuan, an increase of 5.7% over the same period, accounting for 75.8% of the group's total revenue, gross margin of 14.1%, down 4.2 percentage points from last year. The share of the largest proportion of business, gross profit margin fell sharply, directly affecting the company's net interest rate, net interest rate from the first half of 2018 to 6.88%, down to 4.77%.

The reason is that Tianhong textile further explains that it is because of the impact of international trade friction that the company adjusts its product mix. From the revenue side, even if we do not consider the impact of mergers and acquisitions, the company's revenue is basically unchanged, then, does this mean that the company sacrificed short-term profits, but kept the market share? Because trade frictions can't last forever.

On the whole, the semi annual report of Tianhong textile is very bad, but it is not too bad, because its profit decline is related to the industry factors. Most of the companies engaged in the upstream business of the textile industry in the first half of this year are affected by trade friction. Besides, after the merger and acquisition of woven fabrics, the gross profit margin of the company has been raised, and the profitability of the company has been thickened to a certain extent.

High investment, low net interest rate, long-term ability to make money worrying

Finally, the financial Club combined with some common problems in this industry to talk about the impact of Tianhong textile.

The industry generally has lower net interest rates, higher fixed assets ratio, more capital investment and poor solvency, and a long backlog of inventory and easy devaluation. Therefore, any part of the company's problems will have a greater impact on net profit, because the net interest rate is too low.

As of the half year 2019, the total value of property, plant and equipment of Tianhong textile was 8 billion 906 million yuan, the total assets were 21 billion 179 million yuan, the stockholders' equity was 7 billion 633 million yuan, the value of fixed assets was more than that of shareholders' rights, and more importantly, the huge fixed assets were accompanied by a large amount of depreciation expense every year. The depreciation and amortization expenses of companies from 2018 to 2016 were 754 million yuan, 685 million yuan and 555 million yuan respectively. Net profit does not increase, depreciation and amortization costs continue to increase, that is to say, companies earn a lot of money, a large part of them are bought into fixed assets, and this part of assets are depreciated and amortized with the company's operation, and the shareholders of the company earn very little money.

In addition, as of June 30, 2019, the company short-term loans 2 billion 761 million yuan, accounts payable and notes 4 billion 54 million yuan, long-term loans 5 billion 59 million yuan, while the company's cash is only 1 billion 920 million yuan, accounts receivable and bills 1 billion 634 million yuan, inventory is 5 billion 927 million yuan, there is obvious short-term debt repayment pressure, or rely on borrowing new and old, business risk is bigger.

About Tianhong Textile Group

Tianhong textile group was founded in 1997, the founder of Mr. Hong Tianzhu. It is one of the largest suppliers of core cotton textiles in the world. It specializes in the manufacture and sale of high value added stylish cotton textiles. Now it has become the top 10 competitive enterprises in China's cotton textile industry, ranking the top 500 in China.

Tianhong Textile Group is a listed company on the main board of Hongkong stock exchange. Its sales headquarters is located in Shanghai. Its business center is located in Changzhou. Now it is located in Changzhou, Taizhou, Nantong (Development Zone, Rudong county), Xuzhou (Development Zone, Suining county), Changzhou, Taizhou, Nantong (Development Zone, Suining county), Changzhou, Taizhou, Nantong, Changzhou, Changzhou, Taizhou, Taiping, Gansu, mango and Haihe counties, Phnom Penh, and large industrial bases, with 4 million spindles and 1400 air-jet looms, with a total investment of more than 15 billion yuan. The Group employs more than 40000 domestic and foreign employees, and has sales offices covering the Chinese market and the world's major markets, with over three thousand domestic and foreign high quality customers.

Since its establishment, Tianhong Textile Group has been committed to building differentiated products and constantly promoting innovation and upgrading. It has promoted industrial upgrading and transformation in the field of cotton textile. Now it enjoys high prestige in the industry and attracts the attention and cooperation of many well-known international fiber suppliers.

Rainbow has been using the American elite's Lycra spandex series for many years, and the stretch yarn has been widely used in the fabric of famous high-end brand clothing. At the same time, we work with Lenzing Co in Austria to produce high grade woven yarn, denim yarn and high grade knitted yarn with its Tencel fiber, modal fiber and viscose. In addition, Tianhong also began to apply the environmental protection concept of polyester production and other fibers blended yarn, and strengthened cooperation with Dongli, Japan, to develop acrylic thermal knitted yarn.

The top grade yarn developed by Tianhong Textile Group is also applied to the production of grey fabric and fabrics. The application of new fabrics can also be closely combined with yarn research and development to rapidly upgrade industries and create an international industrial chain platform.