Securities Companies Report: Jihua Group'S Solid Reform And Accumulation Of Energy To Develop Military Supplies

Jihua Group is the largest military supplies enterprise in China. The company has five business sectors: professional wear, professional shoes and boots, protective equipment, textile printing and dyeing and leather shoes, and its products are mainly for military and civilian markets. The board of directors of the company was elected as the vice chairman of the board of directors of the company in the 21st year. In terms of performance, the company's revenue in 21 years was 15.494 billion yuan, with a year-on-year growth of 3.61%. The net profit attributable to the parent company was - 166 million yuan, and the year-on-year loss reduction was 78.67%. The year-on-year loss reduction at the profit side was mainly caused by the optimization of product structure, the increase of high gross profit rate order proportion, the reduction of cost and efficiency, and the significant decrease of asset impairment loss. 22q1 company's performance has reached an inflection point, with revenue and net profit attributable to the parent company increased by 22.70% and 867.74% respectively on a year-on-year basis. According to the 22h1 performance forecast, the net profit attributable to the parent company increased by 424.31-471.97%, indicating that the company's performance and profitability are steadily improving, and the benefits of reform and upgrading are continuously released.

Business Division: professional wear, professional shoes and boots. In terms of industries, the company's income from professional wear, professional shoes and boots, textile printing and dyeing, and protective equipment accounted for 21%, 22%, 12% and 8% respectively. From 16 to 21 years, the revenue share of the four major sectors remained stable. In addition, the company has taken the initiative to reduce the trade business with low gross profit rate in recent years. In terms of products, the revenue of military products and civilian products accounted for 16% and 43% respectively in the past 21 years. From 16 to 21 years, the revenue of military products and civilian products showed a downward trend, while the gross profit rate increased with the optimization of product structure and the promotion of cost reduction and efficiency increase.

Industry analysis: professional wear market has broad prospects. Textile industry is a labor-intensive industry with low industry concentration, fierce market competition and low leading share. In terms of professional wear market, the total scale of China's civil professional wear market will be about 380 billion yuan in 2019. With the continuous growth of employment in the tertiary industry, professional wear track will usher in greater development potential. In terms of military product space, the compound annual growth rate of China's public defense fiscal expenditure from 2015 to 2020 is 7.29%. With the continuous growth of China's defense expenditure, the scale of military supplies will gradually increase in the future.

Highlights analysis: leading enterprises in the military supplies market, active reform and continuous improvement of R & D strength. 1) As the core supplier of military supplies procurement for the Chinese army and the armed police force, the company has a strong influence in the domestic military supplies market. At the same time, the military product background and the endorsement of central enterprises help to expand the business of professional clothing for civilian products, and the company has a stronger ability to resist risks in the environment of large fluctuations in the epidemic situation. 2) In recent years, the company has continuously increased R & D investment and technology research efforts, with a complete R & D system and continuous improvement of R & D capability, so as to consolidate product strength. 3) During the "14th five year plan" period, the company's strategic plan is clear, comprehensively promote the reform and business upgrading of state-owned enterprises, construct the "443" business structure, comprehensively promote the "three unification" management in 2022, and steadily implement the strategy and realize the expected effect.

Profit forecast, valuation and rating: as the largest military supplies enterprise in China, in recent years, the company is in the stage of business adjustment, focusing on the main business, stripping off non main business or business with poor efficiency, and its performance has improved since 2021.

The company has formulated the "14th five year plan" development strategy and plan. Under the leadership of the new management team, the company is expected to gradually walk out of the trough and its performance is expected to usher in recovery. We forecast that the operating revenue of the company from 2022 to 2024 will be 166.91/183.36/19.770 billion yuan, the net profit attributable to the parent company will be 3.94/5.28/675 billion yuan, EPS will be 0.09/0.12/0.15 yuan respectively. The PE corresponding to the current stock price from 2022 to 2024 will be 38 times, 28 times and 22 times respectively. The company will be given the "increase" rating for the first time.

Risk tips: industry policy changes affect the bidding and purchasing demand of relevant units; Domestic epidemic situation repeatedly affected production or normal order receiving; The industry competition intensifies.