Non-Deal Roadshow takeaway: 1H2022 earnings dropped 23% y-o-y, in line with profit warnings
- 1H2022 earnings dropped 23%, in line with profit warnings; with weaker sales volume
- Weaker global demand outlook is expected to drag down GP margin from the record-high level
- However, with the higher proportion of downstream businesses, we expect a more consistent and stable normalised margin moving forward
- Revised down FY22/23F earnings by 30%/52% to reflect sales volume cut and lowered GP margin assumption; Maintain BUY with a lower TP of HK$10.7
1H2022 earnings dropped 23% y-o-y to RMB992m, in line with profit warnings. The decrease in net profit was mainly due to the weaker yarn demand in 2Q2022, the decrease in production capacity after the sale of a yarn production facility in China, and a high comparison base, leading to the GP margin decreasing by 3.1ppt to 19.7%. Higher finance cost was also recorded of RMB175m, a 73% increase from 1H2021. Texhong’s revenue increased by 3.9% to RMB13.0bn, thanks to the growth in its mid-downstream business, which offset the decrease in volume of its yarn business. The board declared an interim dividend of 38 HK cents per share, with the same payout ratio of 30% as previous years.
