Zhejiang Longsheng Group Co., Ltd. (hereinafter referred to as “Zhejiang Longsheng”) released its annual report for the first half of 2020 on August 17. During the reporting period, the company achieved total operating income of 7.59 billion, a year-on-year decrease of 21.3%; Net profit was 2.27 billion, a year-on-year decrease of 10.4%; earnings per share was 0.71 yuan.
During the reporting period, Zhejiang Longsheng’s gross profit margin was 41.8%, a year-on-year decrease of 5.2 percentage points, and its net profit margin was 29.8%, a year-on-year increase of 3.5 percentage points.
During the reporting period, Zhejiang Longsheng’s operating costs were 4.42 billion, a year-on-year decrease of 13.5%, which was lower than the 21.3% decline in operating income, and the gross profit margin decreased by 5.2%. The expense ratio during the period was 18%, which was little changed compared with last year.
During the reporting period, Zhejiang Longsheng received a government subsidy of 530,836,388.08 yuan, gains and losses from changes in the fair value of financial assets and other investment income of 500,127,687.48 yuan, and non-recurring gains and losses were attributed to the listed company. 45.30% of shareholders’ net profit plays a significant role in the company’s current profit.
Zhejiang Longsheng said that the sudden new coronavirus epidemic has had an unpredictable adverse impact on the company’s main dye industry , disrupted the company’s original operating rhythm. The company’s main intermediate industry also saw sales decline due to the impact of sluggish demand, but production has been running smoothly. The financial report shows that Zhejiang Longsheng’s production and sales were good during the reporting period, and dye sales in the global market 93,566 tons and 41,224 tons of intermediates were sold.
Lu Hao of Guohai Securities said that as a leading company in the global dye industry, Zhejiang Longsheng currently has a dye production capacity of 300,000 tons/year and an auxiliary production capacity of 100,000 tons/year, both ranking first in the world. By the end of 2021 There are also 9,000 tons of dye production capacity planned to be put into production. At the same time, the company has extended upstream into the dye intermediate industry, with an annual production capacity of 110,000 tons. Integrated production has brought cost and environmental protection advantages to the company. In 2020, three intermediate projects will be put into operation, including an H acid project with an annual output of 20,000 tons, a m-acid project with an annual output of 4,500 tons, and a m-aminophenol project with an annual output of 9,000 tons. These projects will further expand intermediate varieties and integrate and extend the dye industry chain. Upstream and downstream, the company’s ability to control key intermediates has been strengthened.
Lu Hao believes that the epidemic has affected demand and dye prices have continued to slump. The current price of disperse dyes is at its lowest point in the past three years, and the price of reactive dyes is at its lowest point in ten years. Although the market is sluggish, leading companies continue to expand production, squeezing the living space of small and medium-sized enterprises. The industry concentration is expected to increase in the future. It is expected that there will be little room for dye prices to continue to decline. The price bottom has been confirmed. Once demand improves in the future, the profits of industry leaders will Capabilities will be greatly improved.
Public information shows that Zhejiang Longsheng is the dye supplier with the largest production capacity in the world. The company was founded in 1970 and listed on the Shanghai Stock Exchange in 2003. It was the first listed company in the domestic dye industry. The company’s business mainly focuses on special chemicals such as dyes, auxiliaries, and intermediates. It also develops diversified businesses such as real estate, steel and auto parts, and financial investment. The company has now become the world’s largest textile chemical production and service provider, with a production capacity of 300,000 tons of dyes, 100,000 tons of auxiliaries and 110,000 tons of intermediates. The production capacity of dyes and auxiliaries ranks first in the world. The company currently has 18 factories in 12 countries and agencies in 50 countries, accounting for nearly 21% of the global dye industry market share.
The financial report shows that the dye segment is Zhejiang Longsheng’s traditional advantage segment and main source of profit. In 2019, it accounted for 48% of revenue, 51% of gross profit, and 46% of gross profit margin; The intermediates segment has been the company’s key development business in recent years and is also the company’s core advantage. This business has high technical barriers, which will help Zhejiang Longsheng build its cost advantage in dyes and strengthen its control over strategic intermediate raw materials, thereby further enhancing its dominance in dye products. In 2019, revenue accounted for 21%, gross profit accounted for 33%, and gross profit margin was 66%. At the same time, Zhejiang Longsheng has diversified its layout and is involved in real estate, financial investment and other businesses, effectively increasing the return on capital. In 2019, the company’s other businesses except dyes and intermediates accounted for 30% of total revenue and 15% of gross profit.
Li Xuan, a researcher at CICC, believes that the dye industry has high requirements for environmental protection and integration. Zhejiang Longsheng relies on intermediate matching and integration.��production has obvious advantages in scale, technology and environmental protection. In 2019, Zhejiang Longsheng achieved a net profit attributable to its parent company of 5.023 billion yuan, a year-on-year increase of 22%. In 2019, the company’s gross profit margin, net profit margin, and ROE were 43%, 25%, and 23% respectively. In addition to downstream textile and apparel demand, the impact of environmental protection and safety issues on the supply side also has a greater impact on the industry’s prosperity. As a result, Zhejiang Longsheng’s gross profit margin level has fluctuated.
At the same time, what needs to be noted is that the domestic dye industry is highly concentrated, with CR4 of disperse and reactive dyes at 67% and 54% respectively. However, the overall industry has overcapacity. The industry operating rate has remained at around 50% for several years. Zhejiang Longsheng Dyes has a designed production capacity of 300,000 tons (including 140,000 tons of disperse dyes and 60,000 tons of reactive dyes). In 2019, the company’s dye output was 182,000 tons, with sales of 220,000 tons, and a capacity utilization rate of 61%. In 2012, the company acquired De After Star, it became the dye company with the largest production capacity in the world, with a market share of more than 20%, and has global pricing power. After taking control of DyStar, the company’s production capacity has ranked first in the world. It has achieved differentiated layout in the global high-end, high-end and low-end markets, enriched its product layout, and shared the global procurement, trade, and R&D systems with DyStar to achieve a high degree of synergy and great benefits. Improved global competitiveness and further consolidated its leading position in global dyes.
In Li Xuan’s view, although the operating rate of the printing and dyeing industry has slowly recovered due to the epidemic, the delay in resumption of production by upstream raw material manufacturers and poor logistics have led to rising intermediate prices. Cost-end support drives up dye prices. As downstream work resumes and demand rebounds, dye prices are likely to rise further. In the long term, the production capacity of the Jiangsu North Park is limited, and safety and environmental protection continue to tighten the effective production capacity of the industry. We are optimistic about the prosperity of the dye industry.
Zhejiang Longsheng recently closed at 15.38 yuan per share, an increase of 0.39%, with a market value of 50 billion yuan.
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