Baron East: The Company Expects A Substantial Increase In First Quarter Performance.

Company January and February color

Sales increase by about 15%.

The sales volume maintained a relatively fast growth, mainly benefiting from 1) the overall domestic textile export situation was better, and the cumulative growth in the 1-2 months was 23.10%, 2, and the capacity increased. Vietnam's project was steadily advancing. In 2014, the construction of the 100 thousand ingot was completed and smoothly reached the production level. In 2015, the 200 thousand phase of the two period before the Spring Festival was also completed, and it is now in the trial production stage.

Judging from the current situation in March, we expect that the sales of the company's color spun yarn will continue to grow rapidly.

Vietnam project is expected to become the company's future growth point.

Vietnam's one or two phase of the project is expected to achieve breakeven as a whole this year. The company is also planning Vietnam's three phase project, and Vietnam's capacity is expected to account for 1/3 of total capacity in the future.

In the short term, Vietnam has the cost advantage. In addition to raw materials, Vietnam's electricity and labor costs are 60% of the total cost in Vietnam.

The advantages are more obvious. In addition, some downstream customers of the company are pferring to Southeast Asia, such as Shenzhou, the largest customer, has also allocated production lines in Vietnam.

The company's net profit in the first quarter is expected to achieve substantial growth.

We expect more than 40%, although the price of products will be affected by the fall in cotton prices during the same period, the growth rate of revenue will be slower than the sales growth rate, but the cost will be reduced. The main reason is that the proportion of low cost extra cotton will increase with the promotion of Vietnam project. The gross profit margin of the company will be increased, and the export tax rebate will be raised by 1% in January, including the last year the company adopted a conservative 25% income tax rate in the first three quarters because of the reexamination of the high-tech enterprises, until the fourth quarter.

We are optimistic about the company's growth in the next three years.

In addition to the advantages of the yarn itself, first of all, with the gradual stabilization of inner cotton prices and narrowing of the difference between inside and outside cotton prices, the competitiveness of the company will be fully reflected. Secondly, the further release of Vietnam's capacity, including the continuous improvement of production efficiency of workers, third, the revolutionary EcoFRESH Yarn series of products, with the constant promotion, is expected to change the existing pattern of the color spinning industry and further open up the future growth space.

Financial forecast and investment advice.

We maintain the company's earnings per share of 0.58, 0.69, and 0.84 yuan per share for 14-16 years, based on the industry's 15 year average of PB and completely comparable to the company.

PB is higher than the industry average, so it also gives the company certain valuation premium, giving 15 years 1.75 times PB, target price 16.21 yuan, maintain buy rating.