Gross Profit And Net Profit Fell Sharply.

In the first half of the year, it was restrained by the uncertainty of the foreign trade environment. Some enterprises engaged in import and export business were more or less affected. Among them, 02678-HK was one of them.

According to the latest performance report of the first half of 2019 released by Tianhong textile, the company expects the net profit of shareholders in the first half of the year to be reduced by about 20% to 25%, mainly due to the trade uncertainty which has led to the deterioration of the market sentiment in the textile industry, and the decline in net profit caused by the company's strategic adjustment of product mix and pricing strategy.

Specifically, the strategic adjustment of product mix and pricing strategy of Tianhong textile company directly affects the gross profit margin of the company, which is also disclosed in the announcement. In the first half of 2018, the gross profit margin of the company was 16.8%, which dropped to 13.4% in 2019, down 3.4 percentage points, while the net interest rate at the end of 2018 was 6.09%. If the cost ratio remained unchanged, the net profit of the company should be cut off.

From the above data, we can clearly see that the net profit margin of Tianhong textile in the first half of 2019 has dropped sharply, mainly due to the problem of product sales, leading to a sharp decline in gross margin, which in turn affects the decline in net profit. Then, will the situation of Tianhong textile improve in the second half of the year?

Annual performance is hardly optimistic.

Let's look at the above questions. To know whether the profitability of Tianhong textile can be improved in the second half of the year, we need to know what factors affect the profit of the company in the second half of the year.

From now on, the problem of whether the company's profitability can be improved in the second half of the year is still mainly on the end of the product. However, judging from the present situation, the pricing of the company's products is greatly influenced by the trade uncertainty. Although the short-term trade events have undergone several rounds of consultations, the market sentiment has gradually stabilized, but it is also impossible to exclude the possibility of a rebound in the second half of the year.

Of course, we can not predict this, but we can predict from the data disclosed by the company in 2018 that the performance of Tianhong textile will not be optimistic in 2019.

Because the gross profit margin of the company increased by about 1.4 percentage points in 2018 compared with 2017, mainly due to the improvement of yarn business gross margin and the improvement of other business sectors. This means that the pressure of the operation of the company will be greater in 2019, because in order to maintain growth at a higher base, it will have challenges in itself. Moreover, the pricing of Tianhong textile products will be affected by the progress of trade negotiations in the second half of the year.

So, in the whole year, the profit figures of the company in the second half of the year can be maintained at a level comparable to that of the same period last year. However, due to the sluggish performance in the first half of the year, the whole year will not be optimistic.

From the above point of view, the pricing power of Tianhong textile is lower than that of downstream products, and it can only be passively accepted after the external influence, while the net interest rate of the company is relatively low. Therefore, when the upstream product price is lower, the net profit of the company will drop sharply.

Exchange rate fluctuations have greater impact on net profit of companies.

The gross margin of Tianhong textile is relatively large, mainly due to the weak pricing power of the company's products. What about the cost side?

Before looking at the cost side data, let's look at a set of data. In 2018, only about 820 million yuan came from the mainland of China, and accounted for less than 5% of the total revenue. What does this mean?

Specifically, according to Tianhong textile 2018 earnings report, the company's financial expenses amounted to 493 million yuan that year, accounting for 42% of the company's net profit. This shows that the impact of financial expenditure on the company's net profit is large.

According to the financial composition of Tianhong textile, it is mainly composed of interest expenses and exchange gains and losses. We have not found the specific data, but according to Xu Zihui, executive director of the company, at the 2018 performance press conference, in 2018, because of the expansion of the company, interest payments were indeed more than three hundred million, and there was more than 100 billion exchange losses.

A multi billion exchange loss, which accounts for more than 10% of the net profit of the company, is obvious. The change in the exchange gains and losses has a great impact on the net profit of the company. If we look at the company's financial expenses in 2017 (77 million yuan), it is mainly because the appreciation of the RMB generates more than one hundred million exchange earnings and the interest expense is reduced, so the financial cost will be relatively low in the year. But the financial expenditure between two years is more than 400 million, which means that the financial cost is only more than 400000000.

Seeing here, it is estimated that readers can understand why the net interest rate change of Tianhong textile is so large, and the pricing power of products is weak, so the gross profit margin is easy to be impacted, and the exchange gains and losses aggravate the company's net profit changes.