The market leasing business for the past two years has been beneficial for Textile City (600790. SH) is not easy to do.
As China's "No. 1 stock in China's professional wholesale market", the revenue of Textile City has been fluctuating at 900 million yuan in the past 10 years, but after the non-net profit reached the highest point in the past 10 years in 2021, it began to show a downward trend, and 2023 has also become a fiscal year with the lowest net profit in the past 10 years. At the same time, in order to ensure the company's "stable" revenue year after year, Textile City has paid more operating costs behind the scenes, and the cost of marketing and promotion has also surged.
However, the company is also constantly using digital empowerment and multiple foreign investment projects to break through the bottleneck of the company's current development in the leasing industry.
On the evening of April 10, Textile City disclosed its 2023 annual report, which showed that the company would achieve an operating income of about 855 million yuan in 2023, a year-on-year increase of 4.22%, and a net profit of about 214 million yuan, a year-on-year decrease of 81.93%.
Source: Choice
After the disclosure of the annual report data of Textile City, many investors expressed their confusion about the sharp decline in net profit under the company's business environment has not undergone major changes.
Through the information in the annual report, it is not difficult to find that the substantial increase in net profit in 2022 is based on land acquisition subsidies. According to public information, in 2022, due to the construction needs of the project around the Asian Games Baseball (Softball) Sports and Cultural Center, some areas of Shaoxing China Textile City International Logistics Center Co., Ltd., a wholly-owned subsidiary of the company, are planned to be expropriated, and the company has also negotiated the relevant compensation amount with relevant departments. As of December 31, 2022, the Company received a total of approximately 920 million yuan in housing expropriation compensation from the Qixian Sub-district Office of Keqiao District, Shaoxing City. This is also the main reason why the net profit in 2022 will increase by 174.73% and "stand out from the crowd" in 10 years.
In this way, it is understandable that the net profit of the Textile City has fallen off a cliff, but if the factor of housing expropriation compensation is thrown away, and from the perspective of deducting non-net profit, it is not difficult to find that the decline of Textile City has been very obvious since 2022, and the company's non-net profit deduction in 2023 has been "cut in half" compared with 2021.
It is not difficult to see that behind the slight increase in the company's revenue and the decline in net profit, the company's revenue costs, consumption expenses, management expenses and financial expenses have risen sharply, and the increase in these expenses has also eaten away at the company's profits to a certain extent.
Specifically, the operating cost increased from about 360 million yuan to about 440 million yuan, an increase of 22.24 percent, the sales expenses increased from about 41 million yuan to nearly 60 million yuan, an increase of 45.64 percent, and the management expenses increased from 70 million yuan to nearly 90 million yuan, an increase of 28.06 percent.
The increase in these expenses was much higher than the increase in the company's revenue. Among them, the increase in sales expenses greatly exceeded other expenses, and the company described this expense as "mainly due to the increase in the company's marketing and publicity expenses", and this expense has begun to grow in 2022.
Textile City's sales expenses have increased year after year Source: choice
Titanium Media APP flipped through the 2022 annual report of Textile City and found that the surge in the company's sales expenses began in 2022, and the growth rate of the company's sales expenses exceeded 40% at that time, reaching 45.51%.
To sum up, it is not difficult to find that in the past two years, in order to maintain an annual revenue of about 900 million yuan, the cost of investing in it has increased every year.
Interestingly, the company's revenue plan for 2024 is still in this range of 950 million yuan, but the net profit target is set at 300 million yuan, that is, there will be an increase of about 50%. However, from the perspective of the company's main business, it is quite difficult to achieve net profit growth only through leasing business.
Although Textile City has been expanding its business outside the leasing industry in recent years, the leasing industry, which accounts for 93.39% of the company's revenue in 2023, is still the leasing industry, and the network service industry accounts for 0.36%.
Specifically, the leasing industry will still have a growth rate of 3.27% in 2023, but in the face of an increase of 22.04% in operating costs and a decrease in gross profit margin of 8.38%, it is conceivable that the decrease in net profit will become inevitable.
Judging from the gross profit margin of 45.55% alone, it seems that the company's leasing business still has a good profit margin, but it should be vigilant that the gross profit margin of the company's leasing industry has remained above 50% in the past few years, but the gross profit margin of the company's leasing industry has fallen below 50% in 2023.
Source: Choice
Another noteworthy is the asset-liability ratio of the Textile City, which has been increasing year by year.
According to the annual report, as of December 31, 2023, the total debt of Textile City increased from about 4.1 billion yuan in 2022 to about 6.2 billion yuan, and the debt ratio also increased from 39.20% to 49.65%. This has been followed by an increase in various financial expenses, including interest on borrowings, and the annual report data shows that the company's financial expenses have increased from -23 million yuan in 2022 to nearly 26 million yuan in 2023.
Source: Choice
If you want to talk about the highlights in the annual report, or the future to support the company's profits, I have to mention a series of foreign investments in the Textile City. In this regard, the company also pointed out that in 2023, "capital operation will be fully rolled out".
The financial report shows that the company's investment income in 2023 will be about 140 million yuan, with a year-on-year increase of 108.6%. Among them, the dividends from the investment in Zheshang Bank alone are as high as nearly 96 million yuan.
Perhaps seeing the results in terms of investment returns, in 2023, Young Textile City will continue to explore the direction of foreign investment, with a cumulative foreign investment of nearly 160 million yuan.
Specifically, during the reporting period, Textile City and Ningbo Port Railway Co., Ltd. jointly established Zhejiang Qianqing Multimodal Logistics Co., Ltd. with 22.5 million yuan, then invested 19.36 million yuan to acquire the equity of Shaoxing Keqiao China Textile City New East District Market Development Co., Ltd., invested 48 million yuan and 60 million yuan respectively to invest in Jinhua Anxin Zhongyi Industrial Investment Fund Partnership (Limited Partnership) and Shaoxing Keqiao Paradise Silicon Valley Furui Equity Investment Partnership (Limited Partnership), and invested 10 million yuan in the company's wholly-owned subsidiary International Logistics Center to establish Zhejiang Zhigang Data Operation Co., Ltd。
However, the investment income is also unstable, and in 2022, because Zheshang Bank failed to pay dividends, the investment in Huijishan (601579. SH) income decreased, so that the investment income of the year did not achieve positive growth.
In 2024, in order to maintain the growth of revenue, the probability of various cost reductions is very small, and the foreign investment income may be the key to a 50% increase in net profit. (This article was first published in Titanium Media APP, author|Cao Shengyuan)