Jiansheng Group: OEM winter Olympics down jacket is also difficult to hide the decline
Short track speed skating is one of the most exciting events in the Winter Olympics. It is not only the excitement of the events, but also a series of thrilling stories caused by various pickpockets.They have to be agile on the one hand, but they also have to use cut-proof suits to avoid risk.This year, anta, a domestic brand, will build a full set of competition equipment for the national team participating in the Winter Olympic Games, especially for fast events, which should consider not only drag reduction, but also protection.After repeated trials by the r&d team, the completed suit is full of science and technology.Now Anta has completely replaced foreign sports brands. It is the sports brand that supports the most competition equipment of China’s national team and has successfully attracted a wave of fans in the Winter Olympic Games.With the popularity of national fashion, anta, Li Ning, Xtep, Hongxing Erke and other domestic brands have been out of the circle, gradually occupy the domestic market, in contrast, Nike, Adidas in China sales are deteriorating.It can be predicted that in the near future, domestic sports brands will fight harder and win the favor of more consumers.Even smaller brands, now unknown, may be able to ride the ride and gain more market share.Dreams still have to have!Today, Jiansheng Group [603558.SH] is the world’s largest hosiery manufacturer and seamless underwear manufacturer with the largest production capacity and the most complete set. It also has its own sports brand JSC.In addition to the production of cotton socks, sports apparel, but also engaged in spandex coated yarn and other auxiliary materials processing, raw materials and product printing and dyeing business, has a complete upstream and downstream industry chain.The cooperation with many international sports brands shows that its ambition is far beyond the status quo, expanding its downstream resources through cooperation with customers, which brings more convenience for improving performance.Performance forecast disclosed that in 2021 cotton socks business to get rid of the impact of the epidemic, sales and profits have a greater growth, is expected to be attributable to the shareholders of the listed company’s net profit of 160-210 million, a year-on-year increase of 130.32% to 139.79%.Among them, the revenue of cotton socks accounts for about 80% of the revenue of all products. It is mainly OEM for some well-known brands through ODM and OEM mode, and mainly sells to Europe, America, Japan and other overseas markets.In 2020, the overseas market was greatly affected by the epidemic, which led to a decrease in export volume and a decline in revenue and profit. With the recovery of the global economy, the export volume of textile and apparel grew steadily, and the performance picked up in 2021.In the first three quarters, Jiansheng Group achieved operating revenue of 1.521 billion yuan and net profit of 181 million yuan, up 32.22% and 210.67% year-on-year respectively.What might seem like a big turnaround at first glance is that 2020’s performance is too poor to be comparable, mainly because of two things:First of all, Jiansheng Group has production bases in Hai Phong, Xing ‘an and Thanh Hua in Vietnam as well as shaoxing and Sansui in China. Due to the influence of the environment, some overseas factories cannot fulfill orders normally, and xing ‘an factory alone has suffered a loss of 30 million yuan.Secondly, the seamless business of Kingston, which cost 870 million yuan to acquire in the early stage, is declining obviously, and the future production capacity will be transferred to foreign countries.Therefore, due to the acquisition of goodwill 653 million yuan one-time provision of 554 million yuan impairment loss, resulting in a substantial loss of 528 million yuan in 2020.In 2021, although the cotton socks business gradually recovered, driving the overall profit improvement, but the gross margin and the market value of Huijie shares and the industry average, is still not optimistic.Seamless clothing business is still in the recovery period, the shangyu factory phased closure, Jiangsu Xierong factory closure and capacity transfer, will reduce about 15 million profit.Behind the overall revenue improvement, profit still faces various challenges.Hidden deposit and loan risks and gradually higher interest expense pressure, further compression of net profit.2. Double Increase of deposits and loans In recent five years, jianseng Group’s deposits and long-term and short-term loans have shown double high trends, resulting in low efficiency in the use of funds.Why does this happen?Mainly because of capital constraints, including 300 million monetary funds, limited because of deposit as margin, and fixed assets limited because of loan collateral.It can be seen that the actual capital available in the book is only about 300 million yuan, so it is no wonder that we have to rely on borrowing to maintain daily operations.By the end of the third quarter of 2021, deposits reached 625 million yuan, among which limited monetary funds were still close to 300 million yuan, while long and short term loans reached 1.169 billion yuan.On the one hand, jiansheng’s cash flow is indeed somewhat tight. On the other hand, we can expect the rise of interest expense.As for why cash flow is tight, it starts with its sales model.3. Over-dependence on large customers Jiansheng Group mainly OEM cotton socks for international well-known sports brands. With the increase of orders, the inventory is also increasing, and the balance is close to 560 million.However, the reserve ratio of inventory price decline is only 1%-2%, which is largely based on sales, so inventory will be overstocked.This sales model also determines the strong dependence on customers. In 2020, sales to the top five customers accounted for 59.36% of the annual sales, and overseas customers dominated the market, contributing nearly 90% of the revenue.While 65% of the receivables are from the top five customers. In case of emergencies, overseas orders will be greatly affected, thus affecting the speed of payment collection.With the expansion of business and the increase of orders, accounts receivable gradually increased. The turnover days in the past two years increased by more than 10 days compared with before 2019, and the speed of payment collection slowed down significantly.Therefore, over-reliance on large customers has both advantages and disadvantages. While orders are stable, they also face the uncertainty brought by sudden risks.4. Tight capital chain and high equity pledge In order to increase production capacity and meet customer demand, Jiansheng Group frequently builds factories in several regions, and spends a lot of investment on fixed assets and projects under construction. Once customer payment is delayed, it is likely to cause capital shortage.As can be seen from the cash flow situation, the operating cash flow obtained in the first three quarters of 2021 is far less than the investment cash flow of expenditure, which on the one hand shows that the expenditure is not enough, and on the other hand confirms the fact that it is difficult to collect money again.Moreover, the largest shareholder has pledged 52% of the shares, accounting for 19.52% of the a-shares in circulation. The high proportion of equity pledge and the surge of loans all indicate A problem, that is, lack of money.Even so, Jiansheng group does not hold any security or other credit enhancement for the balance of receivables.Although the company explained that it only deals with the third party with good credit, it is more out of accommodation to the big customer, who called the big customer is God!The resulting bitter fruit has to be tasted by itself. According to China Daily, the amount of debt due within one year is about 1.1 billion yuan, and the financial pressure is very great.5, summary performance pre-increase of the surface, hidden financial pressure beyond imagination.The seamless business has yet to recover, with factories closing and goodwill impairments from acquiring companies acting as invisible drags on earnings.As an OEM of several well-known international brands, it seems not all good to be deeply bound with big customers. When domestic brands gradually occupy market share, the OEM business has to transform.At that time, whether Jiansheng group’s own brand can stand up depends on which side its strategic focus is on, and everything depends on their own choice.