Investment Rating - The report maintains a "Buy" rating for the company [2][7]. Core Views - Short-term performance is expected to improve due to the release of overseas production capacity and new customer growth in the automotive leather segment, indicating potential earnings elasticity. Long-term, the company is expanding its export business into the sports industry, having entered the supply chains of global sports brands like Adidas and VF, which could enhance growth and valuation prospects. New businesses, such as Hongxing and Baotai, are positioned for high growth due to industry demand, contributing to the company's overall growth outlook. The projected net profit for the company from 2025 to 2027 is estimated at 170 million, 190 million, and 210 million yuan, representing year-on-year growth of 20%, 13%, and 11%, with corresponding P/E ratios of 16, 14, and 13 times [2][4][6]. Financial Performance Summary - In 2024, the company achieved revenue of 2.951 billion yuan, with a net profit attributable to the parent company of 142 million yuan, reflecting a year-on-year revenue increase of 9% but a decline in net profit by 24%. In Q4 2024, the company reported revenue of 937 million yuan and a net profit of 32 million yuan, showing significant growth compared to the previous year. For Q1 2025, revenue was 627 million yuan, with a net profit of 19 million yuan, indicating a year-on-year revenue increase of 5% but a decline in net profit by 45% [4][5][6]. Business Segment Analysis - The main business segment, focused on footwear and bags, is expected to see a slight decline in revenue due to a weak domestic consumption environment affecting the internal sales portion. Conversely, the automotive leather segment is projected to grow by 20% to 720 million yuan, driven by strong sales from core customers. The second-layer leather business is also expected to see significant revenue growth due to a resurgence in demand for retro styles, although profit margins may be impacted by raw material price fluctuations [5][6]. Profitability Insights - The overall gross margin for 2024 remained stable at 21.4%, with a slight increase of 0.02 percentage points year-on-year. However, asset impairment losses significantly impacted net profit, leading to a decline in net profit margin to 4.8%. In Q1 2025, the gross margin improved to 20.7%, but net profit margin decreased to 3.0% due to increased financial expenses and asset impairment losses [6][4].

Group 1: Market Trends and Consumer Preferences - Recent changes in consumer preferences emphasize comfort, functionality, and fashion, leading to a decline in traditional business shoe demand and a decrease in the demand for natural leather products in China [2] - The overseas market, particularly in Europe and the U.S., shows stable demand, with a recovery in orders from foreign brands boosting export market demand [2] Group 2: Financial Performance - In 2024, the company achieved a revenue of CNY 2.95 billion, a year-on-year increase of 9.32%, while net profit attributable to shareholders was CNY 142 million, a decrease of 23.97% compared to the previous year [3] - In Q1 2025, the company reported a revenue of CNY 627 million, a year-on-year increase of 5.04%, with net profit of CNY 18.94 million, down 45.31% from the same period last year [3] Group 3: Automotive Leather Demand - The demand for automotive interior leather is growing due to the increasing use of natural leather in mid-to-high-end domestic electric vehicles, with the company’s subsidiary, Hongxing Automotive Leather, supplying major brands like Li Auto and NIO [2][4] - Despite being in the off-season for automotive consumption, Hongxing Automotive Leather's sales are expected to maintain stable growth due to new model deliveries in the second half of 2025 [3] Group 4: Competitive Advantages - Hongxing Automotive Leather holds a leading position among domestic automotive interior leather suppliers, benefiting from stable supply, production flexibility, and responsive service [4] - The company has established partnerships with several well-known automotive brands, focusing on high-end models that demand superior leather quality [4] Group 5: Capacity and Procurement Strategy - Hongxing Automotive Leather has significant room for capacity expansion to meet increasing sales, with plans for gradual production increases based on customer sales forecasts [5] - The company is managing the impact of increased import tariffs on U.S. raw hides by diversifying procurement channels from South America, Europe, Australia, and domestic markets [5] Group 6: Brand Collaborations - The company successfully entered the international supply chain of Adidas, indicating its capability to meet international standards in product development, quality, and customer service [6] - The contribution from overseas brands, particularly Adidas, is expected to significantly boost overall revenue in 2025 [5] Group 7: Other Business Performance - Baotai Leather reported a revenue increase of 1.31% in Q1 2025, with notable profit growth driven by the rising demand and prices for second-layer leather due to market trends [7]