Core Viewpoint - The company, a leading global cotton yarn producer, experienced a slight revenue decline in the first half of 2025, but showed significant improvement in profitability and debt structure optimization [1][2] Financial Performance - Revenue decreased by 1.9% year-on-year to 11.03 billion yuan, primarily due to lower product prices [1] - Net profit attributable to shareholders increased by 55.2% year-on-year to 420 million yuan, indicating a notable enhancement in profitability [1] - Gross margin improved by 1.0 percentage point to 14.2%, driven by operational efficiency and capacity utilization [1] - Financial expense ratio decreased by 1.0 percentage point to 1.3%, benefiting from foreign exchange gains and reduced loans [1] - Asset-liability ratio decreased by 2.6 percentage points to 51.4%, reflecting ongoing debt structure optimization [1] Inventory and Capital Expenditure - Inventory increased by 5.9% year-on-year to 5.369 billion yuan, attributed to unsold goods due to tariff uncertainties [1] - Capital expenditure rose by 17.2% year-on-year to 340 million yuan, linked to equipment upgrades and construction of factories in Vietnam [1] Business Segment Performance - Yarn sales volume increased by 3.6% year-on-year to 385,000 tons, driven by demand for functional sportswear [1] - Revenue from yarn decreased by 2.2% to 8.62 billion yuan due to price declines [1] - Sales of woven fabrics surged by 17.0% year-on-year to 51 million meters, supported by accelerated inventory replenishment amid tariff policy changes [1] - Gross margin for woven fabrics improved by 4.7 percentage points to 23.5% [1] - Sales of knitted fabrics fell by 33.5% year-on-year to 3,840 tons, with revenue declining by 37.8% to 18.6 million yuan, impacted by reduced export orders to the U.S. [1] Outlook for Second Half of 2025 - Management plans to sell 400,000 tons of yarn, 50 million meters of woven fabrics, and 3,000 tons of knitted fabrics in the second half of 2025 [2] - The company expects continued improvement in profitability and stable operational capabilities in the medium to long term [2] - Profit forecasts for 2025-2027 have been raised, with expected net profits of 720 million, 770 million, and 970 million yuan respectively [2] - Target price adjusted to 5.1-5.9 HKD, reflecting an increase in profit expectations [2]

Investment Rating - The investment rating for Tianhong International Group is "Outperform the Market" [5][20]. Core Views - The company experienced a slight revenue decline of 1.9% year-on-year to 11.03 billion yuan in the first half of 2025, primarily due to lower product prices, but its profitability continued to improve with a net profit increase of 55.2% to 420 million yuan [1][3]. - The gross profit margin improved by 1.0 percentage point to 14.2%, attributed to enhanced operational efficiency and flexible raw material procurement strategies [1][20]. - The company is a leading global cotton yarn producer, and its debt structure has been optimized due to reduced bank borrowings, resulting in a debt-to-asset ratio decrease of 2.6 percentage points to 51.4% [1][20]. Summary by Sections Financial Performance - In the first half of 2025, the yarn sales volume increased by 3.6% to 385,000 tons, while yarn revenue decreased by 2.2% to 8.62 billion yuan due to price declines [2]. - The gross margin for yarn improved by 1.4 percentage points to 13.9% due to increased order volume and capacity utilization [2]. - The woven fabric business saw a significant growth of 17.0% in sales volume to 51 million meters, driven by inventory replenishment ahead of tariff changes [2]. - The knitted fabric segment faced challenges, with sales volume dropping by 33.5% to 3,840 tons and revenue declining by 37.8% to 186 million yuan [2]. Profit Forecast and Financial Indicators - The profit forecast for 2025-2027 has been adjusted upwards, with expected net profits of 720 million, 770 million, and 970 million yuan respectively, reflecting a year-on-year growth of 30.3%, 6.9%, and 25.5% [3][21]. - The target price has been raised to 5.1-5.9 HKD, corresponding to a PE ratio of 6-7x for 2025 [3][20]. - The company is expected to maintain a gross margin of 13.1% in 2025, with net profit margins projected at 3.1% [18][21]. Market Position and Strategy - The management plans to sell 400,000 tons of yarn, 50 million meters of woven fabric, and 3,000 tons of knitted fabric in the second half of 2025 [2]. - The company benefits from a local supply chain and quick response capabilities, positioning it well for future market leadership [20].

Group 1 - The core viewpoint of the article highlights Tianhong International Group's financial performance for the six months ending June 30, 2025, showing a slight decline in revenue but significant growth in profit [1] - The company achieved a revenue of RMB 11.034 billion, representing a year-on-year decrease of 1.9% [1] - Gross profit increased by 5.8% to RMB 1.566 billion, while profit attributable to shareholders rose by 53.3% to RMB 419 million, with basic earnings per share at RMB 0.46 [1] Group 2 - The revenue primarily comes from yarn sales, with the mid and downstream business focusing on woven fabric sales aimed at overseas markets [1] - Yarn sales revenue decreased by approximately 2.2% year-on-year to about RMB 8.622 billion due to a decline in selling prices [1] - Conversely, woven fabric sales revenue significantly increased by approximately 17.9% year-on-year, leading to a slight decrease in the proportion of yarn sales revenue from 78.4% to 78.1% of total revenue [1]

Group 1 - The company reported a revenue of 11.034 billion RMB for the six months ending June 30, 2025, representing a year-on-year decrease of 1.86% [1] - Shareholder profit increased by 53.33% to 419 million RMB, with basic earnings per share at 0.46 RMB [1] - Yarn sales, which primarily contribute to revenue, saw a decline of approximately 2.2% to about 8.622 billion RMB due to a decrease in sales prices [1] Group 2 - The sales revenue from woven fabrics significantly increased by approximately 17.9% compared to the previous year, leading to a slight decrease in the proportion of yarn sales in total revenue from 78.4% to 78.1% [1] - The company is capitalizing on market trends, with a growing demand for functional sportswear driven by the increasing popularity of outdoor activities [1] - The focus on the functionality, health, and environmental aspects of textiles is pushing the yarn industry towards differentiation and high-end transformation, creating structural growth opportunities for yarn products [1] Group 3 - The company successfully increased yarn sales volume by about 3.6% year-on-year, reaching approximately 385,000 tons [1] - Yarn order volume and capacity utilization, especially in overseas factories, improved compared to the previous year [1] - A flexible raw material procurement strategy contributed to an increase in average gross margin for yarn from 12.5% in the previous year to 13.9% during the review period [1]

Core Viewpoint - Tianhong International Group reported a slight decrease in revenue but a significant increase in net profit for the six months ending June 30, 2025, indicating a positive trend in profitability despite revenue challenges [1] Group 1: Financial Performance - The company recorded a revenue of 11.034 billion RMB, a year-on-year decrease of 1.86% [1] - Shareholder profit attributable to the company was 419 million RMB, reflecting a year-on-year increase of 53.33% [1] - Basic earnings per share were 0.46 RMB [1] Group 2: Sales and Product Performance - Yarn sales, which primarily contribute to revenue, saw a decrease of approximately 2.2% year-on-year, totaling around 8.622 billion RMB [1] - Sales revenue from woven fabrics significantly increased by approximately 17.9% year-on-year, slightly reducing the proportion of yarn sales in total revenue from 78.4% to 78.1% [1] - The company managed to increase yarn sales volume by about 3.6% year-on-year, reaching approximately 385,000 tons [1] Group 3: Market Trends and Strategic Response - The demand for functional sportswear is rising due to the increasing popularity of outdoor activities, leading to a structural growth opportunity in the yarn industry [1] - Consumer focus on the functionality, health, and environmental aspects of textiles is driving the industry towards differentiation and high-end transformation [1] - The company has actively captured market opportunities by developing products that meet market demands [1] Group 4: Operational Efficiency - The company experienced an increase in yarn order volume and capacity utilization, particularly in overseas factories, compared to the same period last year [2] - A flexible raw material procurement strategy contributed to an increase in average gross margin for yarn from 12.5% to 13.9% [2]

Investment Rating - The report does not provide a specific investment rating for the company [7] Core Insights - In 2024, the company achieved a revenue of 1.58 billion yuan, a year-on-year increase of 2.1%, and a net profit attributable to shareholders of 44.18 million yuan, a year-on-year increase of 18.8% [1] - The first quarter of 2025 saw a revenue decline of 5.5% year-on-year, resulting in a net loss of 9.86 million yuan, primarily due to increased costs from the new business unit [1][5] - The company expects gradual improvement in performance despite current challenges [1] Financial Performance Summary - Revenue and Net Profit: In 2024, the company reported a revenue of 1.58 billion yuan and a net profit of 44.18 million yuan, with a net profit margin of 2.8%, up 0.4 percentage points year-on-year [1] - Quarterly Performance: The quarterly revenue for 2024 showed fluctuations, with Q1 to Q4 revenues growing by 7.0%, 5.3%, declining by 3.0%, and increasing by 0.2% respectively [1] - Profitability Metrics: The gross margin for 2024 improved to 15.7%, up 0.7 percentage points year-on-year, while the expense ratio decreased to 12.5% [3][4] Business Segment Analysis - The company’s revenue from woven and knitted fabrics accounted for 49.6% and 49.2% of total revenue in 2024, with respective year-on-year growth rates of 1.3% and 2.9% [2] Cash Flow and Inventory Management - Operating cash flow for 2024 was 490 million yuan, an increase of 39.2% year-on-year, while inventory decreased by 14.6% to 6 million yuan at the end of 2024 [4] Future Earnings Forecast - The company’s net profit forecasts for 2025, 2026, and 2027 are 47.11 million yuan, 57.86 million yuan, and 70.04 million yuan respectively, with corresponding EPS of 0.11 yuan, 0.13 yuan, and 0.16 yuan [5]