Brief analysis of listed spandex companies in Q1 2023-improving on the quarter

During the first quarter of 2023, spandex market faced strong expectation of weak reality in Chinese mainland. Spandex price curved an "A"-shape trend impacted by the changing of supply and demand and market sentiment. The profit of spandex showed a similar trend as price, both recovering compared with Q4 2022 but moving down over the same period of last year.  How did listed spandex companies perform in the first quarter of 2023?

Unit: 100MLN Yuan

According to the Q1 report of Huafon Chemical, revenue was 6.192 billion yuan, a YoY decrease of 15.10% and a QoQ increase of 4.18%. Net profit was 631 million yuan, a YoY decrease of 53.65% and a QoQ increase of 47.49%. Huafon Chemical is mainly engaged in the research and development, production, and sales of spandex fibers, polyurethane raw solutions, adipic acid, and other polyurethane materials. Spandex capacity reached 307kt/year by the end of the first quarter in Huafon.

According to the Q1 report of Xinxiang Chemical Fiber, the revenue in the first quarter of 2023 was about 1.84 billion yuan, down 14.73% y-o-y and up 18.4% on the quarter. Net profit was about 17.43 million yuan, a YoY decrease of 57.42%, compared to a net loss in the previous quarter. Xinxiang Chemical Fiber mainly produces and sells biomass cellulose staple fibers and spandex; it belongs to the chemical fiber industry. Its spandex capacity reached 208kt/year by the end of the first quarter.

According to the Q1 report of Tayho New Material Group Co., Ltd., the revenue was 1.012 billion yuan, a YoY decrease of 4.10% and a QoQ increase of 6.8%. Net profit was 136 million yuan, down 7.05% on annual basis and up 3.5% on monthly basis. Tayho New Material is specialized in research, development, production, and sales of high-performance fibers such as spandex and aramids, with its leading products being spandex, meta-aramid, para-aramid, and their upstream and downstream products. Spandex capacity approached 85kt/year by the end of the first quarter.

Based on the financial performance of the three listed companies, in terms of revenue, Tayho New Material had the smallest YoY decline, while Huafon Chemical and Xinxiang Chemical Fiber decreased by about 10-20%. In terms of net profit, Tayho New Material was benefited from the driving force of its aramid business. Over 60% of the company's revenue and over 100% of its profit came from the aramid business in the first quarter, with net profit decreasing slightly by 7.05%, while Huafon Chemical and Xinxiang Chemical Fiber had a significant YoY decline of about 50-60%. In terms of QoQ performance, all three companies witnessed rising revenue and net profit, with growth rate of operating income at 4.18%-18.4%.

In terms of other important indicators in the first quarter, Huafon Chemical had the highest gross profit margin at 9.64-28.44%. In terms of inventory turnover, Huafon Chemical had the highest turnover rate, indicating that the company's inventory was sold out faster during the same period, thus implying better inventory management capabilities. In terms of operating cycle days, Huafon Chemical had the shortest time of 88.08 days. In terms of accounts receivable turnover days, Tayho New Material saw the shortest cycle. In terms of debt-servicing ability, based on indicators such as asset-liability ratio, current ratio, and quick ratio, Huafon Chemical witnessed the best performance.

In the first quarter of 2023, the spandex market was driven more by strong expectations. Medium-and-downstream buyers showed higher buying interest in expectation of recovering consumption. Spandex price has hit bottom in recent two years, stimulating the expansion of application field on spandex market. The application of sun-proof apparently increased and the additive proportion in fabrics for sportswear and casual fabrics extended higher. The above factors pushed up price, sales and profit of spandex industry, improving than Q4 2022. During the first quarter, the apparent consumption and actual consumption of spandex both rose by more than 20% on the year. However, supply of spandex was still in glut when supply continued increasing from Q4 2021 to Q1 2023. Price of spandex met difficulty in moving up and the profit of spandex plants remained meager. Some leading spandex plants and medium-to-high brand companies saw net profit and other companies faced bigger losses.