Intrinsic Value Xingye Leather Technology Co., Ltd. (002674.SZ)

• Previous Close: $13.98
• Intrinsic Value: $20.11
• Upside potential: +44%

Stock Valuation Context

Business Model And Market Position

Xingye Leather Technology Co., Ltd. operates as a specialized manufacturer of premium leather materials within China's consumer cyclical sector. The company generates revenue through the production and sale of diverse leather products, including nappa leather, natural wrinkle leather, and special effect leather series. These materials serve multiple industrial applications, primarily targeting the furniture industry for sofa manufacturing, the leather apparel sector, and the goods luggage industry. The company's export activities extend its market reach beyond domestic boundaries, leveraging its established supply chain and manufacturing capabilities. Founded in 1992 and headquartered in Jinjiang, a region with significant leather industry presence, Xingye Leather has developed long-standing relationships within the manufacturing ecosystem. Its market position reflects a focus on quality materials for intermediate industrial customers rather than direct consumer sales. The company navigates competitive pressures through product specialization and maintains relevance by supplying essential materials to various leather goods manufacturers across different consumer segments.

Revenue Profitability And Efficiency

For the fiscal year ending December 31, 2024, Xingye Leather reported revenue of CNY 2.95 billion with net income of CNY 141.6 million, translating to a net margin of approximately 4.8%. The company demonstrated solid cash generation with operating cash flow of CNY 309.6 million, significantly exceeding net income and indicating healthy earnings quality. Capital expenditures of CNY 225.1 million suggest ongoing investment in production capacity and operational efficiency improvements.

Earnings Power And Capital Efficiency

The company delivered diluted earnings per share of CNY 0.48, reflecting its earnings capacity relative to its equity base. Operating cash flow coverage of capital expenditures appears adequate, though specific return metrics cannot be calculated from available data. The relationship between operating cash flow and net income suggests conservative accounting practices and reliable cash conversion from core business activities.

Balance Sheet And Financial Health

Xingye Leather maintains a balanced financial position with cash and equivalents of CNY 760.1 million against total debt of CNY 781.9 million, indicating near-parity between liquid assets and obligations. This conservative leverage profile provides financial flexibility, though detailed debt maturity structure and interest coverage ratios would provide deeper insight into liquidity risk management and overall financial stability.

Growth Trends And Dividend Policy

The company demonstrates a shareholder-friendly approach through its dividend distribution of CNY 0.15 per share, representing a payout ratio of approximately 31% based on diluted EPS. This balanced capital allocation strategy returns cash to shareholders while retaining earnings for reinvestment. The relationship between capital expenditures and operating cash flow suggests disciplined investment in growth opportunities within its core leather manufacturing operations.

Valuation And Market Expectations

With a market capitalization of approximately CNY 4.12 billion, the company trades at a price-to-earnings ratio of around 29x based on trailing diluted EPS. The beta of 0.36 indicates lower volatility relative to the broader market, potentially reflecting the company's established market position and stable business model within the leather manufacturing industry. Valuation multiples should be considered in context of industry peers and growth prospects.

Strategic Advantages And Outlook

Xingye Leather's long operating history since 1992 provides established industry relationships and manufacturing expertise. Its diverse product portfolio serving multiple leather-consuming industries offers some diversification benefits. The outlook depends on demand trends in furniture, apparel, and luggage sectors, along with raw material cost management. Export activities provide additional growth avenues, though competitive pressures and environmental regulations affecting leather production represent ongoing considerations.

Sources

Company financial statementsMarket data providers