Guotai Junan: Domestic Clothing Benefits From Inflation And Consumption Upgrading

Main points of investment:

In the 08 years and 1-4 months, the total export volume of the industry reached 50 billion 323 million US dollars, up 15.32% from the same period last year, of which the textile industry grew by 25.13% compared with the same period last year, and the garment industry grew by 9.33% over the same period last year.

Exports to the US dropped sharply, while exports to the US grew by only 0.20% in 1-4 months, and clothing exports dropped by 6.89%.

The EU has become a hot area of textile and clothing export due to the cancellation of quota.

Exports to the EU rose to 33.19% in April.

In 2006, the proportion of clothing consumption in urban and rural residents accounted for 10.37% and 5.94% respectively, 0.58 and 0.27 percentage points higher than that in 2003, while urban and rural food expenditures decreased by 1.34 and 2.57 percentage points respectively during the same period.

Compared with the urban residents, the proportion of rural residents in clothing consumption accounted for the consumption expenditure was relatively low, and the difference between the two in 2006 was 4.43 percentage points.

In the future, with the acceleration of the urbanization process and the increase of the rural residents' income level, there is a big room for increasing consumption of clothing in rural areas.

Inflation has different effects on the profitability of enterprises in different periods. In the early stage of inflation, the price of raw materials increased and the price of products increased, and the inventory of enterprises was still at a low price, and the profits of enterprises increased.

Inflation has different effects on the cost of different types of enterprises.

Because the gross profit margin of brand channel companies is relatively high, the proportion of manufacturing cost is low, and the cost increase has little impact on the profit of enterprises. Besides, brand channel companies can easily pass the cost pressure through raising prices.

Inflation background, low, medium and high-end clothing can be partially raised by price or internal digestion to partially resolve the pressure of rising costs; in the context of consumption upgrading, in addition to 30% of the low-grade clothing, high-grade clothing will be significantly benefited.

Affected by unfavorable factors such as export obstruction and rising cost, the overall situation of the textile industry in the past 08 years is not optimistic. It is suggested that companies with higher export dependence and upstream spinning and weaving enterprises should be avoided.

We should focus on the investment opportunities of garment industry in the context of inflation and consumption upgrading.

We are optimistic about domestic consumer oriented companies with high gross profit margins and terminal brands with brand and sales channels.

The proposed varieties include Weixing shares and seven wolves.

1. exports to the US dropped sharply, and export deceleration signs were obvious.

In April 2008, textile and clothing exports increased by US $13 billion 894 million, an increase of 9.57% over the same period last year, of which 6 billion 112 million yuan for textile exports, 21.61% for year-on-year growth, 7 billion 782 million yuan for garment exports, 1.67% for the same period last year, and 12 billion 277 million for the whole industry, accounting for 73.6% of the total trade surplus of the country, which was significantly higher than that of 07 years.

In 1~4 months, the industry achieved a total export of US $50 billion 323 million, an increase of 15.32% over the same period last year.

Considering RMB exchange rate changes against the US dollar, RMB denominated export growth is only 6.34%, down 4 percentage points from the same period last year, and the signs of export deceleration are obvious.

Recently, the total export volume of textile and garment exports totaled 4 billion 990 million US dollars, down 11.4% from the same period last year, down 14.5% from 06 years ago.

The Canton Fair has always been regarded as a weathervane for export trade, so it is expected that industry exports will still not improve in the coming months.

According to the export situation of the sub sectors, 1~4 textile exports grew 25.13% over the same period last year, 16.8 percentage points higher than that of garment exports.

Mainly due to the rapid rise in cotton prices since the beginning of the year, and the steady trend of domestic cotton prices, the price of domestic cotton initial processing products, such as cotton yarn and grey cloth, has a comparative advantage and the number of orders has increased.

The price of cotton has come down since late April, and the export growth of textiles is expected to slow down.

From the price of export products, the price of textile export rose by only 1.95% in 1-4 months, indicating that the bargaining power of the textile industry is weak, the export growth is more from the expansion of the volume; the export price of clothing increased by 10.63% in 1-4 months, and the export amount is still 9.33% growth in the case of the decline of the export quantity by 1.18%.

Under the pressure of RMB appreciation and other factors, the export mode of garment industry has gradually changed from quantity expansion to intensive growth.

From the point of view of export, due to the continued appreciation of the RMB against the US dollar and the shrinking demand caused by the US subprime debt crisis, China's exports to the US textile and clothing increased by only 0.20% in the 08 1~4 months, of which the clothing export volume decreased by 6.89%. As Hongkong is the main area of China's textile and clothing re export trade, the decline in the US market demand led to a 11.92% decline in Hongkong exports; the EU region's export volume for textile and garment exports to the EU in the first 4 months reached 33.19%, due to the cancellation of quotas, the number of which increased by 20.84%, and the price increased by 10.22%.

The EU market has further increased its contribution to exports.

2. revenue growth drives consumption upgrades

In 2007, the per capita disposable income of urban residents was 13786 yuan, an increase of 12.2% over the same period last year, and the per capita disposable income of rural residents was 4140 yuan, an increase of 9.5% over the same period last year.

Compared with 2003, the per capita disposable income of urban and rural residents increased by 62.7% and 57.9% respectively.

The growth of disposable income promotes consumption upgrading.

On the one hand, compared with food consumption, the proportion of clothing for urban and rural residents is increasing.

In 2006, the proportion of clothing consumption of urban and township residents in total consumption expenditure was 10.37% and 5.94% respectively, 0.58 and 0.27 percentage points higher than that in 2003, while the expenditure of urban and rural food decreased by 1.34 and 2.57 percentage points respectively.

On the other hand, the clothing price index representing clothing consumption continued to decline in clothing consumption, while the clothing price index of large shopping malls which represent the middle and high-end clothing consumption increased continuously, and the two deviated from each other. It reflected that with the increase of per capita income, the public's consumption of high-end clothing increased gradually, while for cheap script src=>