Textile And Garment Industry: All Cotton Is A Disaster.

The decline in export growth is in line with our previous expectations: we have always thought that the export of textile and clothing in 2011 showed a high and low level. In February, the export growth rate was down.

The sharp rise in cotton prices was the main reason for the decline in exports in February: cotton prices soared in the 3 quarter of 2010. Cotton price The index (level 328) started at 18000 yuan in early September, and it has reached 31300 yuan in 2 months. The soaring cotton prices also led to price rises of other textile materials such as viscose and spandex. When the price of cotton started to surge, foreign investors bought up and bought the export orders ahead of time because of the rise or fall. In addition, the soaring cotton prices also led to the soaring prices of the products. Considering the signing of orders for 9/10 months in January, the export market was expected to be exported in January. In the face of excessive soaring cotton prices and facing more than 30 thousand yuan of cotton prices, foreign businessmen were reluctant to sign the bill after November, while domestic enterprises could not buy enough raw materials for financial pressure on the one hand. On the other hand, they were afraid to sign the bill because they were worried about the possible downfall risks of the huge cotton price. Faced with a record high cotton price, foreign and domestic production enterprises began to sigh, which led to a sharp decline in export growth in February.

The growth of 10-15% growth in textile and clothing exports is expected to remain constant in the year: we believe that the monthly growth rate of textile and clothing in the future is still likely to maintain the growth rate of 10-15% in February, in the short term, due to the adverse effects of high cotton prices on exports, and the medium term is based on the rise in labor costs and the slow recovery of demand in Europe and the United States.

We still insist that 3-6 months may decide the future. Cotton price Direction, downward probability is slightly larger than upward probability: we think there are three major factors that affect cotton price fluctuation.

One is global capital, which is the most important factor in pushing up cotton prices since the second half of last year. Cotton has become the leader of global agricultural futures, and the second is supply and demand of cotton. On the one hand, with the soaring cotton prices, in 2011, the major cotton producing areas including the United States and China increased the cotton planting area. It is an indisputable fact that the planting area of the United States increased by about 15%, the Chinese intention increased by nearly 5%, and the supply and demand of cotton significantly improved. On the other hand, under the background of slow economic recovery, consumers in Europe and the United States did not accept the high price of textile and clothing caused by high cotton prices. Third, the pressure of national regulation and control continued to suppress cotton prices. Considering the downward probability of cotton price is slightly larger than the upward probability, and with the appearance of factors such as the decline in the export growth rate of February and other unfavorable cotton prices, the downward probability has an increasing trend.

Investment recommendations we maintain the industry "overweight" rating, mainly we always optimistic about textile and garment retail enterprises, in the future, if cotton prices fall, on the one hand can eliminate the market for high cotton prices may affect the retail business gross margin concerns, but also can eliminate the impact of high priced products on consumers' purchase intention. We are still firmly optimistic about the seven wolves, Wei Xing, Luo Lai Good textile and apparel retail stocks such as fuanna and Meng Jie.

For export manufacturing enterprises, we always believe that gross profit margin is more important than income change. We should intervene in low gross profit margin. We should be cautious when considering the difficulty of resuming export growth and the downward trend of gross profit rate caused by high cotton prices. In the second half of the year, we will pay close attention to the strong competition of Huafu color spinning and Lu Tai after the direction of cotton price is clear.

The decline in export growth, the intervention of viscose, spandex, polyester and other textile raw materials should be cautious. In the latter half of the year, when the cotton price is determined and the export is stable, the opportunity to intervene will be welcomed.