Textile And Apparel: Maintain "Neutral" Rating

In the first half of 2011, the export volume of textile and clothing increased significantly, which was in line with our expectation.

The main reason for the substantial increase in export volume is the sharp increase in the prices of export products over the same period. The "concentrated delivery" of the products in the two quarter increased the volume of exports in the first half of the year over the same period last year.

With the price of raw materials down, the delivery price of products will decline in the second half of the year, which will affect the growth of export volume in the second half of the year, and the growth of export volume will decrease.

We still believe that the "order to large enterprises" makes the speech power of large leading enterprises increase, and it is still recommended to focus on leading enterprises in various sub sectors of the textile industry.

Main points of investment:

First half year

Export growth in the first half of this year exceeded the same period last year, but the growth rate will slow down in the second half.

The 2 quarter of 2011 will be the peak delivery period of the highest price of textile and garment products. This is due to the fact that most of the products delivered in the two quarter were signed at the time of high cost of raw materials. Therefore, we believe that the export volume of domestic textile and garment will continue to increase substantially in the first half of this year, and the growth rate will continue to exceed the same level in the same period of last year. However, in the second half of this year, the export products will decline in the case of raw material prices falling.

The advantages of the complete industrial chain continue to guarantee the order of textile and clothing in 2011.

Although the price increase of domestic exports by 20% to 30% is generally unacceptable to foreign businessmen, some European and American customers have begun to reduce their purchases in China, and some low-end goods will be purchased more from Southeast Asia. However, China has a complete industrial chain advantage.

Therefore, we think that the pfer of orders is limited. Under the influence of the domestic textile industry chain advantage and the rigid demand of Europe and America, foreign countries have greater dependence on Chinese products. In 2011, domestic textile and garment exports will continue to grow.

Rising costs will polarize the industry.

At present, the rise of artificial cost by 20-30% will affect 70% of the enterprises in the textile and garment industry.

The gradual rise of cotton prices in the industrial chain will enable many small and medium-sized enterprises to withdraw from the market competition.

In the future, in the era of high cotton prices, the structural readjustment of textile industry is inevitable. After a big shuffle, the enterprises will be polarized and the industry will appear "strong Heng Qiang, and the weak will be eliminated".

Advantageous resources will accelerate to large enterprises.

Orders are concentrated on large enterprises, and large enterprises' market discourse power is increased.

As far as the current situation is concerned, the large textile export enterprises generally reflect the good order in early 2011, and have made preparations for expanding production.

In addition, SMEs do not dare to take orders, large enterprises have larger order options, and order quality is valued by these enterprises.

Continue to focus on yarn, grey fabric and fabric leading enterprises.

Looking forward to 2011, we believe that the domestic market of textile and apparel industry will continue to maintain steady growth under the environment of domestic consumption upgrading.

On the export side, although the overall export growth of the industry will slow down in the second half of the year, this is not an order problem. Rather, most of the small businesses are forced to reduce the quantity of orders from the cost of raw materials. This will lead to the concentration of orders to large export enterprises, and the leading enterprises in various sub sectors will have more opportunities to choose orders.

In 2011, leading enterprises in various sub sectors will have more opportunities for profit growth.

Therefore, we believe that we should focus on the leading enterprises in various sub sectors of the textile industry in 2011.

Notable listed companies are Lu Tai A, Huamao shares, Xinye textile and Huafu color spinning.

Risk warning: in the future, the excessive appreciation of RMB will engulf enterprises' order profits, and the future global economic trend will directly affect the order quantity of enterprises.