Textile And Garment Industry: Under The Escort Of Domestic Demand

Market review: this month's textile and garment sector is gratifying.

Due to concerns about domestic economic slowdown, high inflation, local financing platform and foreign debt crisis, the Shanghai Composite Index, Shenzhen stock index and Shanghai and Shenzhen 300 fell 2.18%, 0.99% and 2.37% respectively this month, while benefiting from the optimistic expectations of the big consumer segment in the second half of the year, the textile and garment sector rose 3.42%, ranking fifth in the sector. SW textile index rose 3.48%, SW clothing index rose 3.37%.

Industry tracking: raw material prices continue to fall.

Since the beginning of this year, domestic and foreign cotton prices have continued to decline, and China's cotton price index (328 level) has dropped from 31241 yuan / ton in March to 20123 yuan / ton at present. The total decline is 35.59%, down 15.90% this month. The US cotton spot Cotlook:A index fell 15.30% this month, closing at 115.30 cents / pound.

Under the influence of upstream oil price rigidity, the prices of chemical fiber raw materials have stabilized this month. Viscose filament and viscose staple fiber have decreased by 5.65% and 1.65% respectively. Polyester staple has increased by 1.97%, and acrylic staple prices have been flat.

The export trend of the industry is steady, and the trend of industrial orientation from export to domestic sales is more and more obvious.

China's textile and apparel exports increased by 25.74% over the same period of 1-6 months in 2011, of which the total export volume of clothing was 65 billion 800 million dollars, up 23.7% compared with the same period last year, while clothing imports grew by 70.2% over the same period last year, much larger than the export growth rate. In addition, the industrial value and export delivery value of textile and clothing, shoes and hat manufacturing industry in China reached 364 billion 600 million yuan and 94 billion 800 million yuan respectively in the 1-4 months, the growth rate of the former was 28.4%, larger than that of the latter 11.1 percentage points. At the same time, to a certain extent, the ratio of industrial oriented export delivery / industrial output value continued to decline from August 2008 peak to 39%, while the cumulative growth rate of fixed assets investment of China's textile and clothing footwear industry increased from 28.4% to current.

This data reflects the guiding change of China's textile and garment manufacturing industry since the 08 financial crisis.

Taking into account the government's determination to expand domestic demand, the weaker comparative advantage of domestic labor prices and the uncertain economic climate abroad, we are confident that this trend will continue.

The domestic consumer demand is strong, and the price and Price Divergence effect after product price increase does not hinder the rapid growth of total retail sales.

In the first half of this year, the total retail sales of China's textile and apparel reached 372 billion 700 million yuan, an increase of 23.9% over the same period last year, which is 7.12 percentage points higher than the year-on-year growth rate of retail sales of consumer goods in the whole society. In June, the total retail sales of textile and apparel increased by 24.6% over the same period last year, reaching 57 billion 500 million yuan. In the same period, the retail sales volume of the top 100 retailers in the same period increased by 21.1% over the same period, and maintained a relatively fast growth trend.

In addition, CPI rose in the first half of June, while CPI rose to 6.40% in June, but the consumer confidence index hit a high of 108.1 this month.

Considering that clothing CPI in June is only 2.10%, which is far below 14.4% of the food CPI, we make a rough judgement that the price of clothing will be more easily accepted by consumers in the short and medium term, and then the sales volume will gradually rise, and the final price will go up to boost the total growth.

Investment recommendations: in the first half of the year, export stability and domestic demand escort were good. The higher rate of retail sales of textiles and clothing to a certain extent weakened the previous market's concerns about the possible divergence of price increases. Since the beginning of the year, the sharp fall in raw material prices has helped to alleviate the cost pressure of the upstream manufacturing side. We have judged that the possibility of a further increase in the prices of terminal products in the year is unlikely, and with the gradual recognition and acceptance of the current product prices, we have every reason to believe that the overall profitability of the industry will be improved significantly under the strong domestic demand.

It is recommended that reference be made to the valuation level of stocks in the near future, with a focus on the status of the China Daily and the order meeting that is concentrated from 8 to October.

Recently, the textile and garment sector has gone through a good rally. Some stocks have reached the historical average PE level. It is suggested that we should pay close attention to the listed companies which still have the valuation advantage in the short term. In addition, due to the fact that the annual performance of the sub sectors, such as home textiles and brand clothing, is largely locked by orders for the scheduled goods, we recommend that we pay more attention to the details of the subsequent orders.

Taking into account the inventory risk, industry seasonality, and the worries of enterprises and franchisees about inventory since last year, we will be optimistic and cautious about the next year's spring and summer product orders.