Industry Growth Slowed To &Nbsp; Valuation Of Brand Clothing Stocks Will Be Under Pressure.

Zhang Bin, chief analyst of the textile and apparel industry of the state securities company, recently accepted the exclusive interview with the first Financial Daily reporters. In the past, the brand clothing enterprises had achieved rapid growth in the era of expansion by means of extension.

In addition, when reading the financial reports of textile and garment enterprises, inventory is an important indicator that can not be ignored. If the operating income represents the current situation of enterprises, inventory can predict the future.

Manufacture

Reporter: the whole textile and garment industry includes many sub sectors. How do you divide them?

Zhang Bin: we usually divide the textile and garment industry into three blocks, one is raw materials, including cotton, chemical fiber, etc.; the second is manufacturing and exporting, and the reason why they are put together is that up to now, 50% or more of our manufacturing companies are targeting exports, and third are domestic sales, especially the well-known brand enterprises.

Reporter: from the four quarter, what is the situation of these three fields?

Zhang Bin: first of all, the price of raw materials is stabilizing.

As new cotton has been listed in large quantities, demand and supply are not high, supply is increasing and prices are weak. In addition, the state's purchase and storage system will also hold cotton prices.

The price of cotton in the four quarter is expected to be between 18 thousand ~2 yuan per ton and at the bottom.

In addition, viscose, spandex and polyester may all oscillate at the bottom.

For export and manufacturing enterprises, the fourth quarter will be a rather miserable quarter, worse than the three quarter, mainly due to overcapacity.

Because of the relatively loose funds in 2009~2010, many enterprises have invested a lot in production capacity. These capacities are basically released this year, but the orders of these enterprises are not enough.

Their feelings are even worse than in 2008, because in 2008, even though the order was insufficient, the enterprises had a family base and no debts, so they could "close the door and twist mahjong".

Now the fixed assets investment of enterprises is very large, interest expense and depreciation are more severe, so it can be said that they are operating in debt.

Moreover, since the price of labor has risen too fast since 2009, a large number of low-end orders have been lost from China and will not come back again.

This means that China's textile exports are basically in the high-end.

The amount of exports will rise and the volume will drop.

The third one is the retail market of textile and garment, or domestic market.

Domestic demand has maintained two digit growth, but if the macro-economy goes a little bit, all industries will be hard to escape.

I think that in a long-term and sustained growth context, there will be a trough in the medium term growth. The time may be one year or two years.

Starting from May this year, the sales volume and sales volume of clothing has a downward trend, whether from the statistical reports of department stores or the survey of manufacturers and agents.

From the wholesale and retail sales volume, the three quarter sales showed negative growth, 1~8 month relative growth of 4.6%, which is the first time in many years that sales growth is below two digits.

This slowdown will last until at least the first half of next year, and the situation will not change until the second half of next year or the year after next.

Reporter: what is the reason behind the slowdown?

Zhang Bin: there are two main reasons.

One is that the macro economy began to move down from the fourth quarter of last year. The consumption domain is closely related to the macro economy, but consumption will lag for half a year or so.

The second reason is that the rise in cotton prices and the sharp rise in labor costs directly push up the retail price of clothing, and high prices inhibit demand.

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Brand clothing stocks have a downward pressure on valuations.

Reporter: can we say that this year is a turning point in the textile and garment industry?

Zhang Bin: it should be said that from the beginning of this year, whether it is for export manufacturing or domestic enterprises, it is an important turning point.

Most of our private enterprises have not really experienced the bear market.

So there is no precedent for how the future will evolve. No one knows for sure, which adds to the difficulty of forecasting.

In the long run, the price of raw materials will decrease.

Export oriented enterprises are continuing to carry out deep industry integration.

Although industry integration has been said before, the policy of the country is not continuous. Many enterprises should be eliminated 5 years ago.

20 years of industry bull market led to the development of brand clothing enterprises is very simple and simple, that is to do capacity expansion, nothing more than speed and rhythm.

Although enterprises have been upgrading new equipment and technology, the idea of development has not changed, basically concentrated in "bigger". I think the future business is to consider how to be strong, that is, how to increase the proportion of endogenous growth, rather than relying on epitaxial growth.

Reporter: how can investors judge the endogenous growth ability of a company?

Zhang Bin: first of all, the scale of the enterprise is still very important. The scale can be large, at least it has certain strength.

There is also a judgment of management, whether management has a deep understanding and description of future market changes.

For example, the chairman of the 002029.SZ has already started the layout for two or three years in advance of endogenous growth.

Enterprises that focus on endogenous growth will pay more attention to product quality and design elements instead of simply sacrificing products to expand channels.

Of course, the channel is still very important, but the proportion of importance will drop.

In addition, investors can find signs of strong endogenous growth from the indicators of corporate financial statements.

Endogenous growth enterprises will pay great attention to the internal indicators of inventory and accounts receivable, which is reflected in the financial statements that inventory turnover and accounts receivable turnover rate have been accelerated, and the growth rate of net profit will exceed the growth rate of operating income.

For example, during the period of rapid growth of Lining's performance, its inventory turnover and accounts receivable turnover rate are gradually increasing. All these indicate that the internal business efficiency is improving.

Of course, in terms of investment, endogenous growth is not so predictable as epitaxial growth. I think there may be a slight downward pressure on the valuation of consumer stocks in the future.

Because of the larger endogenous role, the valuation volatility of consumer stocks will also decrease in the future.

Reporter: if there are signs of a slowdown in the whole industry, then how do you see investment opportunities in the textile and garment industry?

Zhang Bin: with the relative stability of the raw material price system, the performance of these companies will be more steady and will gradually be favored by mainstream organizations.

Because such companies are not necessarily strong enough to grow, but the proceeds are relatively fixed, just like treasury bonds, thus becoming one of the institutional configurations.

Besides, on the one hand, we should pay attention to the brand clothing enterprises who are ready to start endogenous growth and have some basic or potential potential at this point. This endogenous growth has higher requirements for management capability.

On the other hand, we can continue to pay attention to some enterprises that are expanding.

Reporter: is the situation of home textile enterprises the same?

Zhang Bin: the situation of home textile enterprises and other brand clothing enterprises is different. Because of the late start of the market, the market is basically in a relatively large stage of extension.

Inventory index is most important

Reporter: what financial indicators do you usually care about in the textile and garment industry listed companies?

Zhang Bin: first of all, the net interest rate should not be too high. If not, at least it means larger space.

Management fees should not be too high, but not too low.

Now the problem of many companies is not too high overhead, but too low.

Because enterprises always need a certain staff to drive, the cost is always relatively fixed.

The two indicators of accounts receivable and inventory are very important.

Inventory is the most important factor even in all indicators.

Because the retail business is good or bad, the income is only one side, which indicates that the key index in future is inventory.

The three quarterly earnings reported by the two companies such as 00738.HK and I.T (00999.HK) grew very well, but the share price fell, as the market saw its stock grow.

Of course, there is another case of stock increase, that is, companies are bullish on the market, so they hoard lots of products.

If the prevailing market conditions were good enough, there would be enough staff reserves to find the same market gap as Kappa.

Then, the growth rate of inventory is faster than that of revenue growth.

But there is also a degree that the growth rate of inventory can exceed the income growth rate, but it can not exceed too much, because clothing is a fashionable product, the sales cycle of women's clothing is about one or two months, men's wear is two or three months, and the length of home textiles is three to six months.

Therefore, enterprises generally have more than two or three months' inventory at most, such as inventory more than half a year is often problematic.

Zhang Bin introduction

At the China Textile University (now Donghua University), he has been engaged in research for 8 years, and has studied in the securities industry for nearly 10 years. He has worked in Tiantong Securities Research Institute and Jinxin Securities Institute.

He is currently the principal analyst of the state textile and apparel industry.