Baron East Benefited From The Southeast Asian Production Base, The Volume Of Orders Is Expected To Increase.

Baron East: benefit from Vietnam's capacity orders are expected to exceed expectations

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Leading enterprises, the company will benefit from the recovery of the industry chain in 2015; compared with competitors, the company will benefit fully from Vietnam's production capacity in 2015.

We continue to recommend Baron East, first based on the judgement of the cotton textile industry chain's recovery growth in 2015.

The recovery growth of domestic cotton textile industry in 2015 mainly came from the reduction of cotton price difference at home and abroad.

In April 2014, the cotton policy was changed from storage to storage and storage to direct subsidy. The links in the industrial chain were consistent. The cotton price would be obviously downward. Careful order and digestion of inventory were basically the same consensus. With the difference between domestic and foreign cotton prices narrowed to a reasonable range (1500-2000 yuan / ton),

Replenishment inventory demand is expected to drive the growth of order volume and gross margin, thereby making good performance of cotton textile leading enterprises.

Secondly, the probability of cotton planting area will decrease significantly, and cotton prices will rise slightly.

The United States Department of Agriculture announced in the 2015 Agricultural Outlook Forum that 2015/16 cotton production in the United States is projected to be 3 million 50 thousand tons in the year of 2015/16. The reason is that the cotton planting area is expected to be reduced by 12%. The latest findings of the cotton association show that Xinjiang's cotton sown area is also expected to drop by 16%, exceeding the market expectations.

The main factor that will affect global cotton supply and demand in 2015/16 will remain China's output, inventory and import policies.

Due to the current situation of China's national cotton reserves (about 11 million tons), it is estimated that domestic cotton prices will not fluctuate significantly in 2015 years. The decline in the approximate rate of cotton planting area will bring cotton price rise to a certain extent. Considering the current cotton price (13000-14000 yuan / ton) at a historical low level, cotton prices will rise slightly, which is expected to further enhance the gross margin level of cotton textile leading enterprises.

Again, the Vietnamese plant in 2015 is expected to contribute 50 thousand tons of output / sales. If domestic production / sales remain stable, the company's total output / sales volume is expected to grow by 30%.

In November 2012, the company invested $98 million in its own capital to invest in Vietnam.

In 2014, the new capacity contributed about 17 thousand tons of sales. With the commissioning of the two phase project, the total production and sales volume will reach 50 thousand tons in 15 years.

In addition, colored spun yarn is essentially "optional consumption". If the price decreases with cotton prices, it will hopefully enlarge the elasticity of orders.

More than 95% of the company's income comes from colored spun yarn, and 30% of the colored yarn is high color gross yarn (the rest of which is slightly lower than the gross profit rate). Yarn is one of the many industrial chains of cotton (cotton textile industry chain: fine breed breeding department, cotton production, cotton processing flow, spinning, weaving, pre finishing, dyeing, printing, finishing,

Manufacturing, washing, packaging, clothing wholesale and retail); the production process of colored spun yarn first dyed cotton and then spun yarn, compared with ordinary yarn (first spinning and after dyeing), it can highlight the design concept of environmental protection and fashion (more color), so it is priced higher and is essentially "optional consumption". It is commonly used in high-end brands or high-end products of ordinary brands.

According to the customer's design requirements, the company can provide colored yarn with pertinence. As the price of the yarn is priced by the cost plus method, that is, the price of 1 ton yarn = [(1 tons cotton price +10% loss) + processing fee] * (1+ gross profit rate), cotton price is at a historical low level, and the price of the yarn will be more attractive, so as to enlarge the elasticity of the order.

In the medium to long term, the high cost factors that cause the textile manufacturing industry to run downward periodically since 2010 are expected to start reversing in 2015.

Since 2010, cotton textile enterprises are facing a rising high cost dilemma. In 2008 -2014, the export volume of China's textile and clothing grew by 4.72%, -10%, 21%, 25%, 4.32%, 11.41%, 5.09%, respectively, while the same period in Vietnam.

The average annual growth rate of exports is more than 40% since 2009, and the continuous rise of domestic costs (labor, environmental protection, raw materials, etc.) has led to the weakening of the international competitiveness of China's textile industry.

With the natural growth of manpower costs, the top costs of environmental protection, and the decline of main raw materials and cotton prices, textile manufacturers are expected to reverse the difficulties in 2015 and enhance their international competitiveness.

Domestic and foreign cotton price upside down (domestic cotton price is far higher than foreign cotton price) has become the most important factor that interferes with the operation of cotton textile enterprises since 2012. The introduction of direct subsidy policy will obviously suppress the cotton price difference at home and abroad. Cotton price has fallen by more than 30% since 2014, considering that domestic cotton reserves still have about 10 million tons. The cotton price in the next 2 years is expected to fluctuate at a low level, and the difference between domestic and foreign cotton prices has dropped significantly.

Taking the average annual wage increase of the manufacturing industry in Jiangsu, Zhejiang and Fujian as an example, the average annual increase in the 1995-1999 years is 12%, 13% and 14% respectively. The data in the 2000-2004 years are 13%, 10% and 8% respectively. The average annual increase in 2005-2009 years is 13%, 12%, and 12%, respectively. But after 2010, the data in the year of the year of enrollment rose to a large extent.

According to the existing data, in recent years, the management cost growth level of textile enterprises has basically been flat with income. We expect that the wage level of manufacturing workers will stabilize at an annual growth rate of 10% or so, which is basically consistent with the growth rate of income. But the cost of human resources in Southeast Asian countries is accelerating. Taking the minimum wage in a Vietnamese region (municipality) as an example, the minimum wage has increased from 1 million 550 thousand to 2 million 700 thousand in 2011-2014 years, or nearly 80%.

In addition to wages, the environmental costs of production costs have also risen significantly in recent years. Taking Zhejiang Shaoxing as an example, Keqiao district (Shaoxing 70% or more)

Concentrated in the urban area of Shaoxing and Keqiao District, the latest sewage treatment cost in 2014 is the benchmark cost of 3 yuan / ton. The higher the pollutant concentration in tonnes of water, the higher the cost is, the highest reaches 10 yuan / ton. If printing and dyeing enterprises choose to build self built sewage treatment equipment, the cost is about 1.5-2 yuan / ton, and the scale of investment is generally in the tens of millions of levels, and equipment investment accounts for about 5%-10% of the annual income scale.

We have judged that the environmental pressure of textile enterprises has basically reached the top.

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The overall business environment of the textile industry is expected to improve.

The competitiveness of China's textile manufacturing industry is expected to further improve as the export tax rebate rate increases and the depreciation of the renminbi is expected to continue to strengthen.

In March 1985, the State Council formally promulgated the export tax rebate policy and implemented it in April 1, 1985. After frequent adjustment, the export tax rebate rate of textile and clothing remained largely within the range of 5%-17%.

The adjustment of the export tax rebate rate serves the needs of the adjustment of the export structure of the country. Taking textile and clothing as an example, in January 1998, the export rebate rate of textiles and clothing was raised from 6% to 11% in order to get rid of the drag on the Asian financial crisis in 1998. In 2005, the peak of the export of Chinese textile and clothing was to reduce the trade surplus. In 2006, the tax rebate rate of textile exports dropped from 13% to 11%, and then to 5% (viscose fiber) in 2007.

It is up from 5% to 14%.

The export tax rebate rate rose from 16% in 2009 to 17%, mainly for the past 3 years, the textile and clothing exports continued to slump, the middle and low order accelerated to Southeast Asian countries and other unfavorable environment.

In December 31, 2014, the export tax rebate rate increased from 16% to 17% (some textiles and garments). From the perspective of the whole industry, it is favorable to enhance international competitiveness.

Both offshore and offshore renminbi declined significantly in January 26th.

The offshore renminbi rose more than 200 points, hitting a minimum of 6.2531, the lowest since last June.

Offshore renminbi tumbled more than 100 points.

The spot price of the renminbi is 1.79% higher than the middle price, the biggest record in history.

The main textile manufacturing enterprises in the industry, most enterprises export more than 40%, and commodity exports are basically settled in US dollars. If the RMB depreciates, the international competitiveness of export enterprises will be favorable to a certain extent.

As a leading enterprise, Baron East will benefit from it.

At the same time, the positive impact of its industrial layout adjustment on performance will also be gradually released. In order to cope with the negative impact of factors such as rising labor costs and internal and external cotton prices on profit margins, the company will speed up the layout of its production capacity in Southeast Asia while reducing the scale of domestic cotton spinning projects.

Along with the gradual use of new production bases in Vietnam, low cost raw materials, labor and large-scale production are expected to consolidate their cost advantages. At the same time, the company's continued technological upgrading and the development of new products and customized services are expected to sustain steady growth in performance.

It is estimated that the net profit attributable to the parent company in the 2014-16 years is 4.46, 6.05 and 735 million yuan, respectively, increasing by -12.20%, 35.70% and 21.56%, corresponding to EPS 0.59, 0.81 and 0.98 yuan respectively.

Since 2010, the downward influence factors of textile industry, such as domestic and international demand, cost and cotton price inversion, have been obviously weakened.