Weekly Report On Textile And Garment Industry: Value Added Tax Rate Lowered, Profitability Improved.

Textile and garment industry wins the market 2.42pct.

This week, the Shanghai Composite Index fell 0.81%, SW textile and garment industry rose 1.61%, SW textile and garment industry outperformed 2.42pct.

Among them, SW textile manufacturing rose 1.28%, SW apparel home textile rose 1.84%.

The value added tax rate has been lowered, making the profits of the spinning and clothing and cosmetics sector thicker.

Recently, Premier Li Keqiang put forward in the government work report that the value added tax rate of the manufacturing industry should be reduced from 16% to 13%. Although the value added tax is a value tax, it only affects the cash flow statement and does not directly affect the profit statement. However, in fact, it does not include tax revenues, changes in costs, bargaining power on the upstream and downstream businesses, and the internal and external marketing structure of the enterprises, etc., all of which can affect the net profit changes, and is generally optimistic about the profit increase.

It is estimated that the lower the net profit level, the higher the gross profit margin, the lower the income tax rate and the higher the proportion of domestic sales, the greater the profit elasticity of enterprises.

We calculate the net profit in 2017 as the base.

Assuming that the tax revenue is constant and the value-added tax cut will only affect the income and cost of the domestic market.

By calculating, it is found that the focus of the plate is that the profits of listed companies are thickened, but the extent of thickening varies. The profitability elasticity based on 2017 is less than 45%.

In the long run, the upstream and downstream beneficiaries are expected to increase, and the strong bargaining power is expected to continue to benefit.

Different links in the industrial chain also differ from the benefit time.

In the short term, the upstream textile manufacturers have little change in price and are expected to take the lead to enjoy the thickening of profits without the promotion of tax revenues.

However, in the long term, many small and medium-sized textile enterprises have been forced to "reduce prices", and the profit growth has gradually spread to the middle and lower reaches. But at the same time, the leading textile manufacturing enterprises are expected to maintain most of the thickened profits with strong bargaining power.

The middle and lower reaches of the enterprises have relatively high gross profit margins and a larger proportion of domestic sales, and the degree of benefit is expected to gradually improve.

Recommended targets: textile manufacturing recommendation Baron East and Jen Sheng group; clothing home textiles recommendation three main lines: (1) "high performance price ratio + low line upgrade" popular brands: recommend red beans shares, and the second group; (2) "demand stability + multi brand operation" high-end brands: recommend the song and the positive fashion; (3) "high landscape + excellent pattern" subdivision plate brand: recommend Semir dress, recommend Anta sports.

Risk warning: terminal consumer demand is weak; exchange rate volatility risks; cotton prices fall or fluctuate significantly.