Galaxy Securities - In-Depth Report On Textile And Garment Industry

Abstract:

Core view:

Industry growth prospects judgement

From the perspective of China's textile exports, the growth rate of exports continued to be negative year-on-year in the second half of 2015, which was greatly affected by the global economic situation, and the overall situation of exports continued to slump.

From the perspective of the pfer of textile manufacturing industry, the industry continues to shift to low labor costs and preferential policies.

According to the speed of textile manufacturing in the past, the textile manufacturing industry has completed a complete pfer of about 30 years. The pfer of textile manufacturing from mainland China to Southeast Asian countries is still in its infancy. It is estimated that Southeast Asian countries will undertake more textile manufacturing capacity in the future.

After the pfer of capacity to Southeast Asian countries, according to the principle of origin in international trade, the trade frictions between big powers can be avoided.

In the US $200 billion plus 10% tariff project, about 1000 textile and apparel items are involved, involving most textile materials, semi-finished products and a small number of clothing accessories.

China's textile and clothing exports to the United States amount to about 10 billion 300 million US dollars, accounting for 22.6% of China's exports to the US textile and clothing and raw materials, and about 2 export companies.

If the tax comes into effect, the proportion of China's textile and clothing exports will be affected by about 3.81%.

Because most of the tax increases are substitutable, some textile manufacturing capacity will be further pferred to countries with low human cost and more tax preferences in Southeast Asia.

Core issues in the report

Chinese textile enterprises have significant advantages in cost allocation overseas.

In the case of Southeast Asian countries, Vietnam, Kampuchea and Burma, which are mainly pferred at present, the pfer of the production capacity of textile enterprises to these three countries has obvious cost advantages, and the cost saving is about 15%.

From the perspective of cost allocation, raw materials and labor costs constitute the main source of cost advantages, and land costs also have certain advantages. Because of the different systems and development conditions of different countries, hydropower and energy resources have their own advantages and disadvantages.

Configuration suggestions: pay attention to the layout of overseas production capacity of textile enterprises, recommend Jen Sheng group and Kai Run Group

603558.SH: Qiao Ting Tinggao grows and releases its performance.

1) benefited from the continuous release of production capacity, Vietnam's layout and strong orders, the company's income and gross margin level improved; 2) in the medium to long term, the company completed construction in Vietnam's Haiphong fourth plant, started production and volume in 19 years, and invested about 250 million yuan in 18 million new seamless knitted sports apparel projects in Xingan, Vietnam. The capacity increase will bring about growth in performance, thereby improving profitability. 3) Sino US trade friction is still under negotiation, but the company can use Vietnam base to avoid trade war, so the company is less affected by Sino US trade friction.

The 300577.SZ:C terminal business has made brilliant progress and has promoted overall revenue growth by 76.19%.

The company is still in the stage of rapid growth, brand, category development, channels, supply chain management has been gradually optimized, B terminal, C side business synergies gradually enhance profitability.

Investment Outline:

Driving factors, key assumptions and major forecasts:

From the perspective of China's textile exports, the growth rate of exports continued to be negative year-on-year since the second half of 2015, and the overall situation of exports continued to slump.

However, with the slow recovery of the global economy, export growth began to turn negative in 2017. In the second half of 2018, the trade frictions between China and the United States were affected, and orders were cautious.

Export volume has not increased significantly since 2013, which is related to the pfer of large textile export enterprises to overseas.

From the perspective of the pfer of textile manufacturing industry, the industry continues to shift to low labor costs and preferential policies.

During the first industrial revolution, the modern textile machinery industry was represented by the United Kingdom; in 1950s, the cotton planting and technology superiority represented by the United States rose rapidly; in 1970s, the technology improvement represented by Japan and the rapid development of manufacturing industry with low human cost in Hongkong, Taiwan and Korea; in 1980s, with the development of low human cost countries such as China, Vietnam and Kampuchea, we expected that the industry would shift from labor-intensive to capital intensive development in the future, and move towards the development trend of lower labor costs and more preferential policies (Kampuchea and Burma).

We have different views from the market:

Chinese textile enterprises have significant advantages in cost allocation overseas.

Taking the main pfer of Southeast Asian countries Vietnam, Kampuchea and Burma as an example, the pfer of textile production capacity to these three countries has obvious cost advantages and cost savings of around 15%.

From the perspective of cost allocation, raw materials and labor costs constitute the main source of cost advantages, and land costs also have certain advantages. Because of the different systems and development conditions of different countries, hydropower and energy resources have their own advantages and disadvantages.

Overall, it still has considerable advantages over China.

Investment suggestions: pay attention to the layout of overseas production capacity of textile enterprises, recommend Jen Sheng group and Kai Run Group

603558.SH: Qiao Ting Tinggao grows and releases its performance.

1) benefited from the continuous release of production capacity, Vietnam's layout and strong orders, the company's income and gross margin level improved; 2) in the medium to long term, the company completed construction in Vietnam's Haiphong fourth plant, started production and volume in 19 years, and invested about 250 million yuan in 18 million new seamless knitted sports apparel projects in Xingan, Vietnam. The capacity increase will bring about growth in performance, thereby improving profitability. 3) Sino US trade friction is still under negotiation, but the company can use Vietnam base to avoid trade war, so the company is less affected by Sino US trade friction.

The 300577.SZ:C terminal business has made brilliant progress and has promoted overall revenue growth by 76.19%.

The company is still in the stage of rapid growth, brand, category development, channels, supply chain management has been gradually optimized, B terminal, C side business synergies gradually enhance profitability.

Catalyst for Industry Performance:

There are still opportunities for overseas capacity pfer.

1. Vietnam's local textile industry is small in scale, large in textile enterprises, and lacks competitiveness. The major textile enterprises are foreign-funded enterprises. The lack of local enterprises will provide space for the pfer of China's textile enterprises' capacity.

2. China and Southeast Asian countries have similar geographical location, cultural customs, habits and customs, and so on. There are few differences between cultures, and the difficulty of enterprise management is low.

3. after the pfer of capacity to Southeast Asian countries, according to the principle of origin in international trade, the trade frictions between big powers can be avoided.

Major risk factors:

The uncertainty of the terminal consumption environment, the growth of overseas demand is less than expected, the overseas production capacity is less than expected, and the exchange rate fluctuates greatly.