YOUNGOR'S Heavy Clothing Industry: Can You Make Money By Selling Suits?

"The United States has Nike, Germany has ADI, YOUNGOR also has the strength to become such a group."

At the shareholders' meeting in May 20th, YOUNGOR chairman Li Rucheng once again expressed his plan to return to the main garment industry.

This year is the 40th anniversary of YOUNGOR's establishment. In April 30th, YOUNGOR announced that it would adjust its development strategy of "three carriages" (clothing, real estate and investment) for 11 years, and the investment business would be stripped.

YOUNGOR will refocus on the main garment industry, and real estate will become the only sideline.

"YOUNGOR was developing at a high speed in 90s. After 2010, it basically entered a period of wandering, or even nothing.

After a period of reflection, we feel that YOUNGOR still has a good room for growth.

At the end of 2018, Li Rucheng said in an interview with the economic observer, "now the real estate market is changing and the country is making a big adjustment. We will not be able to judge the space. The golden age is over.

Financial investment risks are also great. Although some of our projects have relatively good returns, some of them have some risks, some of them have a long investment cycle, and their efficiency is not stable.

From the industry point of view, we have already completed the plan of garment brand and product upgrading. YOUNGOR should be a solid foundation in this industry.

Buffett in the clothing industry

Li Rucheng spent nearly thirty years making a township garment enterprise the first men's clothing brand in China.

But in the past few years of YOUNGOR's market capitalization, the main garment industry has not behaved like the main industry, and the more profitable real estate and investment sideline industry occupies a more important position, especially the investment business with the largest profit contribution.

YOUNGOR's involvement in financial investment began in 1999.

At that time, YOUNGOR invested 320 million yuan to invest in the establishment of CITIC Securities (20.070, -0.26, -1.28%) Limited by Share Ltd, and achieved 9.61% of the shares.

During the period from 1999 to 2005, YOUNGOR also invested in extensive shares (4.230, -0.21, -4.73%) and yeco Technology (later renamed the hemp industry, LIAN Electronics (10, -0.60, -5.66%), and Bank of Ningbo (21.960, -0.10, -0.45%).

In 2005, the split share structure reform was completely rolled out, and the capital market entered a rapid development period. The market value of financial assets held by YOUNGOR increased rapidly, which once exceeded 20 billion yuan.

In 2007, YOUNGOR sold 45 million 65 thousand and 600 shares of CITIC Securities, achieving an investment income of 1 billion 651 million yuan, accounting for half of the net profit of YOUNGOR.

In 2009, YOUNGOR reduced its holdings of CITIC Securities, Haitong Securities (12.580, -0.15, -1.18%) and Jinma shares, benefiting about 1 billion 860 million yuan; in 2015, China Ping An (77.110, -0.39, -0.50%), Guang Bo shares, Jin Zhengda (3.820, -0.13, -3.29%) and so on, benefited from 536 million yuan.

Li Rucheng's love of investment in CITIC Securities made him very much interested in investment banking. Before the listing of CITIC shares in the CITIC Group, YOUNGOR bought and participated in the subscription of new shares through the two tier market, holding 145 thousand and 500 shares of CITIC shares, accounting for 4.99% of the total share capital of CITIC shares, with a total investment cost of 17 billion 62 million yuan.

However, the investment failed to repeat the high returns of CITIC Securities. CITIC shares fell 16.92% in 2016, resulting in a 39.24% decline in the net profit of investment in the same period of 2016. In the annual report of 2017, YOUNGOR offered 3 billion 308 million yuan for the impairment of CITIC assets, of which the net profit of investment business was -16.89 billion yuan, down 201.95% from the same period last year.

In addition, YOUNGOR's investment business is another "collapse" of Jintian copper industry.

In March 2008, YOUNGOR received 3.05% of its shares at the price of 3.6 yuan per night when it declared IPO on Jintian copper.

But Jintian copper industry failed to hit A shares for the three time in 10 years.

In September 2018, the Jintian copper industry, which listed the new third board, once again attacked A shares. The company's market value was suspended from November 13, 2017, and its market value before the suspension was 3 billion 596 million yuan.

The market share of YOUNGOR is currently about 110 million yuan, which has shrunk considerably compared to its investment cost of 133 million yuan 10 years ago.

Wash your hands in golden basin

Despite two unsuccessful investments, YOUNGOR's investment sector has contributed the highest net profit in the "three carriages" in the past 4 years in the past 6 years.

According to the statistics of reporters, YOUNGOR's investment sector has a net loss of -4.89 billion yuan and -16.89 billion yuan in 2013 and 2017 respectively. In 2014, 2015, 2016 and 2018, the net profit of YOUNGOR in the investment sector was 2 billion 425 million yuan, 2 billion 727 million yuan, 1 billion 658 million yuan and 1 billion 789 million yuan, respectively, accounting for 76.60%, 62.39%, 44.97% and 48.9% of the total net profit of that year.

"What is the main industry is not the main business, making money is my main business."

Li Rucheng said at this year's shareholders' meeting, but a previous announcement has made YOUNGOR's "three carriages" the most profitable investment business history.

In April 30th, YOUNGOR issued a notice on investment strategy adjustment. The announcement said that in order to achieve the goal of maximizing the value, the company intends to make a major adjustment to the development strategy, and will further focus on the development of the main garment industry in the future. Besides strategic investment and continuing investment commitments, the company will no longer carry out financial equity investment in the non principal sectors, and choose to deal with existing financial equity investment projects.

For stock projects, in addition to implementing the original investment commitments, YOUNGOR will take different strategies based on different investment characteristics, such as two levels of market reduction, agreement pfer, withdrawal after expiration, exit after listing, etc.

Li Rucheng explained the main reasons for giving up investment in the shareholders' meeting: first, the securities and Futures Commission restricted the withdrawal of equity investment, and it became more and more difficult to withdraw. This gave YOUNGOR a lot of pressure. Two, because of the implementation of the new accounting standards, the profit and loss of investment business was greatly influenced by the fluctuation of stock assets held by financial assets. Three, it is difficult to supervise the investment team well.

At the shareholders' meeting, Li Rucheng focused on the new accounting standards implemented in January 1, 2019. "The accounting standards have changed so much that even the great Buffett could not understand them. He lost about fifty billion for a while and then made a profit of about sixty billion."

According to the requirements of the new accounting standards, financial assets other than long-term equity investments are designated as "financial assets measured in fair value and whose changes are included in other comprehensive income". Their value fluctuations and disposal do not affect the current profits and losses. Only the dividend income can be included in the current investment income, thereby affecting the current profits and losses.

Under the old accounting standards, listed companies usually include equity investments in "ready to sell financial assets" and can regulate profits.

These "sale of financial assets", the rise and fall of stock prices are included in other comprehensive income, belong to equity projects, rather than the profit table items, so even if the shares held by listed companies are substantially deficient, they will not affect profits.

Once sold, the original income can be pferred to investment income, which is reflected in the profit margin.

However, under the new accounting standards, the shares held by the listed companies, whether floating or floating, need to be included in the profit statement, which will have a great impact on the profit statement.

By the end of 3 2019, YOUNGOR had invested 39 projects, with an investment cost of 30 billion 455 million yuan and a final face value of 32 billion 20 million yuan.

Among them, the largest shareholding is CITIC Securities, accounting for 49.62% of the market value, accounting for 21.59% of YOUNGOR's total assets.

Of the 39 financial investment projects held by YOUNGOR, only Ningbo bank is a long-term equity investment, and the remaining 38 projects will affect the current profits because of the fluctuation of stock prices.

Reporters found that before the implementation of the new accounting standards, YOUNGOR has begun to dispose of financial assets.

According to statistics, the amount of YOUNGOR's financial assets purchase and sale last year totaled over 6 billion 300 million yuan.

Since the beginning of this year, YOUNGOR has sold CITIC shares for a total price of 4 billion 254 million yuan, and the accumulated amount of structured deposits due to redemption is 1 billion 417 million yuan.

In a April 25th announcement, YOUNGOR said it would stop participating in the Ningbo bank's non-public offering.

Hard real estate

YOUNGOR's "three carriages" now only have "two", in addition to the family's clothing industry, Li Rucheng can not let go of the real estate business.

As early as 1992, YOUNGOR entered the real estate industry.

In 2004, YOUNGOR started out of Ningbo and made several high prices in the Yangtze River Delta.

In 2010, YOUNGOR won 53 yuan and 56 plots of Shenhua District in Hangzhou with a price of 2 billion 421 million yuan, and the paction price reached 1 billion 165 million yuan and 1 billion 256 million yuan, totaling 2 billion 421 million yuan, which refreshed the record of the unit price of the land sold in the local area.

But after three years, YOUNGOR, which had been regulated, paid only half of the land price. YOUNGOR, who was trapped in business, had to "cut the bullet" and lost 484 million yuan in the contract deposit. The Hangzhou Shenhua block, which had been patted before, was returned.

In May 23rd of this year, YOUNGOR added a new overseas investment to set up YOUNGOR Kang brigade Holdings Limited. The legal representative was Li Hanqiong, with a registered capital of 192 million yuan. Its business scope includes "industrial investment, real estate development and operation, self owned housing leasing, and real estate information consulting service".

Statistics show that Li Hanqiong is the only daughter of YOUNGOR chairman Li Rucheng.

In February of this year, YOUNGOR spent 390 million yuan to buy the three land in Cixi. In March 2nd, YOUNGOR also won the two plot in Qilihe District, Lanzhou, Gansu, at a price of 450 million yuan.

Last year, YOUNGOR also successfully bid for the Tianjin billion high building at a price of 1 billion yuan.

Although YOUNGOR has increased its investment in real estate business, the annual report of 2018 shows that real estate revenue has decreased by 17.8% to 3 billion 990 million yuan, and net profit has decreased by 14.5% to 1 billion 50 million yuan.

By the end of 2016, Li Rucheng said it would invest 10 billion yuan in three years to start the strategy of technology and innovation, and "redevelop a YOUNGOR in five years" to develop the main garment industry.

But according to the 2018 annual report, YOUNGOR's clothing business is still not obvious.

In 2018, YOUNGOR's brand clothing business cost increased by 1.31% over the previous year, and the operating cost of brand suit increased by 10.46% compared to the same period last year.

According to nearly three years of earnings report, from 2016 to 2018, YOUNGOR's inventory turnover days were 533.88 days, 866.85 days, 1054.33 days, which is in the industry high.

Meanwhile, the number of accounts receivable turnover days from 2016 to 2018 is also rising at the same time, which is 6.15 days, 10.52 days and 12.27 days respectively.

In addition, the brand GY, which has been running for 8 years for young male consumers, has been fully closed last year.

According to the 2018 annual report, 95 stores were closed in GY during the reporting period, and 1 self operated outlets remained at the end of the reporting period.

"But after the development, we found that the competition faced by GY brand is very fierce, and our company has a rule inside: the gross margin of products must be above 60%.

But the gross profit margin of GY brand is only about 40%. After the operation of this brand, we feel that it is a loss, so we promptly removed it.

Li Rucheng said at the shareholders' meeting.

Li Rucheng has been trying to dig into Giorgio Armani's designer, Taiwanese Gong Naijie as the director of the company's design, and a dozen hours of aircraft, flying to Europe to visit top fabric suppliers.

Over half of the five year plan, Li Rucheng still needs time to test whether or not the bold words of "reconstructing a YOUNGOR in five years" can be realized.

"Dear shareholders, give us time," Li Rucheng wrote in his letter to shareholders.

Author: Hong Yuhan