Business Operation: Trade Friction Is Fortunate.

If anyone can take advantage of the current tense trade friction, I am afraid Vietnam will become the largest number of voting countries. In the early years, because of the rising labor costs in China and other reasons, the manufacturing industry began to have the intention to spanfer the production chain to low cost countries such as Southeast Asia, and the tariff panic caused by trade friction obviously became a catalyst for this trend.

Undercover underwear maker Jeanne has clearly revealed a multi-year plan to build capacity in Vietnam when it was listed as early as 02199-HK in 2015. Although the "strategic multi regional capacity layout" was used to grasp growth opportunities as the main starting point, the company also mentioned a few pieces of "diversify risks in different regions", which seems to be quite prescient in the recent four years.

2015 virgin's prospectus excerpts

Virginia announced today's year-end results as at the end of March 2019, recording a revenue of 6 billion 263 million yuan (HK $, the same below), an increase of 6.7% over last year, a profit of about 282 million yuan, an increase of 17.6% per annualized rate, a 21.4% gross profit margin in the year, an increase of 0.4 percentage points per annualized year. The company said the increase in gross margin was due to the continuous improvement in the efficiency of Vietnam's factory buildings.

In the past few years, the main focus of the company's business is the construction of Vietnam's workshop. Since the first plant in Vietnam was put into operation in March 2016, 5 factories have been completed in Vietnam, and A, B and C factories have been put into operation, and the two factory rooms of D and E will also be put into operation this year. In addition, virgin also plans to build a Santoni plant in Xingan, Vietnam (Hung Yen), with an annual design capacity of 10 million units and is expected to be put into operation in the second half of 2020. The company's chairman, executive director and CEO, Hung Hung Yi, said that after the plans for these new plants, the company had no plans for new factories in 2019 and 2020, but the company had land reserves in Haiphong City, Vietnam, and it was enough to build 2 to 3 factories. With the end of the Vietnam workshop plan, Yao Jiajun, executive director and chief financial officer of the company, said that the capital expenditure of the company in the 2020 fiscal year will be reduced by 35% to 40%. The capital expenditure required will mainly be used to decorate Vietnam's D and E plants, Xingan plant construction and investment and production automation facilities.

Since 2014, Vietnam has been looking for land to build factories, and by 2016, the first Vietnamese workshop has been put into operation, and then 5 plants have been built in 2019. The factory building plan of Vietnam in Vietnam has been going on without cease, and Vietnam has gradually become a sweet potato in the shadow of trade friction. However, the company has announced that the new plant plan will come to an end. Why?

In this regard, Hong You Yi said that the company used to focus on building factories, which has an impact on the company's gross margin. At the beginning of the new plant, the overall gross margin will be lowered to a certain extent. "In order to maintain the growth of orders, the management of the company believes that the gross margin of products should be focused on," hung Yu said.

So what is the responsibility of the domestic plants after Vietnam's factory building is clearly the main force of production capacity? In the performance press conference, the company did not understand the distribution of domestic and Vietnamese plant capacity in the future, but hung Yu said, "the domestic plant will be China for China (supply to domestic orders) and Japanese orders, while other exports including orders to the United States will be produced in Vietnam." At present, the company has production plants in Shenzhen and Suzhou. The company has adjusted its domestic plant since two years ago, and the domestic plant is used to produce high value-added products. "Guangdong has already had a relatively complete supply chain, and Vietnam has not been able to keep up with it."

The company sees Vietnam's powerhouse as a major advantage under trade friction. At present, orders from the United States account for 58% of Jeanne's overall sales, and the company says orders from both home and Japan are growing rapidly. "The impact of trade friction on us is mainly on the place of production, rather than the impact on orders. At present, sales in the United States are good, and the overall order volume has maintained growth, but the order volume of different categories of products has changed," Hong You said.

In addition to the responsibility of the production base of the underwear market in China, the plant in Shenzhen and Suzhou will have other uses in the future. Virgin has come out with ideas for the production of electronic products. Hong you said that there will be relevant contents in the second half of next year or next year. He believes that one of the advantages of the company lies in technology research and development. The new technology developed by the company can be applied to the production of electronic products. "The production of electronic products will be in China, and its supply chain will be built in our factories in Shenzhen and Suzhou".

The following is a factual record of some press conference:

Q1: the company says capital expenditure will decline in 2020. What is the main purpose of capital expenditure after that?

A: the peak of investment in Vietnam has already passed, and capital expenditure will be gradually reduced in 2020, from 35% to 40%. Capital expenditure in the 2020 fiscal year will mainly be used for D, E factory renovation, construction of Xingan plant and investment in automation of production facilities.

Q2: how about the capacity of the domestic plant and Vietnam workshop?

A: it is difficult to determine the capacity planning, but the domestic plant has begun to adjust 2 years ago to make high value-added products. The supply chain of the whole province of Guangdong is perfect, and now Vietnam has not yet been able to keep up with it. Domestic sales growth in these two years is very fast. We adjusted last year, and the products sold in China are produced in China, China for China. Us orders now account for 58% of our total sales, and we will produce them in Vietnam. But orders in Japan and China are also growing. Our orders for export and to the United States are produced in Vietnam, while Japanese and Chinese orders are produced in China.

Trade friction is mainly affected by the arrangement of the place of origin, and has no impact on orders. Sales in the United States are good, and the overall order volume keeps growing, but there will be changes in different product categories.

Q3: does the company have gross profit margin this year?

A: we will slow down the pace of new factories in the next two years, because the rapid construction of factories in the past has had an impact on the gross profit margin of the company. But now that orders are growing, the management believes that the gross margin level should be more focused.

Q4: how many factories can we build in Vietnam?

A: now we have 5 plants, and at least 2 to 3 factories will be built in the future.