What Is The Strength Of UNIQLO And Semir Suppliers To IPO In Hong Kong?

Nowadays, LV, GUCCI and MK are fashionable and aesthetic, and China's clothing market is still waiting to be discovered.

The support of the electricity supplier has made the brand of different age groups stand out, and the Chinese garment industry, which has been squeezed by foreign brands, is slowly recovering.

In this way, many textile and clothing companies have also started capital expansion. Ya Dong Group Holdings Limited, the third largest textile dyeing and finishing service provider in Jiangsu province (hereinafter referred to as "Ya Dong group"), applied to the HKEx on the 27 day of November to apply for listing on the main board.

China has been a large country of silk and cotton textile since ancient times. From the earliest silkworm reeling technology to the ancient people's admiration for silk, and to the dacron and wrinkle in modern life, the evolution of textiles is closely related to our life, and the textile industry plays an important role in the national economy.

According to Ipsos statistics, from 2014 to 2017, China's clothing retail sales increased from 12563 billion yuan to 14557 billion yuan. In 2018, China's economic growth slowed down, and the total retail sales of clothing amounted to 13707 billion yuan. However, with the deepening of economic transformation, the future will continue to grow. It is expected to reach 19130 billion yuan in 2024 and a compound growth of 6.4% annually.

The Ya Dong group, which applied for the listing of Hong Kong stocks in the near future, was founded in 2011. It is located in the textile printing and dyeing industry concentrated in Changzhou, adjacent to Shanghai, with unique geographical location. It is also a fabric supplier of UNIQLO, Semir and other brands. So what is the strength of the Hong Kong stock market?

Jiangsu third, annual revenue of nearly 900 million

For the entire garment manufacturing industry chain, the East Asia Group is in the middle reaches of the industry, serving as a supplier of textile dyeing and finishing services.

Thanks to the gradual recovery of the garment industry, Ya Dong group also showed a steady growth trend. From 2016 to the first half of 2019, Ya Dong group achieved revenue of 387 million yuan, 662 million yuan, 861 million yuan and 405 million yuan respectively, with a compound annual growth rate of 49.1%. Net profit increased from 3 million in 2016 to 49 million 100 thousand yuan in 2018, with a compound annual growth rate of 305.4%.

According to Ipsos statistics, in terms of earnings, Ya Dong group ranked third in Jiangsu Province, accounting for 1.6% of Jiangsu's market share, and the top five suppliers accounted for 6.3%.

China's textile dyeing and finishing service providers have two business models, including distribution mode and processing mode. The distribution mode needs to purchase raw materials by oneself, while the processing mode is that the customer supplies raw materials, the group is responsible for processing, and then sells back to the customers. Therefore, the profit margin of the distribution mode is relatively larger, and the business of Ya Dong group focuses on the former.

From the first half of 2016 to the first half of 2019, the proportion of sales income of textile products of Ya Dong group increased from 85% to 95%, and sales fabrics were mainly plain cloth, corduroy second, and proportion of processing services kept decreasing.

As far as customers are concerned, the customers of Ya Dong group are mainly garment manufacturers. In 2018, Ya Dong group and UNIQLO procurement agent started cooperation to achieve sales of 123 million 400 thousand yuan, accounting for 14.5% of the same period of revenue, the first largest customer, the company accounted for 25.3% of overseas sales, five sales accounted for over 40% of sales.

It is worth noting that the Ya Dong group generally does not enter into long-term sales agreements with customers.

According to the insiders, garment manufacturers are more inclined to short-term contracts or even quarterly contracts because of the faster fashion and fabric upgrading.

How to retain key customers is very important for Ya Dong group. Prospectus shows that if the company's main customers change suppliers, and the company can not find new major customers or expand customer base, the company's revenue, business, financial position and business performance will be seriously adversely affected.

In addition, Ya Dong group is facing a lot of market competition pressure.

Gross profit margin is only 13.6%.

Despite the steady growth of Ya Dong group's revenue in recent years, the gross profit margin of the company is still at a low level.

From 2016 to the first half of 2019, the gross profit margin of Ya Dong group increased from 12.2% to 13.6%. The prospectus showed that the gross profit margin of the company increased slightly, mainly due to the slight increase of the average price of plain cloth products from the market situation by 3.4% in the first half of 2018 to the first half of 2019. At the same time, since 2018, Ya Dong group began to purchase Vietnamese textile fabrics with low unit cost.

But at the same time, the price reduction measures adopted by corduroy products for maintaining competitiveness of products have reduced the gross margin of the product by nearly six percentage points, and offset the increase of plain cloth.

On the other hand, UNIQLO's efficient control of product cost means that its appeal for low price of raw materials in the upper and middle reaches is strong, while maintaining the price advantage while guaranteeing quality, or will become one of the core competitiveness of the supplier Ya Dong group.

According to Chi Chi consulting data, from 2017 to 2018, the average gross profit margin of the printing and dyeing industry was 20% and 15.6% respectively, and the gross profit margin declined by the impact of raw material prices, but still higher than the East Asia Group's 3 to 8 percentage points.

It is worth noting that textile dyeing is a highly polluting industry. Textile printing and dyeing wastewater has the characteristics of large quantity of water, high content of organic pollutants and large alkalinity. It is recognized as one of the refractory industrial waste water. Prospectus disclosure, in 2016, Ya Dong group has been due to sewage treatment system technology upgrading, the company's production and operation has been suspended for about half a year.

For Ya Dong group, if we can not improve production efficiency, improve scientific research capabilities, and effectively control production costs, gross margin will not be substantially improved.

Ya Dong group said that the company has been working hard to develop new fabrics that are closely related to the trend and customer needs. The sales and design team of the Ya Dong group is composed of 37 members who are responsible for the design activities, including the development of new fabric products. However, for the specific R & D investment situation, Ya Dong group did not disclose in the prospectus.

Higher labor cost, urgent automation transformation

In addition, the company also admitted in the prospectus that it is similar to the problems currently facing most of the labor-intensive industries, and Ya Dong group is also facing the problem of rising labor costs. Overseas famous brands such as ADI, ZARA and other foreign brands that have set up factories in China have moved factories to lower labor cost areas such as Southeast Asia and Africa.

In addition, Ya Dong group disclosed in the prospectus that during the performance period, the company did not make sufficient social security and housing provident fund contributions to employees, and the unpaid amount from 2016 to 2018 was 2 million 200 thousand yuan, 2 million 300 thousand yuan and 2 million 500 thousand yuan respectively.

If Ya Dong group is successfully listed, these problems are hard to avoid. On the one hand, the company needs to control costs, and on the other hand, we must pay attention to the protection of employees' rights.

In view of the high cost of labor, Ya Dong group is seeking an automated transformation to reduce the number of employees required.

The prospectus shows that the funds raised in the listing are mainly used for capacity expansion and upgrading of production machines, and the production line upgrade and new knitted fabric production line will be completed before 2020.

In addition, the Ya Dong group will also acquire companies with production plants to increase production capacity. But up to now, Ya Dong group has not set any target acquiring company.

In this regard, chief technology officer called Ya Dong group, but no answer. By the end of the release, the Advisory mail had not yet received a reply.

At present, due to strict environmental supervision, the textile printing and dyeing industry is undergoing integration. On the one hand, it has increased the entry threshold of the industry, and on the other hand, it also tests the management ability of the existing participants in the industry.

Can Ya Dong group, a private printing and dyeing enterprise, break through the current growth predicament? Can it stand out in the fierce market competition?