Dagong International: Textile And Garment Industry Outlook For Credit Risk In 2020

　　 In 2019, the boom of China's textile and apparel industry declined as a whole, the growth rate of industrial added value continued to slow down, the growth rate of fixed asset investment declined, overcapacity remained unchanged, and the capacity of the industry continued to be in a state of liquidation. It is estimated that the performance of China's textile and garment industry is facing downward pressure in 2020. The industry's capacity will continue to clear, and the motivation of enterprises to expand production capacity is not strong. The overall capital structure of the industry will remain at present level, and the industry's deleveraging will continue to push forward, and the scale of enterprise financing or x`1 will be reduced.

Industry operation: affected by the slowdown of China's economy and the impact of Sino US trade, the boom of the textile and garment industry in 2019 declined as a whole and the industrial added value continued to slow down. It is expected that the slowdown in economic growth in 2020 will lead to a decline in textile demand, and there will still be downward pressure on industry sales growth, and investment growth will continue to slow down.

Business situation: along with macroeconomic slowdown, industry competition intensified, environmental protection limited production, labor cost rising and cotton price fluctuation, the performance of textile and garment industry continued to decline. It is expected that in 2020, industry performance will continue to face downward pressure, the industry capacity will continue to be cleared, the motivation of enterprises to expand production capacity is not strong, the overall capital structure of the industry will remain at present level, and the industry will be deleveraged. With continuous progress, the scale of corporate financing will be reduced.

Debt market performance: in 2019, the scale of new issuance of textile and garment industry declined; the maturity structure of industrial survival bonds was more concentrated; in 2020, the debt pressure of industry was relatively large; the spread of textile and clothing was still at a relatively high level, and the interest rate of bond issuance fell back when the benchmark interest rate was lowered.

Credit risk: in 2019, the credit risk of textile and garment industry went up, and the credit rating of many subjects was lowered. It is estimated that in 2020, the level of industry risk will be higher and will be further differentiated.

Industry operation

Thanks to the slowdown in China's economy and the impact of Sino US trade, the boom of the textile and garment industry in 2019 has declined overall. It is estimated that there will still be downward pressure on sales growth in 2020, and investment growth will continue to slow down.

In 2019, China's textile and garment industry declined as a result of the slowdown in China's economy and the impact of Sino US trade friction. China's textile industry has a relatively high proportion of domestic sales, while the downstream garment industry accounts for about 50% of the total sales volume. Asia, Europe and North America are the main export areas of China's textile and garment industry. From the perspective of domestic sales, in 2019, the retail sales of clothing, shoes, hat and knitted fabrics totaled 1 trillion and 351 billion 660 million yuan, representing an increase of 2.9% over the same period last year, and the growth rate was 5.1 percentage points lower than that of the same period last year. The textile and garment industry is greatly influenced by consumers' preferences and spending power. With the slowdown of macro-economy, it is expected that domestic sales of textile and clothing will maintain a fluctuating trend in 2020.

From the point of view of exports, in 2019, the total export value of textiles and clothing was $358 billion 240 million, down 2.1% compared to the same period last year, and the growth rate was negative. From the perspective of market structure, the traditional market competition in the United States, Japan and Europe is still fierce. It is estimated that in 2020, China's share of the three major textile and garment import markets in the United States, Japan and the EU still showed a downward trend, while ASEAN and Bangladesh and other major competitors gradually showed their advantages in terms of raw material prices and production land prices, and the market share would be further improved. The textile industry in developed countries has been accelerating the reflux and supplying capability continuously. Southeast Asian emerging countries have accelerated the layout of textile industry and the comparative cost advantages are significant, and put forward higher requirements for China's textile industry to maintain stable competitiveness.

From the manufacturing side, the growth rate of industrial added value of textile and garment industry has been slowing down. Subdivision, textile industry, in 2019, the industrial added value of textile enterprises above the national scale increased by 1.3% over the same period last year, an increase of 0.3 percentage points over the previous year. In terms of clothing and apparel industry, the added value of above scale industries in 2019 increased by 0.9% over the same period last year, and the growth rate dropped 3.5 percentage points from the previous year.

From the investment situation, the growth rate of fixed assets investment in textile and garment industry has been slowing down and showing a downward trend. In 2019, the fixed assets investment in textile industry was up to -8.9% year-on-year, and the fixed assets investment in apparel industry was 1.8% year-on-year. Due to repeated trade frictions between China and the United States and the stricter domestic environmental policy, the overall investment scale of the domestic textile and garment industry is decreasing. It is expected that China's textile and garment enterprises will further differentiate in 2020. Large textile enterprises will speed up the global industrial layout, transfer capacity to countries that are developing labor-intensive industries such as Southeast Asia, and promote structural adjustment to transform to high-end industrial chain.

The global economic slowdown has led to the shrinking demand for textiles. The international cotton price is facing downward pressure, and domestic cotton prices will continue to be vulnerable.

Textile owners' raw materials are cotton, whose price fluctuation has a significant impact on the cost of the textile and garment industry. Since 2019, global economic growth has been sluggish, textile consumption has slowed down, the supply of cotton resources in the international market is still larger than demand patterns, and downstream demand has insufficient support for cotton prices, facing downward pressure. Overall, it is estimated that the consumption of textile and garment industry will continue to affect cotton prices in 2020, and domestic cotton prices will continue to be vulnerable to shocks.

The development and Reform Commission announced that China's cotton import tariff quota was 894 thousand tons in 2020, unchanged from 2019. In 2020, the national import quota policy will remain stable. However, due to the continuous advance of cotton inventory in China, cotton inventories will continue to decrease, and domestic production can not meet the demand. The gap between supply and demand will expand, and the quota of imported cotton will be expanded in the future. Due to the differences in cotton prices and quality between the world's cotton producing areas, Sino US trade friction will lead to a certain change in the import cotton channel. The quality difference of raw materials will cause textile enterprises to face the pressure of cost control.

The environmental protection policy of textile and garment industry is stricter, and the industry will continue to accelerate the process of productivity. Sino US trade friction has led to the adjustment of China's cotton import channel while the export volume of products has declined.

According to the "textile industry development plan (2016-2020 years)" issued by the Ministry of industry and commerce, the average annual growth rate of textile industry above scale is maintained at 6~7%, and textile and garment exports account for a stable market share in the world. It is estimated that China's textile and garment industry will continue to push forward the structural adjustment of textile products in 2020 and change the way of industrial growth to quality and efficiency. In addition, the "environmental protection plan for 13th Five-Year" issued by the State Council has put forward requirements for many aspects such as energy consumption and pollution discharge in the textile and garment industry.

The textile and garment industry chain is longer, pollution is mainly concentrated in the dyeing and finishing link, water pollution is the main factor, printing and dyeing and tanning pollution in the sub sectors are more serious. The "People's Republic of China environmental protection tax law" and the newly revised "law on the prevention and control of water pollution in People's Republic of China" have been put into effect since January 1, 2018. The nineteen major conferences proposed that the goal of beautiful China should be basically achieved by 2020. It is expected that the government's environmental protection requirements will be tightened further in 2020, the pressure of environmental protection will increase gradually, and the backward production capacity will be phased out gradually, and the capacity of the industry will accelerate.

The impact of environmental strictness on textile and garment industry is mainly reflected in two aspects: first, the rising prices of raw materials, hydropower and energy, leading to the upgrading of the cost chain of the industry chain; two, the government has increased supervision over the polluting sub industries such as printing and dyeing, and promoted the process of production, resulting in adverse effects on the textile and apparel industry, but the company is expected to benefit from the industry concentration. 。 It is expected that with the introduction of more policies by the central and local governments to further improve environmental standards, the industry will once again enter the contraction of production capacity, and the concentration will further enhance. Leading enterprises will enjoy "residual dividends", and the market share and bargaining power will be improved.

In terms of tax policy, in March 2019, the State Council's government work report put forward that the value-added tax rate of China's manufacturing industry will be reduced from 16% to 13%, and the purchase price of raw materials will be reduced, and the value-added tax will be added to the price tax, which can effectively stimulate the demand side, and will benefit the textile and garment industry profits, easing the cost pressures of textile and garment enterprises such as labor and environmental protection. However, Sino US trade friction has also led to pressure on the textile and garment industry. In April 4, 2018, with the approval of the State Council, the Customs Tariff Commission of the State Council decided to impose 25% tariffs on 14 categories of 106 commodities, including soybeans, automobiles and chemicals, which originated in the United States since July 6, 2018, including cotton originating in the United States. Affected by this, China's cotton import channels were further dispersed in 2019, and the import volume of US cotton decreased significantly, and cotton procurement in Brazil and India increased. Since May 2019, the United States has imposed tariffs on China's exports, including some textile products, and some market share has been reduced by Southeast Asian countries. The volume of exports is expected to decline in 2020 as Sino US trade friction slows down.

Management situation

Along with the slowing down of the macro-economy, intensified competition in the industry, environmental protection, production costs, and cotton prices, the performance of the textile and garment industry has continued to decline. It is expected that the performance of the industry will continue to face downward pressure in 2020, the industry capacity will continue to be cleared, the motivation for enterprises to expand production capacity is not strong, the overall capital structure of the industry will remain at present level, and the deleveraging of the industry will continue to push forward. In addition, the scale of corporate financing will be reduced.

From the operational perspective, by the end of 2019, the number of enterprises in China's textile and clothing industries above designated size was 13876, representing a decrease of 951 over the same period. Under the dual influence of overcapacity and elimination of backward production capacity, the industry continued to be in a state of capacity clearance, with total assets falling to 11894.90 and the same ratio by 4.96%. In 2019, China's textile, clothing and apparel industry achieved operating income of 1 trillion and 601 billion 30 million yuan, down 8.08% compared to the same period last year, and the overall income scale of the industry continued to shrink. The number of deficit making enterprises increased to 2225, an increase of 122 compared with the same period last year, and the total loss increased from 6 billion 110 million yuan to 7 billion 920 million yuan, an obvious increase.

From a profit perspective, in 2019, the total profit of China's textile and apparel enterprises above Designated Size amounted to 87 billion 280 million yuan, the slowing down of macro-economy and the continuous liquidation of industry capacity resulted in a year-on-year decrease of 13.31% in total profits, a gross margin of 15.04%, a decrease of 0.12 percentage points compared with the same period last year, and intensified competition in the industry.

From the perspective of corporate assets and liabilities, at the end of 2019, the asset liability ratio of China's textile and clothing industry was 49.11%, of which the total debt size was 584 billion 150 million yuan, which was 3.85% lower than the end of 2018, and the industry continued to be deleveraging. Affected by the drop in debt scale, the cumulative value of financial expenses in 2019 was 10 billion 810 million yuan, down 6.89% from the same period last year.

The new crown pneumonia spread to the whole country in January 2020. The government's disposal of the spread of the epidemic has exceeded the SARS incident. Many measures have been taken to postpone the commencement of the operation. It is expected that the operating rate of the textile and garment industry will be affected by this influence. Cotton demand will not support the price in the short term, the price of cotton will decrease or the textile and garment production enterprises will face the risk of impairment. From the perspective of downstream sales, the outbreak is in the peak season of clothing sales on the eve of the Spring Festival. The inventory of pre production can not be released in the short term. It is expected that the sales of garment enterprises will decline year by year. In addition, the short-term storage costs caused by inventory will have a negative impact on the profitability of textile and garment enterprises, coupled with the slowdown in inventory sales at this stage, and the unsalable marketing of seasonal clothing. Clothing and textile enterprises are facing a risk of impairment of inventory products, profits will decline further. In terms of domestic sales, many provinces across the country have adopted more stringent measures of home segregation. In the short term, the sales of offline stores are obviously declining, and the substitution effect of online sales is obvious, but the overall situation is not very optimistic. With the gradual control of the epidemic, the offline sales will also gradually recover. The export side is affected by the downtime. It is expected that the order will not be completed in the short term, and is expected to improve after resuming work. However, the new order will decline. It is expected that in 2020, accompanied by macro-economic slowdown, industry competition will intensify, environmental protection, production costs and cotton price fluctuations will result in continuous downward pressure on operating performance, continuous production of industry capacity, less motivation for enterprises to expand production capacity, overall capital structure of the industry will remain at present level, industry deleveraging and enterprise financing scale will be reduced.

Bond market performance

In 2019, the scale of newly issued bonds in textile and garment industry declined; the maturity structure of industrial survival bonds was more concentrated; in 2020, the debt pressure of industry was larger; the spread of textile and clothing was still at a relatively high level, and the interest rate of bond issuance dropped somewhat, which was affected by the reduction of benchmark interest rate.

In 2019, the number of newly issued bonds issued by textile and garment enterprises was 30, down 1 from the same period last year, and the total issue amount was 16 billion 249 million yuan, down 16.68% compared with the same period last year. The type of bonds issued was mainly short term financing bills, medium-term notes, corporate bonds and convertible bonds. The issuance of new medium-term notes increased significantly compared with the same period last year, while corporate bonds and convertible bonds declined year-on-year. Line oriented tools, exchangeable bonds and short-term financing coupons.

From the credit rating distribution of new bonds, the issuance scale of AA+ and AA in 2019 was 10 billion 250 million yuan and 4 billion 496 million yuan respectively, accounting for 63.08% and 27.67% of the total issuance scale. Compared with the same period last year, the issuance scale of A+ and AA grade credit bonds increased year by year, while the rest of the issued scale declined.

From the issue of interest rates, the average interest rate of the textile and apparel industry in 2019 was 4.91%, down 0.29 percentage points from the same period last year, benefiting from the reduction in the benchmark interest rate. In 2019, the interest rate on the issuance of bond interest in the textile and garment industry decreased as a whole. Since 2019, under the support of the central bank's prudent and partial monetary policy, the interest rate of treasury bonds and money market rates have declined compared with the same period last year. At the end of 12 2019, the yield of treasury bonds was 1, 3, 5 and 10 years down 0.18BP, 0.19BP, 0.11BP and 0.06BP respectively; the interbank pledge repurchase rate 7 days weighted interest rate and the pledge type treasury bond 7 day repurchase weighted interest rate decreased by 1.35BP and 0.59BP respectively.

From the industry spreads, the spread of textile and garment industry in 2019 was 362.99BP, an increase of 53.13BP over the same period last year. In 2019, the credit default of China's bond market was still serious, and the reduction of market risk preference led to a rise in credit risk premium. At the same time, affected by the global economic slowdown, Sino US trade friction, the downstream market downturn and the stricter environmental policy, small businesses cut production or shut down, the investment growth of leading enterprises slowed down, the overall profitability of the textile and garment industry declined, the solvency weakened, and the credit risk spread of the industry went up and was at a high level.

From the perspective of the existing debt situation, as at the end of 2019, the balance of the remaining bonds in the textile and clothing industry was 44 billion 442 million yuan, mainly in the medium-term notes and corporate bonds, with 25 stock issuers, and the AA was the main body of the issue. In stock bonds, the ratio of bonds that mature within a year and expires in 1~3 is 30.83% and 28.57% respectively. The debt maturity structure is more concentrated and liquidity risk is general. On the whole, the industry debt pressure is bigger in 2020.

Credit risks

In 2019, the credit risk of textile and garment industry went up, and the credit rating of many subjects was lowered. It is estimated that in 2020, the level of industry risk is rising and will be further differentiated.

In 2019, there were 4 credit rating adjustments in the textile and garment industry, including 2 on the rating observation list, 1 on the negative 1 and 1 on the main level. The main reasons leading to the adjustment include: the decline of profitability, the uncertainty of business expectation, the weakening of liquidity, the freezing of shares, pledge of debt, the concentration of debt pressure, and the decline of refinancing capability. Among them, Dagong international credit rating Co., Ltd., in July 2, 2019, adjusted the outlook for the Limited by Share Ltd of the group (the "short term" Fu sun ") as negative, mainly based on the relatively high export sales of the shares of the group, and the uncertainty of the trade policy and exchange rate fluctuations in the overseas market, which is expected to have a certain impact on the profitability of the company, and at the same time the company has a relatively high proportion of short-term interest bearing debt. The debt structure needs to be optimized.

Dagong international credit rating Co., Ltd. listed the Shandong Ruyi Technology Group Co., Ltd. (hereinafter referred to as "Ruyi technology") on the rating watch list in November 26, 2019. It is mainly based on the pressure of short-term debt repayment of Ruyi technology, the Ruyi technology and the actual controller has been included in the list of executors many times. In November 13, 2019, the Orient Jincheng International Credit Assessment Limited listed the Jinhong fashion group Limited by Share Ltd (hereinafter referred to as "Jinhong group") as the rating watch list, mainly based on the company's decline in earnings in the first three quarters of 2019, the risk of impairment of goodwill, and the company's concentration of repayment pressure.

In 2019, there were 1 new default entities in the textile and garment industry, the Limited by Share Ltd. Affected by the intensification of competition in the sports footwear industry, the performance of the birds has been declining year by year. At the same time, there are problems in the possession of land and houses, the difficulty in disposing of non core assets, and the tight liquidity of funds. In November 11, 2019, the "16 PPN001" failed to repay the principal and interest in full and constituted a substantial breach.

On the whole, under the influence of macroeconomic policy, the Sino US trade frictions and stricter environmental policies, the sales performance of textile and garment enterprises is under pressure, and the level of credit risk is rising. Subdivision, the added value of textile enterprises is low and the structure is single. Under the background of increasingly fierce market competition, the pressure of business operation is increasing. At the same time, textile enterprises with relatively high export value have a higher impact on overseas trade policies, and there is uncertainty in future earnings. Clothing enterprises are mainly facing the problem of increasing competition in the online and international markets. Under the current trend of consumption upgrading, consumers have put forward higher requirements for the quality of clothing brands. The strategic transformation of enterprises has slowed down or led to a decline in market performance. At the same time, enterprises with rapid transformation and upgrading may also face large capital demand, high debt leverage, and no return on investment returns. The problem triggers credit risk. In addition, the overall debt burden of the textile and garment industry in 2020 was more concentrated. In the environment of tight financing channels, tighter supervision policies and pressure on sales volume, the raw materials supply of small textile and garment enterprises is unstable, the cost control is more difficult, the backward production capacity is faced with clearing or rectification, and the profit level will be further compressed, and large textile and garment enterprises have scale advantages and advanced clean production capacity. With the advantages of diversified supply channels and sales channels, the credit level will remain stable. It is estimated that the overall credit level of textile and garment enterprises will be further differentiated in 2020.