The Industry Is Flagging, And Mutual Textiles Accelerates Overseas Expansion.

The market has long anticipated the performance of 01382-HK in the financial year.

According to the annual report, the income of mutual textiles reached HK $5 billion 476 million in the year ended March 31, 2020, down 10.5% compared with the same period last year, and the profits of the company's equity holders should be 743 million yuan, down 13.7% compared with the same period last year.

Because of the epidemic factors, the temporary closure of the inter textile workshop in China for 3 weeks has brought about an impact on the overall production level of the company, resulting in a decline in its revenue. Net profit decline is due to declining sales revenue.

While looking at the whole industry, a large number of textile and garment factories' foreign trade orders have been cancelled, and even some customers even have no deposit. Although the Panyu textile factory of the Pacific textile industry was rapidly restored to its original production level in late February, but because of the closure of some cities or the closure of the shops, the customers postponed the delivery of the textiles due to the adjustment of their production plans, thus hindering the company's short-term financial performance in March.

The industry is hard to escape.

Although the business of Pacific textiles in the US is negligible, Sino US trade friction has little impact on its business performance, but the Asian region also has a headache.

The largest customer of Pacific textiles is UNIQLO from Japan. In the past three fiscal years, UNIQLO accounted for 40.8%, 43.2% and 37% of mutual textile income respectively.

After years of rapid growth, the performance of 06288-HK, the fast fashion giant of Japan, began to slow down. The 2019 fiscal year data showed that fast sales and net profit growth dropped to a single digit, up 7.53% and 5.02% respectively. The weak growth of UNIQLO's performance also dragged the performance of mutual textile in the 2020 fiscal year, and the revenue from UNIQLO was HK $2 billion 26 million, down by HK $617 million compared with the same period last year. In addition to being hit by the epidemic, UNIQLO was hit by the impact of Japan's 2019 earnings fatigue and the boycott of Japanese goods caused by trade friction between Japan and South Korea.

In addition to the two outdoors, other textile customers account for less than 10% of the company's total revenue. With the warm 2019 winter impact, the market has reduced the demand for synthetic fabrics for thermal underwear, thus causing a double blow to the exchange textiles.

As can be seen from the above chart, the performance of mutual textiles has been weak and even shrinking since 2016.

From the perspective of the whole industry, the downstream export and domestic sales of textile manufacturing industry are all under pressure. According to Wind data, the added value of China's textile and garment industry has almost been consistent with the trend of industrial added value in the past more than 10 years. Since 2012, the added value has been declining, showing that there is a problem in the demand side of the industry.

From the perspective of textile and apparel listed companies, the whole industry has plunged into a whirlwind of profitability, and the pressure of performance is enormous. Wind statistics show that in 2019, A shares listed companies in textile and clothing, the growth rate of negative revenue of listed companies reached 92, an increase of 0 to 20% and 20 to 50% of the listed companies were only 6 and 5.

On the export side, Sino US trade frictions intensified, and the United States in September last year put all textile and clothing export products into the tariff range, which further aggravated the difficulties of the industry, so we can see that the industrial added value of the entire textile and garment industry has dropped to negative since 2019. Compared with the industry, the trend of mutual textiles and industry is almost the same.

Owing to the decrease in orders, the pressure of inventory in the past few years has also increased. In the fiscal year 2017 fiscal year -2020, the stock of mutual textiles was HK $978 million, HK $1 billion 68 million, HK $947 million and HK $1 billion 134 million, all of which accounted for about 1/3 of the current period.

Can overseas capacity expansion turn the tide?

Like many foreign enterprises, the textile production base is gradually transferred out of the mainland.

Productivity "fleeing China" has many advantages for foreign enterprises. Saving land and labor costs, dispersing trade disputes risks and meeting future expansion needs have become the factors for enterprises to move out of China.

Over the past few years, Nike garment processing Department has closed its domestic factories to Vietnam, while electronics maker Foxconn has invested and built factories in India to transfer production capacity.

In fact, as early as 2015, the exchange of textiles has transferred some of its capacity to Vietnam, mainly in UNIQLO. According to the 80000 pounds / day capacity in April 2016, Vietnam accounted for 12% of the total capacity. In the 2017 fiscal year, the income of mutual textiles from Vietnam's market surpassed that of the Chinese market. In the 2020 fiscal year, the income from the Vietnamese market was HK $2 billion 280 million, accounting for 41.64% of the current revenue, while the proportion from the Chinese market was less than 20%.

In addition to building factories in the mainland and Vietnam, mutual textiles also set up factories in Southeast Asian countries such as Sri Lanka and Bangladesh, and factories outside China output more than 10 million pounds per month, higher than domestic production capacity. It can be seen that overseas capacity and sales have surpassed the Chinese market, and the action of mutual textile "going to China" is very obvious.

Despite the fact that consumers around the world are saving money, there is a growing demand for sportswear, such as indoor sportswear and fitness apparel. Since 2018, mutual trade has increased its sportswear business, and has built up a new production base in Vietnam to improve production capacity in Nam Dinh. In the 2020 fiscal year, the sales volume of mutual textile sportswear increased by HK $100 million, an increase of about 19.4% compared with the 2018/19 fiscal year. Under the condition of sluggish sales of casual wear and apparel products, mutual textile increases production capacity of sportswear through overseas production base, to a certain extent, and contributes positively to the company's performance.