Mutual Income Fell 10%, Rainbow 20%, Can Overseas Expansion Turn The Tide?

In June 23rd, 02678.HK announced that the company expected to achieve its performance in the balance of payments in the 6 months ended June 30, 2020, compared with the group's net profit of 486 million yuan in the same period last year.

The group's performance has been largely retrogressive, mainly due to the adverse effects of new coronavirus pneumonia. Under the outbreak of an epidemic in the world, consumption is weak, resulting in reduced sales volume. In the same period of 2019, a one-time accounting income from acquisition was about 209 million yuan, but there was no relevant income during the current period. The board estimates that the turnover will decrease by 20% to 30% over the same period in 2019.

Despite the difficult business environment, since May 2020, the board has noticed that sales orders are picking up and consumption is improving. In addition, the group's liquidity is still abundant. The board estimated that the cash and cash equivalents of the group in June 30, 2020 would be no less than 3 billion yuan, while in December 31, 2019 it would be about 1 billion 800 million yuan. The group will closely monitor the development of market conditions and new coronavirus pneumonia, and will focus on making full use of the existing capacity for the rest of the year to enhance the profitability and enhance financial stability of the group.

The previous annual report showed that the income of mutual textiles reached HK $5 billion 476 million in the year ended March 31, 2020, down 10.5% compared to 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.

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.

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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.