What Is Left Of Shengtai Group, A Garment Manufacturer, After Eliminating Related Party Transactions?

Many people do not know that in China's shoe and clothing industry with numerous brands and giants, the largest market value for many years was a OEM enterprise.

Shenzhou International specializes in OEM for first-line sports brands such as Adidas, Nike, Puma and other enterprises. Its profitability is far higher than Anta, China's first shoe and clothing brand. Its market value has been stable at 100 billion yuan all year round, and it has not been surpassed by Anta, a crazy merger and acquisition company, in recent years.

The company has introduced itself to Shentai group in the past.

Recently, the IPO of high-end companies, such as Laurent and Mattel, were disclosed to be listed on the international stock exchange.

However, the company has a large number of related party transactions with its shareholders Youngor and Itochu (a related party of UNIQLO). The amount of related party transactions was once close to 20% of the company's operating revenue. As well as the complex relationship between the company and Youngor, it will become the biggest obstacle on the IPO path of the company.

A-share clothing OEM boss

Almost every industry has a "chain of disdain". The brand business has surpassed the agent industry and commerce. The direct stores despise the franchise stores, and the high-end brands despise the mass brands

In the shoes and clothing industry, the brand business star is bright, the agent factory and the fabric merchant, often nobody knows.

But can the capital market continue to be evaluated in this way.

Shenzhou International (02313. HK), which is listed in Hong Kong stock market, has been a contract manufacturer for first-line sports brands such as Adidas, Nike and puma for a long time. In 2019, its revenue exceeded 22 billion yuan, and its net profit exceeded 5 billion yuan. Its market value remained stable at 100 billion yuan throughout the year, ranking first in the industry for many years.

Although the brands of Li Ning (02331. HK), Youngor and Hailan home are big, they are all younger brothers in front of Shenzhou International.

In recent years, Anta (02020. HK) has successively acquired overseas shoes and clothing brands such as Feile and Archaeopteryx, and finally surpassed Shenzhou International in scale and market value.

Recently, the IPO of Shengtai Garment Group Co., Ltd., another giant of Shengtai group, was listed on the stock exchange.

Shengtai group's main products are fabrics and ready-made garments, among which the production of medium and high-end fabrics is a major competitive advantage of the company.

The company's customers are mainly medium and high-end brands at home and abroad, including Ralph Lauren, UNIQLO, lacoste crocodile, Calvin Klein, Tommy Hilfiger, Youngor, FILA, Hugo Boss, Li Ning, Armani, Burberry, etc.

From 2017 to 2018, the company successively entered the top 20 list of "top 100 competitive enterprises in China's cotton textile industry" by China Cotton Textile Industry Association, and ranked among the top 25 in business revenue of cotton textile industry in 2019.

From 2017 to 2019, the operating revenue of Shengtai group was 4.620 billion yuan, 5.290 billion yuan and 5.570 billion yuan respectively, and the net profit attributable to the parent company was 122 million yuan, 235 million yuan and 269 million yuan respectively.

After listing, Shengtai group will become the largest garment OEM enterprise of a share.

During the period of 2017, the company's net profit rate increased from - 19.64% to - 19.64% in 2017, which was due to the increase of the company's net profit margin from - 19.64% to - 19.64% in the year.

In addition, the company's overall cost control effect is obvious in recent years. During the reporting period, the company's period expense rates were 13.82%, 13.06% and 13.37%.

It is worth mentioning that Shengtai group has experienced staff reduction in recent years. The total number of employees in 2017-2019 was 31529, 31389 and 27694 respectively. The total compensation paid by the company in the same period was 992 million yuan, 1132 million yuan and 1219 million yuan respectively. The average salary of the company's employees in 2019 is 44000 yuan, 40% higher than that in 2017.

Subject to the business model, the company's inventory and receivables are at a high level. By the end of 2019, the company's inventory book value was 957 million yuan, and the book value of accounts receivable was 707 million yuan, accounting for 19.73% and 14.57% of the total assets respectively.

Complex related party transactions

Shengzhou Youngor yarn dyed Technology Co., Ltd., the predecessor of Shengtai group, was established in Shengzhou, Zhejiang Province in May 2007. After that, it gradually expanded its business to Hunan, Anhui, Chongqing, Vietnam and Cambodia, becoming a multinational enterprise in the whole industry chain of textile and clothing.

Other shareholders, such as Nikkei and Daiichi, are the main shareholders. After Qingfang withdrew, Ningbo Shengtai became the largest shareholder, Itochu and Youngor Group were the second and third largest shareholders respectively.

Youngor textile and clothing as the main business, has now expanded to real estate development, financial investment and other fields. Itochu may not be familiar to you. It is a related party of UNIQLO.

After the establishment of Shengtai group in 2007, the shares of the company were transferred to each other repeatedly among Youngor, Ningbo Shengtai and Itochu. The process was dazzling and incomprehensible.

Itochu and Youngor Group are not only shareholders of the company, but also have huge related party transactions with the company.

Shengtai group's business relies heavily on key customers. From 2017 to 2019, the top five end customers accounted for 53.91%, 53.20% and 54.86% of the company's operating revenue.

Among them, Itochu is included. From 2017 to 2019, the sales amount of the company to Itochu and its related parties (including UNIQLO) were 850 million yuan, 959 million yuan and 741 million yuan respectively, accounting for 18.41%, 18.13% and 13.31% of the operating revenue of that year.

Youngor is not only a big customer of the company, but also a big supplier of the company. In 2017, Youngor ranked the fifth largest customer of the company, with sales amount of 176 million yuan, accounting for 3.81% of the operating revenue of that year. Since then, it has not appeared in the list of top five customers.

From 2017 to 2018, Youngor was the company's second largest customer, and Liansheng textile was the subsidiary of the actual controller. After the company acquired Liansheng textile, Youngor was upgraded to the first largest customer in 2019.

During the reporting period, the company purchased 199 million yuan, 209 million yuan and 214 million yuan from Youngor, accounting for 5.28%, 4.88% and 4.80% of the current year's operating cost.