Securities Companies Report: Global Layout Of Textile Manufacturing Investment Opportunities

Since the implementation of the Xinjiang related act of the United States in June, some orders of domestic textile enterprises have been transferred to overseas, adding that the current industry demand is weak, and the prosperity has fluctuated. At the same time, India, Pakistan and other textile exporting countries are affected by energy shortage & high price cotton, and local textile enterprises are also under pressure (especially the upstream yarn and fabric end), while Vietnam with stable energy and perfect global procurement system has benefited significantly. To sum up, the global layout is more and more important for textile enterprises to improve their anti risk ability, and the enterprises with earlier layout have obvious first mover advantages. Therefore, we suggest that we should pay attention to the investment opportunities of textile leaders with the basis of global layout.

Some orders are transferred overseas, and domestic textile enterprises are under pressure in short-term operation, and they need to actively grasp the recovery of domestic demand in the future.

1) the so-called "Uyghur forced labor prevention law" of the United States was formally implemented on June 21. The main impact of the bill on the textile industry was that the United States prohibited the import of products using Xinjiang cotton as raw materials. For importers, it is necessary to prove that they did not use Xinjiang cotton, thus increasing their burden and customs clearance time. Therefore, some international brands gradually transfer the orders of clothing products exported to the United States to Southeast Asian countries to avoid the impact of the act. According to the survey, more than 85% of the enterprises surveyed by the chamber of Commerce said that more than 30% of the enterprises transferred their orders abroad.

2) the domestic textile industry's outlook declined under the disturbance of domestic demand fluctuation and the US frontier related act. In July, China's cotton textile industry purchasing manager operating rate index fell to a new low since March 2020. In recent months, China's pure cotton yarn weekly operating rate was lower than the level in 2020. At the same time, according to the calculation of China cotton information network, the U.S. Xinjiang related act may affect the consumption of 500000-550000 tons of Xinjiang cotton, and the mismatch between supply and demand will increase the price difference between domestic and foreign cotton. At the highest time, foreign cotton is nearly 7000 yuan / ton more expensive than domestic cotton.

3) we believe that in the short term, the impact of orders may continue, and the recovery of domestic demand is more important for domestic textile enterprises. According to the data released by the national cotton market monitoring system in July, 80% of enterprises said that textile foreign trade orders decreased. Considering that the impact of the U.S. frontier related act is still fermenting, some countries may follow the U.S. bill, and the expected decline in demand caused by inflation in Europe and the United States, the pressure on subsequent foreign trade orders may continue in the short term; For domestic textile enterprises, it is more important to actively grasp the opportunity of domestic demand recovery and strengthen cooperation with excellent domestic brands to reduce the impact of foreign trade orders.

4) the energy shortage of textile exporting countries such as Pakistan and the high price of cotton in their own countries have led to a further strong demand for upstream products such as yarn and fabric in Vietnam.

Enterprises with diversified layout are relatively beneficial and have the first mover advantage.

From the company level, the growth of 1H22 overseas companies with production capacity layout is leading. The growth rate of profit in 1H22 of most enterprises with better overseas capacity layout is significantly higher than the average growth rate of A-share textile manufacturing. Among them, the profit of Lutai A / Jiansheng group / Bailong Dongfang 1H22 is + 157% / + 74% / + 41% year on year. At the same time, leading domestic textile enterprises have actively promoted overseas production capacity construction: at the end of yarn, Blum Oriental continued to expand Vietnam's production capacity; At the fabric end, Lutai suspended the domestic expansion project and increased the Vietnam fabric production expansion; At the garment end, Shenzhou International further increased Vietnam's garment production; Other products, such as Weixing Co., Ltd. at the end of accessories, and Jiansheng group, which produces sock products, are also actively distributing in Southeast Asia. By sorting out the expansion of the main listed textile enterprises, we find that most of the textile enterprises that expand production overseas have already had the production capacity layout overseas, while the textile enterprises whose production capacity is mainly concentrated in China have less overseas expansion.

We think that it reflects the first mover advantages of global layout Enterprises: a) in the early stage, Southeast Asia and other regions had more preferential policies for the introduction of foreign capital to build factories, such as land and tax. At present, with the upgrading of Southeast Asia's own industries, the preferential power that new entrants can enjoy is gradually weakened, and the cost of land has increased significantly; b) Some textile sectors are more difficult to expand production overseas, such as printing and dyeing and other high pollution and high energy consumption links; c) First mover enterprises are familiar with the local conditions and customs overseas, and have formed rich experience in training and managing local personnel and a complete talent echelon.

Risk factors:

The demand is lower than expected; The price transmission of raw materials is not as expected; Exchange rate fluctuation; Geopolitics and other risks.

Investment strategy:

To sum up, we suggest that we should pay attention to the investment opportunities of textile leading enterprises with the basis of global layout: 1) recommend leading accessories with overseas production capacity layout, stable demand side and strong risk resistance ability; 2) It is suggested to pay attention to the enterprises with integrated production capacity in Vietnam; 3) It is suggested that we should actively pay attention to the high proportion of overseas production capacity, which is expected to enjoy the structural transfer of orders, and gradually usher in a turning point in the demand side; 4) It is suggested to pay close attention to the subdivided leading enterprises with large-scale capacity distribution in Vietnam.