Textile And Garment Industry: Poor Performance In The Medium Term, Confirming Hard Times

1, the decline in performance of the industry representatives is highlighted by environmental pressure.

From the mid-term performance of the company we track,

The performance of the key listed companies decreased significantly. The income index of these listed companies decreased by 5.8%, 9.56%, 0.84% and 3.72% respectively, while the net profit index decreased by 38%, 25%, 78% and 72% respectively. The net interest rates decreased by 6.73%, 1.42%, 3.06% and 3.06% respectively.

Although production and sales rates remain at a relatively high level, output has also increased, but not enough to offset the impact of price declines, resulting in a drop in profits more than the decline in revenues.

We believe that with the gradual digestion of cotton with high price reserves in the early stage, the level of enterprise profitability will gradually stabilize. However, because of the existence of the policy of minimum purchase and storage, the internal and external cotton prices will not be unified so that textile enterprises will have to face the unfavorable situation of losing some market share.

2. Global cotton supply is expected to be relatively abundant.

In August, the US Department of agriculture estimated that cotton production in 2012/2013 was 24 million 800 thousand tons, down 7.1% from the same period last year, and consumed 23 million 500 thousand tons. The inventory ratio will reach 69% of the highest level in history.

The consumption of China's textile mills will continue to decrease. The consumption of 2012/13 is expected to be only 39 million packs, down 1 million packs from last year, to the lowest level since 2004/05.

As of the end of July, the national cotton business inventory was 1 million 470 thousand tons. In July, the monthly inventory consumption was 260 thousand tons, which was lower than the average monthly inventory consumption, reflecting the current cotton market demand was not strong.

3, the chill of European economy is increasing, and demand is falling all the way.

The deepening of the negative impact of the European debt crisis has led to the most serious post-war crisis in European economies.

In the two quarter, GDP in the euro area fell 0.4%, and the retail index in June dropped by 1.2%.

In 1-5, the European Union imported 35 billion 150 million dollars from the European Union, down 10.8% from the same period last year. Trousers, T-Shirts, shirts, sweaters and dresses accounted for 60% of the total and five categories of products.

All of them showed a decrease of 8.8%-18.1%.

In the first 5 months, China's textile and clothing exports to the EU dropped by 12.55%, while the exports of other major suppliers decreased significantly. India, -23%, Pakistan (-21.5%) and Morocco (-21.3%) declined more.

4, the decline in China's manufacturing advantages

As China's labor factor prices continue to rise, the price of clothing exports has risen, and some products have been priced higher than other Asian exporting countries, such as sweaters, dresses and other products.

China's clothing imports accounted for an annual decline in EU imports. In 2010, it was 45.3%, 43.9% in 2011, and 37.9% in 2012, 1-5.

The EU has imposed a zero tariff policy on textile and apparel products such as Bangladesh, which has also weakened the competitiveness of Chinese products.

Affected by the pfer of production capacity, China's textile and apparel trade pattern in Japan is changing. In 1-6 months, Japan's imports from ASEAN increased by 22%, maintaining growth momentum, while imports to China declined by 4%.

MUJI, UNIQLO and other companies plan to pfer 70% of production to Southeast Asia.

With the signing of the economic cooperation agreement (EPA) between Japan and ASEAN, the advantages of ASEAN will also be more obvious after the abolition of textile tariffs.

Suggestion: China is the beneficiary of industrial pfer, but when cheaper competitors appear, this rule will play a role. The profit driven nature of capital will inevitably drive the pfer of orders to low cost regions. China's share of global textile and garment export market will continue to decline in the future, but in the short term China will not be replaced by a complete industrial chain and high quality of laborers.

The valuation level of the plate has now dropped significantly. We believe that the current stock price has released the risk brought by the decline in performance. Based on the expectation of stable performance, the quality company can give due attention.