Net profit of the textile and apparel industry fell year-on-year in the third quarter
From a sales perspective, the slowdown in export growth and the shift of export production capacity to domestic sales have begun to lead to a decline in the revenue growth rate and gross profit margin of upstream and midstream companies; brand clothing companies are still profitable, but their future growth expectations have generally declined. In September, clothing retail sales actually increased by 30.1%. Since the last two days of September were in the Golden Week, the actual growth rate should be lower than that level, but it was significantly faster than the growth rate of total retail sales and other categories such as food, showing the defense of the sector. sex. In terms of external demand, US dollar-denominated textile and apparel exports increased by 8% year-on-year from January to September (excluding the impact of exchange rate changes, it decreased by 1.7% year-on-year).
From the perspective of cost, expense and inventory: the increase in the ex-factory price of textiles and clothing is slightly lower than the purchase price of raw materials. In addition, labor costs have increased significantly, and the profit margins of textile and clothing processing companies have been squeezed. At present, there is not much inventory pressure in the domestic market, but the growth rate of clothing exports is declining rapidly. If there is a certain inventory backlog in this link, switching to the domestic market may bring about price competition.
Judging from the performance of the third quarter report: most cotton spinning, wool spinning, silk, chemical fiber, clothing processing and export, printing and dyeing industry companies have experienced a significant year-on-year decrease in net profit. Only Lutai in the cotton spinning industry (operating net profit is 14% year-on-year) %), Weixing (22%) in accessories has achieved steady growth, but due to its position in the industrial chain, there is still a certain downside risk. The performance of brand clothing companies shows a trend that the stronger get stronger, including Septwolves (51%), Meibang Apparel (99.2%, partly due to the low base effect), Youngor (operating net profit 51% year-on-year), and Good News Bird (221%, Low base effect) has achieved rapid growth. Although Hong Kong-listed sports brand companies do not announce third-quarter results, sportswear consumption grows faster than casual wear and the main brands have obvious competitive advantages. We believe these companies can also achieve rapid growth. Performance improvement.
Based on the above macro factors, upstream and export-related companies should be avoided, and sports and casual wear brand companies should be preferred.
1. Among A-share companies: Youngor’s price-to-earnings ratio in 2019 is only 6x, its asset replacement value is 70% higher than its current market value, and its dividend yield is >6.5%. It is the first choice for value-based investment opportunities; Septwolves’ price-to-earnings ratio in 2019 It has been reduced to 16.7x. If it is further reduced, investors can pay attention to intervention opportunities based on market conditions. It should be noted that due to the high base effect in the first half of this year, the company’s performance growth rate in the first half of next year may be slower than our full-year performance. It is expected that Meibang Apparel and Baoxiniao also have certain fundamental advantages. However, due to the fact that they have just been listed and the systemic risks and the risks of lifting the ban and reduction of holdings have not been fully released, the price-to-earnings ratios in 2019 are as high as 25.9x and 18.4x, and the time for intervention has not yet come.
2. Among Hong Kong stocks: Li Ning (13.4x) and Dongxiang (13.1x) price-to-earning ratios in 2019 have dropped to low double-digit levels. It is worth actively participating in reference to the changes in the market. Among them, Li Ning is a brand clothing brand with good fundamentals in the two cities. company, and Dongxiang has established an irreplaceable market position in the field of fashion and sports; Belle (11.8x in 2019) has risen significantly more than other consumer goods companies in recent days. We still recognize its excellent brand and retail management level, but it is affected by consumption The decline and the relatively limited impact of the women’s shoe market capacity, but we believe that its net profit growth rate in 2019 may only be around 20%, and the profit forecast needs to be lowered by about 11%. Investors who are worried about this round of rebound in Hong Kong stocks can make appropriate profits. In addition, consumer confidence indexes in Europe and the United States have fallen further, causing us to worry about Esprit’s profit growth rate, and we will also adjust its profit forecast appropriately.
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