Cloth summary: report on the third quarter of the textile and apparel industry

The profit and loss statement shows that the overall performance of the textile sub-sector benefits from the increase in market concentration. The order volume of leading companies increases, and the year-on-year growth in revenue and net profit maintains an increase; at the same time, the price of raw materials has increased, and the previous low-priced inventory has supported the release of profitability space. It has risen to a relatively high level in history. The leading enterprises are expected to continue to benefit from the stronger support provided by the improved supply and demand environment for cotton prices, as well as the multiple benefits of the implementation of regional tariff agreements under multi-location production capacity and policy subsidies in Xinjiang. In the medium and long term, as the export tax rebate rate increases and the RMB devaluation is expected to continue to strengthen, the competitiveness of China's textile manufacturing industry will increase. The overall operating environment of the textile manufacturing industry is expected to improve. Leading companies may benefit from market concentration. Promote.

The clothing sub-sector resumed its positive growth in income from the fourth quarter of 2014. It is worth noting that with the continuous advance of discounted inventory clearance, the overall gross margin of the industry is relatively stable, but due to the rapid expansion of other low-margin businesses from the second half of 2015, the overall level has been relatively low. After the brand reshuffling and structural upgrading of the apparel consumer market, the demand-end improvement trend showed, along with the early inventory clearing, shop adjustments were markedly effective, and the fee rate was reduced, driving the industry's net margin to increase for the first time in the third quarter.

The balance sheet shows that the operating efficiency of the textile and apparel industries has improved , and the quality of textile earnings has continued to improve. 1) The textile operating cycle has improved markedly since 1Q16. Based on the decline in inventory and receivable growth rate, the net cash flow generated from operations has shown a corresponding rebound year-on-year, and the net profit margin has continued to improve, indicating a significant improvement in the quality of corporate earnings. 2) Garment companies experienced contraction and structural adjustments in the previous period, and the overall operational benefits have improved significantly with the improvement of endogenous indicators. The turnover rate has continued to improve since 2015, indicating to a certain extent that after the stock hit bottom, the adjustment of the company's terminal channels has begun to take effect. However, the overall profitability quality has yet to be improved.

Annual report performance forecasting situation : Half of the 80 A-share listed textile and apparel listed companies have been announced, of which the textile manufacturing sub-industry's performance has increased to 12 in advance, and the apparel home textile sub-sector has increased by 10 in advance. On the whole, we expect the performance of the annual report of the textile industry to continue the performance of the three quarterly report. Among them, the textile sub-sector will benefit from the consolidation of the industry and the impact of raw material prices. It is expected that the growth rate of the textile industry will achieve a significant year-on-year growth. The apparel sub-sector, after accommodating the reduction in revenue, will naturally increase its recovery from the improvement of endogenous end-use indicators. Leading companies will increase their share of market share with an increase in market concentration; and start-up companies will use resource advantages. Actively transforming the layout, performance growth continued to improve year-on-year.

The overall relative valuation of the textile segment is low. As of October 31, the 2016 dynamic PE was about 32 times higher than the total A shares (excluding banks). The premium rate was 1.14 times, of which, the textile manufacturing premium rate was about 1.29 times, and clothing home textile was about 1.15 times. New shares, backdoor listings, mergers and acquisitions, and transformation stocks continued to rise.

The industry returns to the value of the supply chain and selects medium and long-term layout. We are optimistic about the excellent internal enterprises, which are internally optimized to achieve vertical optimization of the supply chain in order to improve operational efficiency. On the other hand, it is necessary to focus on the construction of an external supply chain platform based on the Internet, and to integrate the pioneers of decentralizing upstream resources and diversifying downstream resources.

It is recommended that the cotton spinning sector identified by the degree of prosperity , as well as individual stocks with clear transition strategies and clear growth paths. The recommendations are focused on: 1. Meisheng Culture (with a clear transition strategy and large room for growth), Huas shares (industrial chain integration, card-level social e-commerce top-level ecology), and Souyute (resources integration, business expansion and extension space) 2. Huafu Color Spinning (high degree of subdivision industry, start flexible supply chain strategy), Xinye Textile and Lianfa Group (low valuation, steady growth in business, with industry expansion expectation); 3. Summa apparel (supply chain Continuous optimization is expected to become a truly "big company") and a home of the sea bream (mode leading, with room for valuation repair).

Risk Warning: The retail market continues to be in a downturn ; the transformation of new businesses or investment projects does not achieve the expected benefits; industry operating costs continue to rise and competition intensifies; cotton market demand does not meet expectations and policy changes risk.

 

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