Core discussion
The core view of this paper: we are optimistic about the performance of the leading OEM in textile manufacturing in the short term, repair the elasticity, grasp the promotion of brand value of sports and high-end clothing in the long term, and switch from following the trend to leading the brand.
Theme 1: what do you think of the slowdown in the growth rate of sportswear? We believe that in the short term, we should weaken our attention to the single index of the growth rate of sportswear and pay attention to the marginal improvement of the leading business quality; In the long run, the leading brands are in an important stage of significantly improving the brand value and completing the switch from follow to lead. It is suggested to pay attention to the value improvement and population expansion of the head brands and grasp the long-term growth.
Topic 2: does the common prosperity policy put pressure on high-end clothing consumption? The main consumer group of domestic high-end clothing is the middle class, which will benefit from the expansion of middle-income groups under common prosperity in the long run. At present, the difference between urban and rural expenditure on clothing categories is high, which reflects the greater elasticity of clothing consumption under the increasing trend of township residents’ income. We are optimistic about the efficiency improvement and steady growth of the leading operation of high-end clothing.
Topic 3: it is possible that the order stability share of downstream customers of sportswear OEM leader will continue to increase. The high-quality supply chain is scarce, and the share is expected to continue to increase. The supply chain system of well-known brands has high barriers to entry and strict assessment. They will not easily change dealers. They prefer to maintain long-term cooperation with cooperative suppliers. Orders will also be inclined to long-term cooperative suppliers, and the cooperation opportunities of head customers cannot be copied. We expect that with the improvement of the prosperity of sports shoes and clothing, outdoor and other industries, more brands will seek in-depth cooperation with high-quality head manufacturing companies in the future, and are optimistic about their long-term share improvement and customer expansion.
Investment advice
Brand clothing: strong attention under the background of slow growth of the industry α、 The growth targets with high certainty include Li Ning (leading brand strength and broadening customer base), Tebu International (accelerating store expansion and exceeding expectations in business performance), etc.
Textile manufacturing: it is expected that the capacity expansion will accelerate in 22 years, the performance will be significantly repaired, and the superimposed valuation will return to the normal range, which is expected to double-click the performance and valuation. It is suggested to focus on the sports shoes and clothing OEM leaders: Shenzhou International, Huali Industrial Group Company Limited(300979) , Zhejiang Jasan Holding Group Co.Ltd(603558) .
Industry Review
Brand clothing: high in the front and low in the back, weakening month on month. In the first half of the year, clothing retail benefited from the low base in the same period of 20 years and the catalysis of Xinjiang cotton incident. The cumulative increase from January to June was 33.7%. In the second half of the year, affected by repeated epidemic, floods, warm weather and other factors, the trend weakened, and began to show a downward trend in August. From August to October, clothing retail decreased by 6% / 4.8% / 3.3% respectively year-on-year, and the decline narrowed to – 0.5% in November.
Textile manufacturing: order return and prosperity improvement. Benefiting from the improvement of domestic and foreign demand and the return of orders in Southeast Asia, the prosperity of textile manufacturing rebounded in 2021. From January to November, the total export volume of textiles and clothing increased by 7.66%, of which the export of clothing increased by 25.07% year-on-year and the export of textiles decreased by 7.54% year-on-year. We believe that the year-on-year decline in textile exports from April to September is mainly due to the high base caused by the significant increase in the export of epidemic prevention materials in the same period last year, which still maintains double-digit growth year-on-year in 19 years.
A-share / Hong Kong Stock Market Review: since the beginning of the year, the A-share textile and garment sector has increased by 3.67%, ranking 14th in the SW primary industry, and the Shanghai and Shenzhen 300 has increased by 0.63%, outperforming the market by 3.04pct. Hong Kong textile and garment stocks rose sharply in the first half of the year driven by factors such as the Xinjiang cotton incident. In the second half of the year, with the deterioration of the retail environment and the slowdown of the sector growth, the trend weakened and lost the Hang Seng Index by 1.61pct.
Risk statement
Repeated epidemic risk, exchange rate fluctuation risk, rising labor cost risk, lower than expected price increase risk, etc.
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