Investment strategy in the textile and apparel industry: there are many bright spots in the twists and turns
Core point:
Recall of industry trends in 2016: Overall performance was mediocre
The absolute rate of return of the fabric workwear industry in 2016 was -8.69%, which was basically consistent with the overall A-share market. The absolute rate of return of the fabric manufacturing sector was -6.89%, which was better than the -9.94% of the workwear retail sector.
Fabric manufacturing in 2017: Continue to pay attention to depreciation and rising cotton prices. Since the exchange reform in 2015, the RMB has depreciated by more than 11%. The depreciation is expected to increase export revenue, enhance the competitiveness of export commodities, and benefit the high proportion of exports. manufacturing enterprises. Domestic cotton prices rose sharply in 2016 due to the reversal of supply and demand and the lower-than-expected sales of cotton from the state reserve. As the sale of cotton reserves progresses, the impact of the state cotton reserve on the market will become smaller, while the cotton market demand will remain stable in the medium and long term, and the planting area and output will shrink on the supply side. Cotton prices are expected to grow steadily in the medium and long term, which will benefit leading traditional fabric companies. .
Workwear retail in 2017: Supply chain integration improves efficiency, and consumption upgrades bring structural opportunities. In an environment where consumption has not significantly improved, focus on two directions: First, supply chain integration to reduce intermediate links loss and improve efficiency; the second is consumption upgrading, where consumers are more pursuing structural opportunities brought about by quality and personalization. Among them, in terms of supply chain integration, there is huge room for progress in improving the efficiency of internal governance and providing external third-party governance services. In terms of consumption upgrading, first of all, in the infant and child industry, the complete liberalization of the second-child policy will drive a substantial increase in the number of newborns, and the industry is expected to continue its prosperity; secondly, domestic luxury goods consumption has completed cyclical adjustments, with light luxury goods benefiting first; thirdly, personalized demand has boosted The development of designer brands, and the co-creation platform solves marketing, transaction and other pain points for designers and consumers, and the market space is huge; the fourth overseas brand’s expansion into the Chinese market provides a broad space for development for the e-commerce agent operation industry; the fifth fastest-growing For cross-border import e-commerce, the new tax reform policy is expected to reshape the industry competition landscape.
Grasp the investment opportunities brought to relevant companies in the industry by accelerating the reform process of state-owned enterprises. From programmatic policy documents to detailed reform guidance documents, the reform path of state-owned enterprises has become increasingly clear. As some state-owned enterprises begin pilot projects, the reform has entered the policy implementation stage. In 2017, the pace of relevant state-owned assets reform will be significantly accelerated, bringing many investment opportunities to the industry. It is recommended to pay attention to the central enterprises that have entered the pilot list and the local state-owned enterprises that are advancing the reform at a fast pace.
Investment Strategy
Fabric manufacturing: Recommend 1) companies with low valuations and stable growth, benefiting from the depreciation of the exchange rate or the rise in cotton prices, such as Lutai A, Huafu Colored Textile, Vosges, Xinye Fabrics, and Lianfa shares; 2) Shenda shares benefited from Shanghai’s national reform. Work wear retail: Recommended: 1) Heilan House, whose performance is expected to improve; 2) Semir Clothing, whose PEG is <1, benefiting from the baby economy; 3) Souyute, which transforms its supply chain management; 3) Overseas acquisitions to build an affordable luxury group Elise; 4) Luolai Life and Mengjie Co., Ltd., which are transforming home life; 5) Jihua Group, which benefits from the reform of state-owned enterprises; 6) Baibaolong, which builds a co-creation platform for designers.
Risk Warning
The RMB exchange rate appreciates; cotton prices fall; consumption continues to be sluggish; new business model operating risks;
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