Textile and Apparel Industry 2018 Credit Risk Outlook

Deepen de-capacity and increase concentration

Domestic demand in the demand industry continues to improve, exports will keep warm, but the competitive pressure from countries such as ASEAN is still relatively large. The reduction in domestic cotton stocks will drive cotton prices to rise steadily, and international cotton prices will face downward pressure. Policy and environmental protection policies are tightening, and the industry will continue to accelerate the process of de-capacity. The overall profitability of the profitable textile and apparel industry will remain stable, and the performance of leading enterprises in the industry will continue to improve, and the concentration of the industry will be further enhanced. The term structure of the debt burden industry is relatively reasonable. Compared with other industries, the industry spread will remain at a high level and the high-level spread will narrow. Credit quality The overall credit level of the textile and apparel industry will remain stable, but the differentiation within the industry is obvious, and individual companies face greater credit risk.

summary

Since 2017, the market demand for the textile and apparel industry has begun to recover, domestic sales have shown a good trend, exports have initially recovered, and the overall profitability of the industry has improved. At the same time, problems such as overcapacity in textile enterprises and destocking of garment enterprises still exist, and the industry will enter a period of deep adjustment. In addition, the maturity period of textile and apparel bond issuers is relatively reasonable, affected by the deleveraging policy, the asset-liability ratio has decreased, and the debt structure has improved.

In 2018, China's low-cost competitive advantage will be gradually lost. The competitive pressure from countries such as ASEAN is still relatively high. The degree of export recovery and the degree of sustainability are still facing a big test. Domestic cotton prices remain stable in the short term, but will further promote as stocks decrease. Cotton prices have risen steadily, and international cotton prices are facing downward pressure, but supply and demand are basically balanced, and there is limited room for price decline. At the same time, the environmental protection policy is getting stricter, the industry's de-capacity process will accelerate, and industry concentration will be further improved. The driving force for the expansion of production enterprises is not big. The company's bond issuance is mostly “repaying the old”, and the interest rate continues to rise. It is expected that the bond market will shrink slightly, but compared with other industries, the textile and clothing industry spreads are still relatively small. High level. The overall profitability of the industry will remain stable, and the capital structure will improve. However, the differentiation within the industry will become more obvious. A small number of products with a single product structure, weak profitability of the main business, weak cost control ability and large debt pressure will face greater credit risk. .

The domestic sales of the industry continued to trend; the export will maintain a warming trend, but the competitive pressure from countries such as ASEAN is increasing, and the export of the industry is still facing a big test.

China is a big country in the production and export of textiles and garments. From the perspective of demand, China's textile industry has a higher proportion of domestic sales, while the downstream garment industry accounts for about 50% of total output. Asia, Europe and North America are the three most important countries in China. Export market.

From the perspective of domestic sales, the industry is greatly affected by consumers' preferences and consumption power. Since 2017, the total retail sales of social consumer goods in the country has maintained a growth rate of more than 10% per month. From January to October, clothing and footwear in the above-mentioned units. The retail sales of caps and needles textiles reached 1,188.3 billion yuan, a year-on-year increase of 7%. The overall consumption of the industry was high. Since the second half of 2017, the retail sales of apparel products above designated size have maintained a good trend, especially in the high-end men's wear, high-end women's wear, home textiles, children's wear and other sectors. As the per capita disposable income continues to increase, the designer's brand is growing rapidly, and the cost-effective products are sought after by the market. The textile consumption expenditure will continue to increase. In 2018, the domestic sales of the industry is expected to continue to improve.

From the perspective of exports, China's textile and garment exports have continued to experience negative growth for 22 consecutive months since March 2017, with textile exports increasing at a high rate; from January to November 2017, the cumulative export volume of textiles and clothing was US$ 243.26 billion. In terms of RMB, it increased by 5.01% year-on-year. From the perspective of market structure, the competition in the traditional markets of the United States, Japan and Europe is still fierce. It is expected that in 2018, China’s share of the three major textile and apparel import markets in the United States, Japan and the European Union will continue to decline, while the main competitors such as ASEAN and Bangladesh will gradually gain advantages in terms of raw material prices and production land prices. Will be further enhanced. The textile industry in developed countries has accelerated the return and supply capacity, and the emerging countries in Southeast Asia have accelerated the layout of the textile industry and made significant cost advantages. They have put forward higher requirements for China's textile industry to maintain stable competitiveness.

The reduction of domestic cotton stocks will push cotton prices to rise steadily, and international cotton prices will face downward pressure, but the downside is limited.

According to different raw materials, the textile industry can be divided into cotton, chemical fiber textile, wool textile, hemp textile, silk silk textile and textile finished product manufacturing (ie garment industry), in which raw cotton and chemical fiber are consumed more, and cotton and chemical fiber prices fluctuate. The cost impact on the textile industry is significant.

Since 2017, the supply of cotton resources in the international market has been seriously greater than the demand. There is still a gap in the domestic market cotton, and the high price of cotton has stabilized, which has caused the characteristics of “outside the tightness”. 2018 is the deepening year for the structural reform of the supply side of the cotton industry. It is expected that the reserve cotton will still rotate according to the plan, further reducing domestic stocks to a lower level, and domestic cotton prices will continue to rise steadily. From an international perspective, some cotton-growing countries have increased planting area. Under 2018, international cotton prices have downward pressure. At the same time, cotton planting is greatly affected by the weather. At the same time, if domestic cotton imports are increased, cotton has limited room for decline.

The Development and Reform Commission announced that China’s cotton import tariff quotas for 2018 were 894,000 tons, which was the same as 2017. It is expected that the national import quota policy will remain stable in 2018, and the possibility of adjustment is not large. However, due to the small amount of high-grade reserve cotton in China's inventory, domestic production cannot meet the demand, the supply and demand gap will expand, and the import cotton quota will be expanded in the future. the amount. Due to the existence of a certain gap between the price and quality of imported and domestic cotton, the market competitiveness and profitability of textile enterprises still largely depend on the availability of quotas and the number of quotas. In the short term, enterprises still bear greater cost pressures.

The textile and garment industry's environmental protection policy is tightening, and the industry will continue to accelerate the process of de-capacity

The textile and garment industry chain is long, and the pollution is mainly concentrated in the dyeing and finishing process. Water pollution is the main factor, and the printing and dyeing and tanning pollution in the sub-sectors is more serious. Since October 2017, the textile industry has begun to implement new printing and dyeing regulations, and the 19th National Congress has proposed to achieve the goal of beautiful China by 2020. It is expected that the government's environmental protection requirements will be further tightened in 2018, environmental protection pressure will increase, and backward production capacity will gradually increase. After being eliminated, the industry's de-capacity process will accelerate.

The impact of environmental protection on the textile and garment industry is mainly reflected in two aspects: First, the rising prices of raw materials, hydropower and energy, leading to an increase in the cost of the industry chain; second, the government has increased supervision over the pollution sub-sectors such as printing and dyeing. The de-capacity process has adversely affected the textile and apparel industry, but leading companies are expected to benefit from increased industry concentration. In the future, as the central and local governments introduce more policies to further improve environmental standards, the industry will once again enter the capacity contraction period, the concentration will be further enhanced, leading enterprises will enjoy the “leftover dividend”, market share and bargaining power will be improved; short-term Looking at the cost increase of dyes and environmental protection, companies have expectations of price increases.

The performance of leading enterprises in the industry continued to improve, driving the overall performance growth of the industry; it is expected that the income will maintain growth in 2018, but due to environmental protection and limited production costs, the gross profit margin may decline slightly, and the overall operation will remain stable.

In the first three quarters of 2017, the revenue and total profit of the textile apparel business increased by 5.80% and 8.60%, respectively. The operating pressure was reduced and the operating results were significantly improved. At the same time, the increase in industry concentration will become more and more obvious. Among them, textile manufacturing leading enterprises such as Huafu Fashion Co., Ltd., Lutai Textile Co., Ltd., Blum Oriental (601339, shares) Co., Ltd., leading enterprises in the apparel and home textile industry. For example, the performance of Fujian Seven Pirates (002029, shares) Group Co., Ltd., Luolai Life Technology Co., Ltd., Haishu Home (600398, shares) Co., Ltd. continued to rise, and the rebound effect on the overall performance of the industry was obvious.

From the perspective of gross profit margin and net profit margin, the overall industry is relatively stable and fluctuates slightly. However, with the increase in environmental protection, cotton and labor prices, the cost will increase and the gross profit margin will decline slightly. .

From the point of view of corporate solvency, at the end of September 2017, the asset-liability ratio remained at around 46%, and the current ratio increased slightly by 0.3 percentage points from the end of 2016. The short-term debt repayment index was slightly strengthened.