Strong demand for textile and apparel industry profit continues to rise

In the pre-2011 industry review, domestic sales were robust. As of April, the total retail sales of apparel and textiles nationwide reached 256.2 billion yuan, a cumulative increase of 35.10% year-on-year.

Exports exceeded expectations mainly due to price increases. In the first quarter, China’s total textile and apparel exports increased by 25.6% year-on-year. The price of cotton dropped back to around RMB 24,600/tonne, which is obviously good for apparel companies and aggravated the cost pressure and profitability of the textile industry.

Future fundamentals are expected: In 2011, domestic sales growth could reach a growth rate of more than 30%. After deducting the CPI factor, the actual growth rate could also reach the level of 23%-27%.

The inflation rate will gradually decline, and the subsequent sales of clothing will not be squeezed. Exports will be affected by tax rebates, product prices, and the shift of industries to Southeast Asia. It is expected that the growth rate will be around 15% for the full year. The high growth rate of apparel enterprises in 2011 was more certain, and the order meeting had locked in some of the results. The profit rate of manufacturing companies will decline.

In 2010, the operating income of the textile and apparel segment increased by 26.88% year-on-year, textile growth rate was 23.27%, and apparel was 30.68%. All listed companies achieved profitability. The main reason is that domestic demand has started, and the increase in sales prices in the second half of the year has brought about rapid growth in sales. Both gross margin and net profit rose year-on-year. The overall capital operating capacity and solvency of the industry have increased.

In the first quarter of the year, the textile and apparel segment continued its high business climate in 2010. Its operating revenue increased by 29.75% year-on-year, total profit increased by 103.16%, and net profit increased by 100.39% year-on-year. The textile industry performed better than clothing. The income and profit level of the textile industry reached its peak at the highest price of raw materials.

Continue to recommend branded apparel stocks with lower valuations and outstanding operations. Mainly based on the high growth rate of the autumn and winter fairs, locking in the second half of operating performance, raw material prices continue to fall back to reduce production costs, since the beginning of the year the stock price fell more, the valuation is at a relatively low level, and buying has a margin of safety. We believe that the operating results of the semi-annual report and the second half of the year will continue to grow and the profitability space will expand. Before the announcement of the specific results, relevant companies can gradually purchase.