Poor Performance In The Interim Confirms The Hard Times Of The Textile Industry

1. The decline in the performance of the industry representatives reflects the environmental pressure from the medium-term results of our tracking companies. Textile plate The performance of key listed companies declined significantly. The income index of these listed companies decreased by 5.8%, 9.56%, 0.84% and 3.72% respectively, including net income index, 38%, 25%, 78% and 72% respectively. Net interest rates decreased by 6.73%, 1.42%, 3.06% and 3.06% respectively. Although production and sales rates remain at a relatively high level, output has also increased, but not enough to offset the impact of price declines, resulting in a drop in profits more than the decline in revenues.

We believe that with the gradual digestion of cotton with high price reserves in the early stage, the level of enterprise profitability will gradually stabilize. However, because of the existence of the policy of minimum purchase and storage, the internal and external cotton prices will not be unified so that textile enterprises will have to face the unfavorable situation of losing some market share.

2. Projected global Cotton supply In August, the US Department of agriculture estimated that cotton production in 2012/2013 was 24 million 800 thousand tons, down 7.1% from the same period last year, and consumed 23 million 500 thousand tons. The inventory ratio will reach the highest level of 69% in history. The consumption of China's textile mills will continue to decrease. The consumption of 2012/13 is expected to be only 39 million packs, down 1 million packs from last year, to the lowest level since 2004/05. As of the end of July, the national cotton business inventory was 1 million 470 thousand tons. In July, the monthly inventory consumption was 260 thousand tons, which was lower than the average monthly inventory consumption, reflecting the current cotton market demand was not strong.

3, the European economy is chill and the demand is down. The deepening of the negative impact of the European debt crisis has led the European economy to face the most serious post-war crisis. In the two quarter, GDP in the euro area fell 0.4%, and the retail index in June dropped by 1.2%. In 1-5, the European Union imported 35 billion 150 million dollars from the EU, which dropped by 10.8% compared with the same period last year. Trousers, T-Shirts, shirts, sweaters and dresses accounted for about 60% of the total. Imports of the five categories of products decreased, with a decrease of 8.8%-18.1%. In the first 5 months, China's textile and apparel exports to the EU dropped by 12.55%, while the exports of other major suppliers decreased significantly. The decline was larger in India (-23%), Pakistan (-21.5%) and Morocco (-21.3%).

4, the strength of China's manufacturing industry has declined, with the rising labor prices in China. Clothing export Prices have risen, and prices of some products have been higher than those of other Asian exporting countries, such as sweaters and dresses. China's clothing imports accounted for an annual decline in EU imports. In 2010, it was 45.3%, 43.9% in 2011, and 37.9% in 2012, 1-5.

The EU has imposed a zero tariff policy on textile and apparel products such as Bangladesh, which has also weakened the competitiveness of Chinese products. Affected by the spanfer of production capacity, China's textile and apparel trade pattern in Japan is changing. In 1-6 months, Japan's imports from ASEAN increased by 22%, maintaining growth momentum, while imports to China declined by 4%. MUJI, UNIQLO and other companies plan to spanfer 70% of production to Southeast Asia. With the signing of the economic cooperation agreement (EPA) between Japan and ASEAN, the advantages of ASEAN will also be more obvious after the abolition of textile tariffs. Investment suggestion: China is the beneficiaries of industrial spanfer, but when cheaper competitors appear, this rule will play a role. The profit driven nature of capital will inevitably drive the spanfer of orders to low cost regions. China's share of global textile and garment export market will continue to decline in the future, but in the short term, China will not be replaced by a complete industrial chain and high quality of laborers. The valuation level of the plate has now dropped significantly. We believe that the current stock price has released the risk brought by the decline in performance. Based on the expectation of stable performance, the quality company can give due attention.