As the temperature drops, sales of clothing brands at the end of the line gradually improve. The October National Day holiday combined with the Singles' Day sales provide a boost to the sales of winter clothing items, and sales of clothing in Q4 are expected to improve marginally.
According to the Zhitong Finance and Economics APP, gtja released a research report stating that consumer spending at the end of 2024 Q3 continues to weaken, with manufacturing resilience relatively superior. As the temperature drops, sales of clothing brands at the end of the line gradually improve. The October National Day holiday combined with the Singles' Day sales provide a boost to the sales of winter clothing items, and sales of clothing in Q4 are expected to improve marginally, with the leading companies showing promising performance. According to the General Administration of Customs, the current export performance of yarn is still better than that of ready-made clothing. However, as downstream inventory replenishment enters the later stage, the manufacturing subcontracting sector will show a differentiation trend. Leading the downstream industry with strong demand for outdoor manufacturing subcontracting and cotton socks as well as seamless manufacturing with advantageous overseas capacity layout may continue to lead the industry.
GTJA's main opinions include:
Clothing Brands: Clothing sales continued to weaken in Q3, with expectations for marginal improvement in Q4.
1) At the industry level: Weak terminal demand combined with the impact of high temperatures has led to a continuous decline in clothing sales in Q3. Consumer clothing consumption has shown a weak recovery trend since 2024, with the influence of high temperatures in July and August, and a relatively delayed demand for autumn and winter clothing consumption. In the latter half of September, as temperatures drop, end-of-line sales gradually begin to improve. Looking at the revenue performance of sub-sectors, excluding individual stock factors of Jiaman clothing, the order is popular clothing brands > men's clothing > mid-to-high-end women's clothing > home textiles. In terms of profit, the operating deleverage pressure of brand clothing companies is evident, and the decline in profits is generally deepening.
2) At the individual stock level: Semir's revenue performance leads the industry, but in a weak recovery environment, the performance of leading brand companies has also weakened. Considering that the market had certain expectations previously, the current pessimistic expectations are gradually being realized, waiting for marginal improvement in Q4.
Textile Manufacturing: Strong demand for outdoor subcontracting continues, with robust downstream order demand.
At the industry level: Outdoor OEM manufacturing continues to be highly prosperous. In terms of order prosperity, outdoor OEM manufacturing > new materials > traditional cotton spinning industry chain; from a profit perspective, outdoor OEM manufacturing > new materials > traditional cotton spinning industry chain. The leading company in cotton spinning mainly relies on the growth in order quantity for revenue, as cotton prices remain low and volatile, order prices are suppressed, dragging down performance; the outdoor industry chain continues to be highly prosperous, with high capacity utilization rates and good performance elasticity; the new materials sector is affected by factors such as order prices and new capacity climbing, with short-term profit performance lagging behind revenue.
At the individual stock level: Taihua New Materials has strong downstream order demand, with Q3 revenue and profits showing a stunning high increase of 34%/35%; benefiting from downstream major customers such as Decathlon stocking up, Zhejiang Ziran's Q3 revenue/net profit both increased by 35%/372%, and net margin reached new highs in recent quarters; Jiesheng Group benefited from concentrated shipments of orders from major customers like Uniqlo, with Q3 revenue increasing by 37%, notably expecting continuous high growth in cotton socks, significant improvement in seamless business, and a 27% profit increase.
Investment advice:
1. Clothing: Focus on two main themes of high dividend yield and undervalued rebound in valuation.
a) High dividend yield: Currently, high dividend yield targets are at a low valuation stage, with industry leaders expected to develop steadily in the second half of the year, and the prospect of a continuous increase in market share in the medium to long term. Recommended investments include HLA Group Corp. (600398.SH), Zhejiang Semir Garment (002563.SZ), and Shenzhen Fuanna Bedding and Furnishing (002327.SZ).
b) Valuation recovery: In Q3 2024, the sales at the end of the brand continued the previous trend of differentiation. Currently, stock selection prioritizes undervalued and solid fundamental targets, recommending industry leaders with good future growth potential and expected undervalued rebound in valuation like Biyinlefen (002832.SZ) and Baoxiniao Holding (002154.SZ).
2. Textile Manufacturing: Recommending the industry leader in outdoor OEM manufacturing with high growth and prosperity, Taihua New Materials (603055.SH), Zhejiang Ziran (605080.SH); recommending industry leaders with significant improvement in Q3 performance and currently low valuations like Jiansheng Group (603558.SH), benefiting targets like Lu Thai Textile (000726.SZ); recommending the head of the new materials sector Henghui Security (300952.SZ), and benefiting targets like Shandong Nanshan Fashion Sci-Tech (300918.SZ).
Risk warning: Lower-than-expected terminal consumer demand, increased industry competition risk, and fluctuation in raw material prices risk.
