According to Zhitong Finance APP, HAITONG SEC released a research report stating that the Textile Manufacturing Sector's overseas exports in Q3 2024 accelerated compared to Q2 overall. In November, China's and Vietnam's textile and apparel exports continued the previous month's positive growth year-on-year. As the baseline gradually returns to normal, despite ongoing tariff concerns, there is still a bullish outlook for high-quality companies that can continue to increase their share among core customers, maintain robust operating conditions with their core customers, and have the ability to pass on tax burdens under tariff increases. In terms of apparel brands, consumer-friendly policies help boost performance and encourage confidence, with expectations for future efforts to increase and expand.

The main points of Haitong Securities are as follows:

Market performance review.

From January to November, the A-share/H-share textile and apparel sector recorded changes of -3.6%/+12.9%, underperforming the Large Cap by 17.7 pct/1.0 pct, with the manufacturing sector performing better than the brand sector; the median change for key overseas symbols was +9.5%, falling short of the Nasdaq (+28.0%)/S&P 500 (+14.2%)/Nikkei 225 (+26.5%) and other large-cap indexes, with the outdoor and high-end sports sectors showing bright performance (+43.6%), while luxury goods (-17.7%) were the only declining sector.

Fundamental data sorting.

Since June of this year, the growth rate of domestic apparel retail has turned negative, with pressure concentrated in offline channels. From October to November, apparel retail sales grew by 1.1% year-on-year, showing some signs of bottom recovery; China's textile exports grew steadily while apparel remained flat, and Vietnam's textile and apparel exports accelerated month by month in the second half of the year; US apparel retail performance outperformed the broader market, with apparel CPI growth significantly lower than overall CPI. Global travel numbers have shown steady growth. The export value of Swiss watches to China has significantly slowed down.

Performance of key overseas symbols.

1) Overseas sports revenue/net income growth median for 9M +8%/+19%, Amer Sports, Deckers, Asics, On Running have seen double-digit growth in quarterly revenue since Q1 2024, exceeding Bloomberg consensus expectations. Multiple sports brands have continually raised their full-year guidance, with Adidas, Skechers, Deckers, Dicks Sporting Goods, and Amer Sports raising it for at least two consecutive quarters.

2) Luxury goods have generally seen a decline in revenue growth rate quarter by quarter since the beginning of the year, with Prada showing resilient growth.

3) The growth rate in the Greater China region for overseas sports remains stable but has generally slowed compared to the same period in 2023.

A/H shares key symbols performance.

1) Manufacturing: Since 2024, the willingness of downstream to replenish inventory has been good, coupled with a low base from the same period last year, resulting in significant improvement on the revenue side; with increased orders and continued enhancement of capacity utilization, profit elasticity continues to be released; many companies are doubling down on overseas capacity expansion, with the proportion of overseas capacity increasing.

2) Branding: Since 2024, brand revenue has been under pressure while growth in the sports sector remains stable; due to an increase in sales expense ratio and deeper offline discounts, brand profits have significantly declined year-on-year; inventory performance has varied, with most brands seeing an increase in inventory compared to 2019.

Industry investment logic.

1) Manufacturing: Three types of companies have shown strong resilience in the face of trade frictions.

① The business is mainly domestic, and the downstream demand in the domestic market during the same period was good; ② Export-oriented, but the direct revenue from the USA accounts for a small proportion; ③ Export-oriented primarily towards the USA, but production capacity is mainly distributed overseas. Considering the current uncertainties regarding tariff increases, manufacturers with high comprehensive barriers related to customers, technology, and capital demonstrate stronger resilience in the face of tariff concerns and have certain tax burden transfer capabilities. It is recommended to focus on high-quality leaders with a reasonable capacity layout, diversified income structure, and high comprehensive barriers.

2) Brand: Consumer-friendly policies are beneficial for performance improvement and boosting confidence. It is expected that the strength of these policies will increase in the future, and the scope is likely to broaden. It is advisable to focus on brands that currently have bottomed out in performance, show significant rebound potential in the future, are expanding stores or optimizing channels against the market trend, and have sufficient cash on hand, investment capability, and relatively stable profit margins in various operational environments.

Investment recommendation:

Manufacturing Sector: In Q3 2024, overseas exports accelerated overall compared to Q2. In November, China and Vietnam's textile and apparel exports continued the previous month's positive growth. With the base gradually returning to normal, and despite ongoing tariff concerns, the outlook remains positive for companies that can continuously increase their share among core customers, have steady economic performance with their core customers, and possess tax burden transfer capabilities in the event of tariff increases. It is recommended to pay attention to Huali Group (300979.SZ), STELLA HOLDINGS (01836), Shenzhou International Group Holdings Limited Unsponsored ADR (02313), and YUE YUEN IND (00551).

Brand Sector: With increasing policies, consumer spending is expected to accelerate in recovery next year. Four investment themes are considered bullish.

① Currently low-valued symbols with significant rebound potential in the future; recommended to pay attention to TOPSPORTS (06110) and SAMSONITE (01910); ② Planning for store expansion against the market trend, implementing refined channel reforms, or actively laying out new channels and new business formats; recommended to focus on Hla Group Corp. (600398.SH), Shenzhen Fuanna Bedding and Furnishing (002327.SZ), and Zhejiang Semir Garment (002563.SZ); ③ The trend of national fitness and outdoor activities continues, recommending investments in the sports and outdoor sectors; recommended to focus on ANTA SPORTS (02020), LI NING (02331), XTEP INT'L (01368), and BOSIDENG (03998); ④ Low valuation and high ROI symbols remain attractive; recommended to consider JNBY (03306).

Risk warning: Major economies may face national economic recession, changes in global consumer preferences, weak retail environment, store expansion falling short of expectations, channels with profitability below expectations, and travel consumption growth not meeting expectations.