Entering the cold winter months, is the textile industry like a spring breeze, or is it still bleak in ups and downs?

According to data from the National Bureau of Statistics, in November 2019, the total retail sales rate of social consumer goods rebounded to 8% year on year, up 0.8 percentage points from October. Among them, the year-on-year growth rate of retail value of clothing, shoes, hats, needles, and textile products recovered to 4.6% from negative growth last month.

In the factory in Qinghe, the “capital of cashmere,” machines work overtime, textile workers often work late at night, and the phone ringing from the store is ringing one after another. The same scene also appeared in the down jacket. 217 sets of 11,000 yuan down jacket gift boxes were sold out in 20 seconds during a live broadcast by Li Jiaqi, and the brand urgently restocked 700 sets.

Are Hong Kong stocks currently at their best in 5 years despite weak retail data?

After entering the cold winter, the textile and garment industry is gradually showing a rebound. However, if the timeline is lengthened, behind the rebound in retail data, the overall growth rate of the industry is slowing down. Among them, the year-on-year growth rate of Social Network Zero in November 2019 fell 0.1 percentage points compared to the same period last year, and the year-on-year growth rate of retail sales of clothing, shoes and hats fell 0.9 percentage points from the same period last year.

According to the latest data from the International Bureau of Statistics, retail sales per unit above the limit increased by 3.7% year on year, and the cumulative growth rate of clothing, shoes, hats, and textiles increased 3% year on year. The overall cumulative growth rate of the four sectors of gold and silver jewelry, petroleum and products, automobiles, construction and decoration materials was lower than average.

Overall, retail data for the textile and garment industry showed a weak trend in 2019. Apart from the industry's overall retail growth rate below social zero growth rate, online performance was also unsatisfactory. Judging from online retail data for the whole year, the growth rate of physical clothing products is below the growth rate of food and consumer retail in most ranges.

Despite the unsatisfactory retail sales data of the industry, the overall sector's performance in Hong Kong stocks in 2019 was the highest in nearly 5 years. The Zhitong Finance App learned that with the final trading day of 2019 at 12 noon, the Hong Kong stock textile and apparel sector finally handed over the best market questionnaire in the past 5 years, rising 34.31% throughout the year, outperforming the 9.07% increase in the Hang Seng Index.

Leading short selling agencies with outstanding performance and strength to “punch in the face”

In mid-2019, short selling agencies set their sights on leading Hong Kong clothing industry leaders. In June and July, Bonitas and Muddy Waters successively pointed the finger at Bosideng (03998) and Anta (02020). Looking at the sector's annual growth, the two companies ranked in the top ten in terms of annual growth. After experiencing shorting, not only was the stock price unaffected, but it also continued to rise steadily, “punching” short selling institutions in the face.

The Zhitong Finance App learned that in 2019, a total of 3 stocks doubled their stock prices. Among them, clothing industry leaders Li Ning (02331), Bosideng, and Anta achieved annual increases of 179.92%, 95.97%, and 87.69% respectively.

As of the end of the Hong Kong stock market on December 31, 2019, Anta Sports became the largest market capitalization target in the textile and clothing sector, with a total market value of HK$188.457 billion. Among them, Anta Sports and Shenzhou International have a market capitalization of over HK$100 billion in the sector, and there are 9 companies with a market capitalization of over HK$10 billion.

Up to now, there are 17 Hong Kong Stock Exchange stocks in the textile and garment sector. In 2019, the shareholding ratio of the sector's target China-Hong Kong Stock Connect capital increased by an average of 1.45 percentage points. As of December 31, 2019, the average shareholding ratio was 3.67%.

Among the 17 targets, La Chapelle (06116) is the company with the largest increase in capital ownership in Hong Kong stocks. It is also currently the company with the largest shareholding ratio of Hong Kong Stock Connect in the textile and garment sector. However, the annual decline in the company's stock price reached 78.65%.

The Zhitong Finance App learned that La Chapelle's stock price began to decline in 2017. Xing Jiaxing, the controlling shareholder of the company, pledged the company's shares 6 times, and the cumulative pledge of the company's shares accounted for 99.81% of its direct holdings. Since the company released its worst performance forecast since listing in July of this year, the stock price fell further and fell below 5 yuan, eventually leading to shareholder and actual controller Xing Jiaxing bursting out of positions. La Chapelle, once known as the “Chinese version of ZARA,” has gone all the way down in stock prices, and now its market capitalization is less than 3 billion yuan.

In addition, Li Ning and Anta are the companies with the largest increase in Hong Kong Stock Connect's shareholding ratio other than La Chapelle. Among them, the two stock prices achieved annual increases of 179.92% and 87.69%, respectively.

Judging from operating data, the inventory turnover ratio of several major players in the textile and garment sector reached 1.73 in mid-2019, a slight increase over the same period last year. Among them, Li Ning's inventory management ability has improved rapidly in recent years. Inventory turnover rates for Anta Sports, 361 Degrees (01361), Samsonite (01910), and Gangnam Clothing are declining rapidly.

Judging from performance performance, the revenue performance of Samsonite and Anta Sports has been better than average in the past 5 years. Among them, Anta's revenue has grown rapidly since mid-2017. In addition, the two companies, Li Ning and Bosideng, have maintained steady linear upward growth as a whole.

In terms of profit performance, Anta Sports' profit level has remained above average for the past five years. Samsonite's profit has declined year by year, and has been below average since mid-2018. In addition, Li Ning's profit has grown rapidly in the past 5 years, which was higher than the industry average in mid-2019.

Overall, the companies with good market performance and performance in the textile and clothing sector in 2019 were concentrated in the sports and down jackets sector. Fangzheng Textile Clothing also mentioned in its research report that due to limited barriers and lack of competition in the high-end market, leading sportswear and down jackets have exploded.

Future trend keywords

Looking at 2020 and future industry changes from the current point of view. According to the Zhitong Finance App's summary of industry views, the industry's predictions for future industry trends include the following key words:

The consumption structure is further trending towards the “M” pattern. Along with the economic slowdown, mid-tier consumption is facing bottlenecks, and the consumption structure will develop in the direction of polarization between cost-effective and luxury consumption. As housing costs in Tier 1 and 2 cities are high and consumption is squeezed, some new middle class will also lean towards cost-effective products. In addition to this, the deep spread of the Internet and mobile internet is continuously breaking geographical channel restrictions, causing the third- and fourth-tier consumption views to converge with the first and second tier, and the sinking market may still upgrade consumption.

In contrast, mass consumption and competition in the sinking market will be more intense, and extremely cost-effective products will become a competitive ground for middle- and low-end brands. High-end brands focus on brand accumulation and long-term investment.

The national tide is gradually rising. In recent years, the enthusiasm of the market has gradually heated up, and the next generation of new consumers in the 90s and 00s is more accepting of local brands. The rise of the national trend is based on economic wealth and national self-confidence, and will also bring new opportunities to local textile fashion brands.

Material consumption was upgraded to service-oriented consumption. Along with changes in the consumer industry as a whole, the consumption structure will shift more towards service-oriented consumption. Among them, the Decathlon model can better reflect this characteristic. Decathlon's warehouse-style space, sports equipment and other elements form the foundation of experiential consumption. Among them, Decathlon users of different ages can have different interactive experiences in it.

Regarding the industry outlook for the next year, Orient Securities believes that it will be difficult to drastically improve the demand side next year, but the industry's operating health is better than the historical level, so the industry is likely to consolidate at the bottom. Against the backdrop of weak cotton prices, weak domestic demand, and an unstable external economic environment, challenges outweigh opportunities.

Among them, the sportswear sector is still a segment in the textile and clothing sector that most organizations are optimistic about in 2020. Sportswear is a highly prosperous sub-sector in the industry. Currently, domestic sportswear brands are concentrated, and they may further concentrate on leading brands. In addition to this, Tianfeng Securities expects that due to the continued weakening of current consumption data, leading leisure brands are also in the adjustment period, and performance is expected to recover in 2020.