Credit Risk Outlook For Textile And Garment Industry In 2019

Since 2018, the market demand of textile and garment industry has been fluctuated, which has led to the fluctuation trend of domestic sales, and the negative growth of exports has opened up, and the overall operation of the industry has remained stable.

But at the same time, textile enterprises overcapacity, clothing enterprises to inventory problems and so on, the industry will enter a deep adjustment period.

In addition, the maturity period of textile and clothing issuing enterprises is relatively reasonable, but the asset liability ratio has increased and the debt burden has increased slightly.

In 2019, China's low cost competitive advantage will be gradually lost, and competition pressure from ASEAN and other countries will be greater. The degree of recovery and sustainability of export will still show an overall downward trend. Domestic cotton prices will continue to be weak in the short term, but with the intensification of Sino US trade frictions, the international cotton prices will be under downward pressure, but there will be limited space to fall.

At the same time, the environmental policy is becoming more stringent, the industry will accelerate the process of production capacity, and the industry concentration will further improve.

The power of production enterprises to expand their scale is not large. The debt issuance of enterprises is mostly "new compensation for the old", and interest rates continue to rise. The scale of bond market is expected to remain stable, but compared with other industries, the interest rate of textile and garment industry is still at a high level.

The overall profitability of the industry will remain stable, and the capital structure will deteriorate, but the differentiation will become more obvious. A small number of products with a single structure, weak profitability in the main business, weak cost control and debt pressure will face greater credit risks.

It is expected that the textile and garment industry will fluctuate in 2019, while exports will continue the negative growth trend in 2018, and the competition pressure from ASEAN and other countries will increase.

China is a major producer and exporter of textiles and clothing. From the perspective of demand, China's textile industry has a relatively high proportion of domestic sales, while the downstream garment industry accounts for about 50% of the total output. Asia, Europe and North America are the three main export markets in China.

From the point of view of domestic sales, the industry has a greater impact on consumers' preferences and spending power. Since 2018, the total volume of retail sales of consumer goods has fluctuated every month since 2018. In 1~10 months, the retail sales of clothing, shoes and hats and needle textiles were 10794 yuan, or 9% year-on-year.

Since 2018, the retail sales of clothing commodities in the above retail enterprises have fluctuated. As the fluctuation of per capita disposable income fluctuates, high performance price ratio products are sought after by the market, and textile consumption expenditure will continue to increase. In 2019, the domestic sales of industry will continue to fluctuate.

From the point of view of exports, the delivery value of China's textile and clothing industry has been negative since March 2018. In 2018 1~10, the total value of textile and apparel exports was 315 billion 810 million US dollars, down 23.13% from the same period last year.

From the perspective of market structure, the traditional market competition in the US, Japan and Europe is still fierce.

It is estimated that in 2019, China's share of the three major textile and garment import markets in the United States, Japan and the EU still showed a downward trend, while the main competitors such as ASEAN and Bangladesh showed their advantages in terms of raw material prices and production land prices. Their share in the three major textile and garment import markets in the United States, Japan and the EU will be further enhanced.

The textile industry in developed countries has been accelerating the reflux and supplying capability continuously. Southeast Asian emerging countries have accelerated the layout of textile industry and the comparative cost advantages are significant, and put forward higher requirements for the export competitiveness of China's textile industry.

Overall, the domestic market will continue to fluctuate in 2019. On the export side, China's share of the three major textile and garment import markets in the United States, Japan and the EU still has a downward trend.

International cotton prices are facing downward pressure, but the drop in space is limited, and domestic cotton prices will continue to suffer from weak shocks.

According to the different raw materials, the textile industry can be divided into cotton, chemical fiber textile, wool textile, hemp textile, silk spinning and textile manufacturing, that is, the clothing industry. The raw materials contain more cotton and chemical fiber, and the fluctuation of the price of cotton and chemical fiber has a significant impact on the cost of the textile industry.

Since 2018, the pattern of supply of cotton resources in the international market is still larger than demand, and Sino US trade frictions have intensified. The world economic environment is facing many uncertainties. The international cotton price is under downward pressure.

In the domestic market, new cotton resources are abundant, cotton reserves are further increased, and cotton sales pressure is high. It is expected that domestic cotton prices will be slightly down in the short term, and domestic and foreign cotton prices will be narrowed.

From the international point of view, trade frictions have intensified, and the implementation of the mutual tariff has inhibited cotton prices to a certain extent. In 2019, international cotton prices have downward pressure, while cotton planting is greatly affected by weather.

From the domestic point of view, 2019 is the deepening year for the structural reform of the supply side of cotton industry. It is estimated that the reserve cotton will still be rolled out according to the plan, further reducing domestic inventory to a lower level, and domestic cotton prices will continue to be vulnerable to shocks.

The development and Reform Commission announced that China's cotton import tariff quota was 894 thousand tons in 2019, unchanged from 2018.

It is estimated that in 2019, the national import quota policy will remain stable and the possibility of adjustment is not great. However, due to the small number of senior reserve cotton in our stock market, and the domestic output can not meet the demand, the gap between supply and demand will expand, and the quota of imported cotton will be expanded in the future.

Because there is a certain gap between the price and quality of imported and domestic cotton, the market competitiveness and profitability of textile enterprises still depend largely on the availability of quotas and quotas, and in the short term, they still bear a great cost pressure on enterprises.

The environmental protection policy of textile and garment industry is stricter, and the industry will continue to accelerate the process of productivity.

The textile and garment industry chain is longer, pollution is mainly concentrated in the dyeing and finishing link, water pollution is the main factor, printing and dyeing and tanning pollution in the sub sectors are more serious.

The environmental protection tax law of the People's Republic of China and the newly revised law of the People's Republic of China on the prevention and control of water pollution have been implemented since January 1, 2018. The nineteen major conferences proposed that the target of beautiful China should be basically achieved by 2020. The government's environmental protection requirements will be further tightened in 2019, and the pressure on environmental protection will increase.

The impact of environmental strictness on textile and garment industry is mainly reflected in two aspects: first, the rising prices of raw materials, hydropower and energy, leading to the upgrading of the cost chain of the industry chain.

Two, the government has increased supervision over polluting industries such as printing and dyeing, resulting in adverse effects on the textile and apparel industry.

However, the increase in environmental protection will lead to the withdrawal of small and medium-sized enterprises and the improvement of industry concentration.

In the future, as the central and local governments introduce more policies to further improve environmental standards, the industry will once again enter the contraction of production capacity, and the concentration will further enhance. Leading enterprises will enjoy "residual dividends", and the market share and bargaining power will be improved.

The performance of leading enterprises in the industry has continued to improve, stimulating the overall performance of the industry. It is expected that revenue will maintain growth in 2019, but the gross profit margin will continue to decline slightly, and the overall operation will remain stable.

In the first three quarters of 2018, the total operating income and profit of the enterprises in the textile and apparel industry were 1 trillion and 281 billion 450 million yuan and 69 billion 710 million yuan respectively, up 3.70% and 8% compared with the same period last year, and their business performance improved significantly.

At the same time, the industry concentration will be more and more obvious. Among the leading textile enterprises, such as Huafu fashion Limited by Share Ltd and Lu Tai textile and Limited by Share Ltd, the leading enterprises of clothing home textile industry, such as laurai life Polytron Technologies Inc and Hai Lan home (600398) Limited by Share Ltd, have continued to rise, which has a certain pulling effect on the overall performance of the industry.

From gross profit margin and sales profit margin, in 2018 1~11, the gross profit margin and sales profit margin of enterprises in textile, clothing and apparel industry were 15.40% and 5.68% respectively, and the whole industry was relatively stable. It is estimated that in 2019, with the increase of environmental protection, cotton and labor prices, the cost will increase, and gross profit margins and sales margins will decline slightly.

From the debt burden of enterprises in the industry, the asset liability ratio rose from 47.07% at the end of 2017 to 49.67% at the end of 10 in 2018, and the debt burden increased slightly.

Due to overcapacity in the industry, the driving force for the expansion of the enterprises in the future will be small. It is expected that the capital structure of the textile and apparel industry will remain at the current level in 2019. With the further liquidation of excess capacity by the state, the debt burden of the enterprises in the future will be reduced.

The term structure of industrial bonds is more reasonable, but compared with other industries, the spread of textile and apparel will remain at a higher level.

From the perspective of issuing bonds, the issuance of debt financing instruments in 2018 1~10 yuan, a total of 17 billion 470 million yuan, increased substantially compared with the same period last year, and the market interest rates continued to rise and bond prices continued to fall, due to factors such as higher market default risks and tight funds.

According to the existing debt situation, as at the end of 10 2018, the bonds issued by the textile and apparel industry within one year and within 1~3 years were 13 billion 677 million yuan and 23 billion 812 million yuan respectively, accounting for 24.96% and 43.46% respectively, and the debt maturity structure was more reasonable and liquidity risk was the same.

On the whole, the industry debt pressure was moderate in 2019.

In 2018, there were 23 surviving enterprises in the textile and garment industry, no grade up businesses, and the ranking of the Limited by Share Ltd (hereinafter referred to as "birds of the birds"). The main factors were as follows: (1) the 2017 financial statements were issued with unqualified opinion audit reports with emphasis on the implementation of the disclosure obligations in the financial statements of the 2017 year; (2) there were many abnormal fluctuations in the company's stock in June 2018; (3) the Hongkong VIP bird () Co., Ltd. pledged the "noble bird bird" shares, which accounted for 64.02% of the total share capital, and the pledge ratio was higher.

Rich birds Limited by Share Ltd (hereinafter referred to as "birds of fortune") level down, the main factors are as follows: (1) rich birds are highly competitive in the footwear sales industry, resulting in declining performance; (2) in March 2018, rich birds were illegally investigated by the China Securities Regulatory Commission on suspicion of information disclosure and bond raising funds, and in April 2018, "14 rich birds" broke their contracts.

On the whole, the maturity structure of the textile and apparel industry's surviving bonds is more reasonable and the debt paying ability is relatively stable. But in 2019, the debt risk of individual enterprises should be vigilant.

From the perspective of industry spreads, since the second half of 2018, the spread of textile and garment industry has widened and is at a higher level in the industry. In 2019, it is expected that the downstream of the textile and garment industry will continue to strengthen, and the market share will continue to focus on leading enterprises. The leading enterprises have higher bargaining power of raw materials, to a certain extent, to resist large fluctuations in cost and price, and the compression of debt interest margins of leading enterprises in the industry will narrow the spread of the high level industry.

At the same time, the bargaining power of small enterprises is weak, and environmental protection is becoming stricter, resulting in small production enterprises cutting production or shutting down. The profitability of enterprises has declined sharply and their solvency has been weakened. We should be alert to the possibility of widening the spread of low-level enterprises in the industry.

In 2018, the credit risk of the textile industry was generally stable, but the Limited by Share Ltd debt of rich birds was substantially defaulted. It is expected that some enterprises with weaker profitability in 2019 will still face high credit risks.

Fu Fu bird Limited by Share Ltd (hereinafter referred to as "rich birds") rich birds are subject to increased competition in the footwear sales industry, resulting in declining performance.

In April 2018, Dongfang Jincheng reduced the ranks of the birds of fortune and birds to the C level of "14 birds of honour and birds". The "14 riches and birds" broke the contract, and in May 2018, "16 riches and honour 01" broke the contract.

In May 2018, the lucky bird was sent to Fujian securities regulatory bureau for a warning letter because of the violation of the counter guarantee procedure.

Because of its failure to disclose the 2017 annual report before the prescribed time, the rich bird received the regulatory letter issued by the Shenzhen stock exchange and the Shanghai stock exchange in June 2018. In September 2018, it received the decision on administrative regulatory measures issued by the Fujian Securities Regulatory Commission.

1 billion 300 million yuan "16 riches and 01" and 800 million yuan "14 riches and birds" will expire in August 2021 and April 2020 respectively, and the company is in the stage of bankruptcy reorganization.

Under the background of increasingly fierce market competition, enterprises with a single product structure and weak profitability are facing more pressure to operate. In 2019, the debt risk is more likely to be faced with debt repayment pressure.

Anhui Huamao textile Limited by Share Ltd (hereinafter referred to as "Anhui Huamao") products are all primary products of textiles and their structure is single. Gross profit margins have been at a low level. The profitability of main business is very poor. Profits mainly depend on the circulation shares held by the financial listed companies that are sold. However, the value of holding financial assets is fluctuated greatly by the influence of the two tier stock market, and there is a big uncertainty about the ability to supplement profits.

In 2017, the company turnover ratio and the quick ratio were 0.70 times and 0.37 times respectively, and the cash flow liabilities ratio was 2.51%. From the above indicators, the liquidity pressure was greater. The financial assets held by Anhui Huamao provide a certain supplement to debt repayment. But in the long run, if Anhui's Huamao business profits continue to suffer losses, it will be difficult to guarantee future debts.

Zhejiang Yongli Industrial Group Co., Ltd. (hereinafter referred to as "Wynn group") mainly deals with primary processing of textiles, low technical barriers, competitive pressure, and the relocation of factories.

In recent years, profits can be realized mainly because of the investment income brought by some financial companies, while there are risks associated with borrowing and lending of related party funds, regional concentration and single industrial guarantee.

Wynn group has 1 billion yuan "16 Wynn debt" in March 2019 to enter the selling period, in October 2019, 500 million yuan "13 Wynn debt" need to pay, bonds concentrated expired pressure.

In 2017, the private debt 244 million yuan "17 Wynn 01" and 256 million yuan "17 Wynn 02" expired in July 2020 and September 2020 respectively, and there was a certain concentration of repayment pressure.

Shanghai Jialin Jie (002486) textile Limited by Share Ltd (hereinafter referred to as "Jialin Jie shares") focuses on the development and production of functional fabrics.

Due to management changes, lack of brand development and fierce competition in the industry, the main business profitability is weak, and operating profit is losing year by year.

Jialin Jie has a large scale of interest bearing debt, and there is a certain pressure to pay, so we need to pay more attention.

Shanghai's Mts. Bang Wei dress Limited by Share Ltd (hereinafter referred to as "Mei Bang dress (002269)") has accumulated many maladies due to extensive expansion, and its strategic adjustment has lagged behind in the downlink period of the industry. The level of revenue has gone down for a long time. In order to cope with the slowdown in the growth of the garment industry and the sluggish sales, it is necessary to carry out "stop and stop" and increase the intensity of stock elimination, but it still takes time for the adjustment of Direct stores and franchisees, and the pformation effect has not yet been fully presented.

All of US bond interest bearing debts are due to expire within one year, and short-term liquidity pressure is greater.

To sum up, the added value of products is low and the structure is single. Under the background of increasingly fierce market competition, the pressure of business operation is increasing, and the sluggish strategic pformation has led to a decline in performance. Coupled with the continuous increase in environmental protection investment, this will cause greater pressure on already strained cash flow. The debt repayment risk of 2019 is more likely to be faced with debt repayment pressure.