The Net Profit Of Tianhong Textile Fell By 25% Last Year? What Happened To The Largest Cotton Textile Giant In China?

Tianhong Textile Group Co., Ltd. (hereinafter referred to as "Tianhong Textile"), the leader of the global elastic core spun yarn market, announced today (February 19) that the group's profit attributable to shareholders for the year ended December 31, 2019 may decline by about 25% compared with 2018.

Tianhong Textile explained that the decline in performance during the reporting period was mainly due to the macroeconomic uncertainty caused by the Sino US trade dispute, which led to the adverse and unstable market environment of the textile industry in 2019.

The company will pay close attention to the market situation, optimize the existing product portfolio, develop new products that meet the market trend and demand, and continue to implement corporate strategies to improve the financial performance of the Group. However, Tianhong Textile also said that the performance of the company's performance may be affected by the market environment, including cotton prices, the status of Sino US trade disputes The recent spread of coronavirus and RMB exchange rate in China.

As of the financial year ended December 31, 2018, Tianhong Textile has realized an operating revenue of 19.16 billion yuan, up 17.5% year on year; Gross profit was 3.146 billion yuan, up 28.93% year on year; The profit attributable to shareholders was 1.1631 billion yuan, up 1.0% year on year.

The results of the first half of 2019 previously released by Tianhong Textile showed that the company's operating income increased by 15.7% to 10.2 billion yuan on a year-on-year basis, but the net profit decreased by 21.8% to 471 million yuan on a year-on-year basis, with a profit per share of 0.51 yuan. The performance was in line with the medium-term performance mentioned in the company's profit warning or was adversely affected by the squeeze of gross profit margin.

　　 According to public information, Tianhong Textile was founded in 1997 and listed in Hong Kong, China in 2004. At present, it is one of the largest cotton textile manufacturers in China and the world leader in elastic core spun yarn. The company's main business is to manufacture and sell high-quality yarn, grey cloth, fabric and clothing, especially focusing on the production of cotton core spun yarn with high added value. At present, the company has production bases in China (Jiangsu, Shandong, Xinjiang, Zhejiang, Guangdong, etc.) and overseas (Vietnam, Cambodia, Nicaragua), with a production capacity of 3.3 million spindles and 1400 air jet looms. There are more than 3000 customers at home and abroad, of which China is the main market, accounting for 79.9%.

　　 Wang Yusi, a researcher of Zhongtai Securities, believes that the epidemic has affected the whole country and delayed the resumption of work after the Spring Festival. Zhejiang, Guangdong, Jiangsu, Shandong, Fujian, the main gathering places of textile manufacturing industry, announced that the resumption of work should not be earlier than 24:00 on February 9, and Hubei should not be earlier than 24:00 on February 13. This adjustment will affect the delivery of short-term orders, but it is expected to be compensated by overtime after resumption of work; In terms of orders, under the short-term panic, some overseas customers may transfer orders, but after the epidemic, it is expected that demand will return to the track of normal competition. Therefore, the impact of the epidemic on the textile industry is a one-time impact, such as the commencement and receipt of orders in the first quarter and the delivery in the second quarter. In the medium and long term, the impact is small. From the perspective of listed companies, some textile manufacturing enterprises have already deployed overseas production capacity, which can reduce the negative impact of the epidemic on order production to a certain extent.

Mi Hanjie, an analyst with GF Securities, also said that because most cotton textile companies are cost plus pricing, the performance of cotton textile companies is positively related to cotton prices. Although cotton is the raw material of downstream cotton spinning companies, for cotton spinning companies, especially large companies, the cotton used for production is generally purchased in the past. When the cotton price continues to rise, the product price will rise due to the cost plus pricing method, but the product cost will remain unchanged, so the gross profit rate will increase accordingly, and the profit level will also increase. On the contrary, if the market price of cotton is constantly falling due to the production of cotton stocks, then the pricing basis may be lower than the cost price. In addition to the profit of pricing markup, the company also faces the loss of the part of the pricing basis lower than the cost price.

From the perspective of demand, considering that the text of the first stage trade agreement between China and the United States reached an agreement on December 13, 2019, the United States reduced the tariff rate of goods that had been increased by $120 billion in September from 15% to 7.5%, and did not impose an additional 15% tariff on goods that were worth $156 billion from China to the United States on December 15, which involves most domestic textile and clothing exports, It is expected that in the future, domestic textile and clothing exports are expected to improve, the textile industry landscape is expected to pick up, and cotton demand is expected to continue to improve.

In combination with the main factors of domestic cotton supply and demand in 2019/2020, Mi Hanjie judged that the cotton output declined, and the narrowing of the difference between domestic and foreign cotton prices led to a sharp year-on-year decline in cotton imports in recent months. The short-term transfer of national cotton storage from dumping storage to storage, and the inventory consumption ratio continued to improve. The inventory of the industrial chain was at a low level, and the textile industry was expected to recover, Therefore, we are optimistic about the future trend of cotton prices.