"Most people like to grow, but I like the threshold. Growth is the future, difficult to predict; threshold is accomplished, easy to grasp. High threshold industry, new entrants difficult to survive, so the industry supply is limited, orderly competition is conducive to business Earnings growth, low-threshold industries, industry supply increased rapidly, disorderly competition, who make money.

Hong Kong stocks last year, the main line is mainly high growth liquid stocks, hot sectors such as: technology, automotive, real estate, insurance, frequently bullish. Several big white horse shares like China Ping An, Tencent, the interior giant, as long as one can easily catch a, you can do "open for three years."

However, some may not seem so popular as late as the end of the year, but the industries that we often come into contact with in our daily lives, such as the food and beverage industry, are not far behind with the rapid growth of performance and revolutionary technological innovations. Supermarket's good grades. Like Mengniu and Darley Foods, 2017 rose as high as 56% and 85% respectively.

In my opinion, this is a time when the market gradually agrees that the industry has now experienced a period of brutal expansion. After years of competition, leading enterprises are more likely to have advantages such as capital, channels, talents and resources, and their status will not be easy Shaken, that is, there is a threshold, it is worth a higher valuation.

Recently, I was wondering whether the same situation would happen to other industries that we would normally be able to reach out to. For example: in the "clothing, food, housing, transportation" ranked the first "clothing", the textile industry?

From the share price point of view, this year's textile industry share price movements vary, leading such as Shenzhou International (hereinafter referred to as "Shenzhou") rose up to 50% this year, while Mutual Textile shares are negative growth.

What happened in the textile industry, what should we expect in the coming year? Before analyzing this investment opportunity, let's take a brief look at the industry.

First, rely on downstream retail customer orders, industry concentration is low

The entire textile supply chain, including the upper reaches of the yarn, cotton textile, midstream fabrics, and downstream apparel manufacturing companies, etc., and the most influential profitability of textile companies is the downstream retail customers.

As mentioned in the article on Mutual Textiles that our platform has analyzed, the company's revenue from orders declined due to a 17-year decline in sales of its key customer, Virgin (accounting for 10% of its total revenue in 2016), eventually driving earnings and stock prices Falling.

In the textile industry, any sign of trouble from the downstream retail customers, will bring no small impact on textile companies.

Concentration in this industry has always been relatively low. Although the previously mentioned cross-over textile can be regarded as one of the best in the industry, it is only one of many mid-stream fabric textile enterprises in the country, accounting for a very low market share.

So now the development trend of the textile industry is what kind of it? Which in turn will give investors what opportunities?

Second, 2018: big fish eat fish, moat to further strengthen?

In short, under the influence of vigorous national reform, rising domestic manufacturing costs and new consumption trends, the leading Chinese textile enterprises are expected to gradually expand their market share and take the lead in the middle and lower reaches of the textile industry. The entire industry is facing reshuffle, the industry concentration is expected to improve.

why?

Keywords 1: environmental costs

First of all, the state has always been in the supply side for textile enterprises have eliminated backward production capacity of the policy requirements, strict environmental standards will make some SMEs closed.

At the Central Economic Conference, Xi made the reiteration to reiterate once again that they must lay the groundwork for pollution prevention and control so that the total emission of major pollutants will be substantially reduced, the overall quality of ecological environment will be improved and the backward production capacity will be eliminated.

As early as 2010, the state started to introduce a number of policies to eliminate excess manufacturing capacity. The state's control over the production capacity of the textile industry is mainly to raise technical and environmental standards, which will enable many textile manufacturers to raise their environmental protection costs.

Therefore, without some economies of scale, many small businesses face the pressure of rising costs.

Key word 2: labor costs

Second, the domestic labor costs have been rising rapidly in recent years. Some careful friends may have noticed that the labels MadeinChina on many branded clothes have gradually become the names of some Southeast Asian countries.

This is because with the appreciation of the renminbi and the increase of domestic labor costs, many textile enterprises started to set up factories in Southeast Asia such as Vietnam and Cambodia to expand their production capacity so as to enjoy more favorable tax rates and lower labor costs. I believe there is no certain financial strength and resources, small businesses is very difficult to set up factories overseas.

Key words 3: shorten the production cycle

Finally, the main reason for further industry concentration enhancement is that the changes in the apparel retail market over the past few years have allowed major apparel brand companies to begin to place higher demands on suppliers.

Under the impact of fast-moving brands such as Zara, H & M, various major international brands have started to shorten the production cycle for textile suppliers and speed up the response speed of the supply chain.

I believe we have heard of this clothing brand Zara, it can be called a representative of fast-selling fashion.

General clothing brands generally require 6 to 9 months of lead (a product from the shelf to the shelf time) and stockpile, but Zara flexible and efficient supply chain can shorten the time to only 15 days. This fast turnaround is also the secret that Zara keeps pace with the speed of its replacement.

If the new product does not perform well within a week after it is put on the shelves, it will be immediately removed, even if the hot money, will not stay in the store for more than 4 weeks.

The fashion trends led by fast-moving goods such as Zara, H & M catered to the shopping needs of "hi-tech" young people whose performance has grown rapidly in the past few years.

The company is located in:

 

 

Third, Zara and H & M sales growth

Under the threat of fast-selling brands, apparel brands such as Nike and Adidas hope to reduce their inventories through faster turnaround of products, victories in this smoke-free war and keep up with consumers' ever-changing shopping demand.

According to Dongfang Securities research report, Nike and adidas now shorten the product life cycle to 3 months, the order frequency from the past two weeks become the next single.

As a result, these brands of apparel companies on the supply chain reaction speed of suppliers have higher requirements. The leading textile industry due to better internal management, improved process and management processes, but also has the advantage of scale, they have the opportunity to get more orders by virtue of scale, to seize the market share of other small and medium textile enterprises.

The company is located in:

 

 

In contrast, the operation and development of textile SMEs are limited and the Matthew effect in the textile industry appears.

Small science: Matthew effect (English: MatthewEffect), refers to the "good is better, the worse the bad; more and more, less less" a positive feedback phenomenon. Originally proposed by the American scholar Robert Morton in 1968, its name comes from a parable of the New Testament, Matthew.

This is undoubtedly good news for the global textile industry leader. As China's largest textile manufacturing market, we can naturally select some of the leading Chinese textile companies listed in Hong Kong as the textile industry's integration and favorable logic in the textile industry. Investment targets.

So, what are the stocks worth attention in the textile companies listed on the Hong Kong stock market?

Fourth, noteworthy textile stocks

(1) Shenzhou International - vertically integrated textile "Tencent"

Shenzhou is China's largest integrated knitwear manufacturer, can be regarded as the leader in the textile industry.

The company headquarters and the main production base is located in Ningbo Economic and Technological Development Zone, the total number of employees for the 74,600 people. The company's main customers are Nike, adidas, PUMA and UNIQLO (Fast Marketing) and other international brands.

The company is located in:

 

 

Shenzhou since the listing at the end of 2005, the stock price looks almost like the textile industry in the "Tencent."

From 2008 to now less than 10 years time, the stock rose from more than 3 to 65 or so, an increase of more than 20 times.

The company is located in:

 

 

In 2008, the global economic downturn, Shenzhou shares in the past few years are still contrarian to maintain growth.

What makes Shenzhou stand out from the competition with its peers?

The company's unique advantages

① competitive advantage: a unique vertically integrated business model

Specifically, Shenzhou not only specifically for the major clothing brand manufacturing clothes, but also responsible for fabric research and development, design and production. In other words, the company's business covers both the middle and lower reaches of the industry, and all fabric made for own use.

It is worth mentioning that the company in the beginning of the establishment of integrated management, in the industry formed a good technical barriers, and integration of this industry model usually requires a forward-looking layout, the management has the professional ability and experience , It is difficult for other competitors to easily copy this model.

Shen Chau has higher than the industry's fabric research and development capabilities.

The company is located in:

 

The company's gross profit margin has been maintained at about 30%, and steadily improved.

The company is located in:

 

Shenzhou calendar year revenue has been steadily rising.

The company is located in:

 

 

According to the Company's interim report this year, the company's revenue increased 18.9% YoY and gross profit and net profit increased 18.1% and 24.1% respectively. As of the first half of 2017, Nike, Adidas and UNIQLO accounted for 36.6%, 24.9% and 25.6% of Shenzhou's revenue respectively.

The company is located in:

 

 

In the meantime, Shenzhou production capacity is expected to continue to expand in the future. The company gives capacity guidelines in September and expects to see a 10-15% increase in total capacity by 2018. In the international report of CSCEC, as of the end of October this year, the management of the company continued to increase its capacity expansion target in Vietnam, which was 27% ~ 53% higher than previous guidelines.

The company is located in:

 

 

Source: All investment banks research report

② The market is willing to give its high valuation

Shenzhou current price-earnings ratio of 27, higher than its peers, the valuation does not seem particularly attractive. Conservatively, if the average P / E ratio of the company's history is regarded as the margin of safety (around 17-20), then the average of all the companies' FY17 earnings forecasts is considered as future earnings. The reasonable buying price should be 41-45 yuan about.

The reason why the market gives companies a higher valuation than their peers is that not only has their excellent business model created a very high threshold but also eroded the growth of market share of other people in the context of further industry consolidation.

Meanwhile, in July of this year, the company distributed its interim dividend for the first time since it went public, with a cash dividend of HK $ 0.7 per share. Assuming that the company still has the same payout ratio in the previous year as of the end of the year, this shows that the company now has abundant cash flow and confidence in the management's growth in the future. For some long-term investors, this undoubtedly provides a stable rate of return.

The company is located in:

 

Since 2014, the company's historical payout rate has remained at around 50%.

To sum up, from the issuance of dividends by the company to the expansion of production capacity in Vietnam and a series of actions, it is a high probability that the future performance of Shenzhou will continue to grow. This is also worthy of the fact that it is outperforming its peers.

(2) Vivienne lingerie manufacturers using a unique IDM model

Victoria Jenny is a IDM model underwear manufacturer headquartered in Shenzhen. It has a 15-year history of cooperation with the parent company LBrands (LB.US). In addition to the underwear brand, Vivienne also works with sportswear brands such as Nike, UNIQLO, UA.US, Adidas, Gap and others.

Currently, most of its clients come from the developed countries in Europe and the United States. As of FY2015, the U.S. market accounted for about 70.5%, Europe about 9.2%, Hong Kong about 8.4% and the Mainland about 4.1%, while others are in Japan and Southeast Asia.

The company is located in:

 

 

The performance of the company last year can be terrible. In FY17, its gross profit margin also dropped by nearly 4% and its net profit also dropped by 78%.

In the 2016 annual report of the Company, we can see that the reason for the decline in corporate profits last year was not only the poor sales performance of the major customers last year, but also the company's net investment in the layout of Vietnam.

Investors started selling the Virginie shares last October. As can be seen from the chart below, the company is underperforming the stock market.

The company is located in:

 

From the December sales just released by Virgin parent company LBrand, we can see that the sales side has continued to stabilize since August, which is believed to have benefited from the business growth of online direct sales channels.

Although the share price of LBrand plunged last night due to disappointing and disappointing sales growth in December, the share price has risen 45% from its low level in August, reflecting investors' worries about the sales of Vermilion are slowly ebbing.

The company is located in:

 

 

 

Then Virginia Jane will not in the trend of industry consolidation, better than their peers to win the competitive advantage of it?

The company's success

① the company's unique competitiveness

Virginie is the only company in the underwear manufacturing industry to adopt the IDM model, with a 1% market share in the industry.

IDM is characterized by its ability to provide its customers with integrated services covering all aspects of product concept, R & D, manufacturing and manufacturing. The company also has good R & D capabilities.

② Vietnam's production capacity has expanded rapidly

As a sizeable garment manufacturing company, with 16 consecutive years of declining revenue, she continued to expand her investment to build a new plant in Vietnam to lay out new capacity (one of which was put into operation in March 2016).

According to JP Morgan Chase, Virginiana expects to double its production capacity in FY16-19, and its plant in Vietnam will be fully operational by 2019 to meet new orders from customers.

 

 

 

Virginie's clients are mostly high quality and world famous brands. For example: LBrands, Nike, UnderArmour, etc. At the same time, the company is also striving to attract new customers, won the new orders of Nike, Gap and UNIQLO in 17 years. Especially UNIQLO, its rapid sales growth in the short term became the third largest customer of Virginiana.

But it may not be the best time to buy Virginiana shares.

In FY17, Victor Jennifer's earnings plunged to HK $ 95.61 million. Assuming similar earnings in the second half of the year, the price-earnings ratio is currently trading at around HK $ 50.

I think there are two main reasons why Valiant shares are so valued. One of the reasons is that in July and September of this year, Victorian President and Chief Executive Officer Hung Yuk Li continued to overweight and spent nearly 30 million to give market confidence.

The company is located in:

 

 

Another reason is that the collapse of the profitability is mainly the cause of the industry. However, after a period of hard winter reshuffling, the more advantageous giants have increased their market shares. Vietnam has just doubled its new production capacity and started to put into operation one after another