In The First Half Of The Year, We Lost 100 Million Yuan! "King Of Color Spinning" Huafu Fashion Specialty To Be Revived

Huafu Fashion Co., Ltd. (hereinafter referred to as "Huafu fashion"), the world's largest supplier and manufacturer of colored yarn, disclosed its performance forecast for the first half of 2020 on the evening of July 14. It is estimated that the net profit attributable to shareholders of listed companies during the reporting period will be 120 million yuan - 160 million yuan less than 351 million yuan in the same period of last year.

As for the reasons for the performance change, Huafu fashion explained that during the reporting period, due to the impact of the epidemic, the domestic and international market demand was weak, the price of raw materials fell, and the utilization rate of the company's capacity was reduced, resulting in increased costs and reduced gross profit. Instead of taking measures to reduce production capacity or lay off employees substantially, the company actively organized staff training, improved skills and professional level in order to wait for the market to recover.

The reporter noted that Huafu fashion had previously disclosed the first quarter report of 2020, which showed that during the reporting period, the operating revenue of Huafu fashion was 2.31 billion, a year-on-year decrease of 36.5%; the net profit loss of parent company was 30.442 million, a year-on-year decrease of 117.7%.

At that time, Huafu fashion explained that the trade dispute between China and the United States hit consumer confidence and restrained Global trade, resulting in shrinking market volume and intensifying competition. The trend and cyclical changes in the market led to a decline in the growth rate of orders from more than double digits to single digits. Secondly, last year, cotton prices fell sharply by 20% in a short period of time, leading to the decline of yarn prices and the difficulty of making profit from orders.

According to the public information, Huafu fashion was founded in 2000 and listed on the back door in 2008, becoming the first domestic A-share listed company in the color textile industry. All along, Huafu fashion adheres to the main business and shares the industry, believing that Xinjiang and Vietnam should not be neglected. Xinjiang is a supply market for domestic consumption upgrading, while Vietnam is an industrial transfer for overseas markets. The company fully grasped the opportunities of the two regions and made great progress.

Huafu fashion, which focuses on manufacturing and supplying high-grade new yarn, is also one of the largest color spinning yarn enterprises in the world. The company mainly provides color spun yarn with fashion and environmental protection technology, and provides high-end new-type green yarn, dyed yarn, semi worsted yarn, rotor spun yarn and other value services. It has strong supply chain management ability and fast product delivery.

As of 2019, Huafu fashion has formed five production bases in Zhejiang, Huanghuai, Changjiang, Xinjiang and Vietnam. The company's current total production capacity reaches 1.88 million spindles, and the annual output of 250000 tons of new yarn production system. In the future, the capacity expansion projects in Xinjiang and Vietnam will continue to expand. By the middle of 2018, Huafu fashion has formed 280000 spindles in Vietnam and 980000 spindles in Xinjiang. The company's total production capacity is 1.89 million spindles, including 1.61 million spindles in China and 280 thousand spindles in Vietnam. Due to the short-term impact of the epidemic, the company's production and sales imbalance. At present, the speed of production capacity construction has slowed down. The next step of capacity construction is expected to focus on overseas, mainly in Vietnam. At the same time, the company is also investigating Bangladesh, Pakistan and other countries.

Yu Xuhui, an analyst with Changjiang Securities, previously said that in the early stage of the epidemic, the core contradiction at the manufacturing end was the delayed resumption of work in China and the logistics was limited. During this period, the production capacity of Southeast Asia returned to work normally, but the high dependence on China's textile raw materials had a certain impact on the normal production and operation of local textile enterprises. In this context, the stability of integrated enterprises is better.

Restricted by the pressure of cost and environmental protection, China's textile industry has shown a trend of transferring to Southeast Asia, in which labor-intensive clothing manufacturing is the main link. Take Vietnam, which has the most obvious increase in textile and garment trade share, as an example, the increase of export trade share of textile and clothing related products is mainly driven by clothing export, and the layout of textile links is not perfect, so it has a high degree of dependence on China's progress. In 2019, Vietnam's textile and clothing exports accounted for 2.3% and 6.8% of the global trade share respectively, and the clothing export trade share increased significantly; at the same time, Vietnam's textile imports from China accounted for about 46.1% in 2018, an increase of 12.9 PCT compared with 2010. The trade path of China's clothing industry is gradually adjusted from "clothing (China) - overseas brands" to "textiles (China) - clothing (China / Vietnam) - overseas brand merchants".

In Yu Xuhui's view, Vietnam has achieved rapid growth in garment export business with the help of labor dividend. However, in the context of imperfect layout of the front-end industrial chain, Vietnam's dependence on China's textile industry is also increasing significantly. Therefore, even under the normal resumption of work in Southeast Asian countries in the early stage of the epidemic, China's delay in resuming work and logistics constraints caused a shortage of textile raw materials in Southeast Asian countries, and the normal production and operation of local textile enterprises were also affected. The epidemic started at the end of March and the terminal retail continued to deteriorate. However, the output and export growth of Vietnam's textile and clothing products fell in March and improved month on month in April Or verify the limited impact of textile raw materials to a certain extent. In this context, the stability of integrated enterprises is better. Due to the relatively complete industrial chain layout and weak dependence on external production and processing links, integrated textile enterprises have better operational stability.

According to the financial report, in 2019, Huafu fashion achieved a total operating revenue of 15.89 billion, with a year-on-year increase of 11%; the net profit attributable to its parent company was 400 million, a year-on-year decrease of 46.1%; from the perspective of business structure, the net chain business income was 8.65 billion, accounting for 54.7% of the total revenue, and the gross profit rate was 3.6%.

Mi Hanjie, a researcher at GF Securities, said that in the first quarter of 2020, due to the impact of the epidemic, textile manufacturing enterprises were delayed to resume work, logistics was hindered, and a large number of orders were delayed in production and delivery, resulting in a sharp decline in the export amount of textiles and clothing in the first quarter of 2020. Since the second quarter, although the domestic epidemic situation has been controlled and the production capacity of factories has been gradually restored, the outbreak of foreign epidemic and the large-scale closure of retail stores have caused a large number of downstream orders of domestic textile manufacturing enterprises to be cancelled or postponed. Among them, the export amount of textiles from April to May increased significantly compared with the same period last year, while the export amount of clothing was further increased slide downward.

Looking forward to the second half of the year, MI Hanjie judged that although the upstream textile manufacturing sector is expected to report performance under pressure, it is a low point in the second quarter and is expected to improve gradually in the third quarter. First of all, it is suggested that we should pay attention to the high-quality supply chain leaders in the sector, and learn from the historical experience of Ruhong before and after the financial crisis in 2007. After optimistic about the epidemic situation, high-quality supply chain leaders are expected to benefit from further improvement of industry concentration. Secondly, it is suggested that attention should be paid to the manufacturing leaders who are expected to successfully extend the industrial chain to the downstream retail link, which will benefit from the double improvement of performance and valuation.