Textile and Garment Industry: Manufacturing Valuation Gradually Repairs, Brands Focus on Underestimation

Investment suggestions: 1) Textile manufacturing: The inflection point of orders is approaching, and the valuation of leading manufacturers is expected to gradually recover. Catalyzed by relatively strong macro data such as non-agricultural employment in the United States and a significant improvement in the inventory of downstream brands, the valuation of leading manufacturing companies has recently been repaired. Combined with the recent company survey feedback, we expect that the growth rate of manufacturing orders in Q3 is expected to turn positive, and we recommend long-term competitive manufacturing leaders Weixing, Taihua New Materials, Zhejiang Natural, Huali Group, Xinao, etc. In addition, we recommend 2023 production capacity Released Fuchun Dyeing and Weaving and Henghui Security. 2) Apparel and home textiles: Q3 brand performance is expected to continue to improve, and stock selection is based on low valuations. Recently, some companies have released performance forecasts. Among them, SAINT ANGELO, Jinhong Group and other companies have outstanding performance in 2023Q2. With the improvement of terminal sales in the future, the performance of Q3 brand apparel companies is expected to continue to recover. Based on comprehensive valuation and terminal turnover performance, we first recommend Heilan Home (11X in 2023), Luo Lai Life (13X in 2023, 5% dividend yield) and Fuanna (12X in 2023, 7% dividend yield), which are undervalued and high dividend targets. ), followed by menswear brands SAINT ANGELO (14X in 2023) and Biyin Lefen (19X in 2023) with strong growth in terminal turnover, and PEACEBIRD (14X in 2023), mid-to-high-end clothing brands that achieve performance growth through cost reduction and efficiency increase. Women's wear Ellassay (16X in 2023), benefiting from the target Jinhong Group (13X in 2023).

Industry news: 1) Apparel retail will recover weakly in June 2023. In June, the total national social retail sales were 3,995.1 billion yuan, an increase of 3.1% year-on-year, and the growth rate decreased by 9.6pct from May (a year-on-year increase of 12.7% in May). Among them, the total retail sales of clothing, shoes and hats, and knitted textiles was 123.8 billion yuan, a year-on-year increase of 6.9%, and the growth rate decreased by 10.7pct from May (a year-on-year increase of 17.6% in May).

2) H&M plans to enter the Brazilian market in 2025. The Swedish fast fashion group H&M plans to enter the Brazilian market in 2025 and cooperate with the Dorben Group to open physical stores and conduct online business. Dorben Group operates retail business in 10 countries in Central and South America, and has rich channel resources and experience. At the same time, H&M is also accelerating the expansion of the North American and South American markets.

Market review: From July 17 to July 21, the Shanghai Composite Index, Shenzhen Component Index, ChiNext Index, CSI 300 Index, and SW Textile and Apparel fell by 2.16%, 2.44%, 2.74%, and 1.98% respectively , up 0.65%. The largest increase in A-share textile manufacturing was Jinchun (16.97%), and the largest increase in clothing and home textiles was Meibang Apparel (25.81%); the Hang Seng Discretionary Consumer Index fell 0.89%, Textile and Garment HK (CITIC) fell 1.78%, The Hang Seng Index fell by 1.74%, and the H-share spinning and clothing gained the first place as the winner Fashion (10.66%).

Risk factors: raw material price fluctuation risk, global inflation risk

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