Textile And Garment Industry: Textile And Garment Industry Chain Meets Important Opportunities

Key points of investment

In 2020, the temperature will drop early and the new year's Eve will be late. The pent up consumption power in the epidemic situation will be ready to take off and "revenge consumption" will be met. The first wave of winter clothing consumption usually lasts until the end of the Spring Festival. During the National Day this year (2020), the temperature in some parts of the country has been significantly reduced. The Spring Festival next year (2021) will be later, and the consumption of winter clothes is expected to increase until the end of February. Last year, winter clothing retail was suppressed by the epidemic, optimistic about the rebound growth of winter clothing demand in 2020-21. In August / September 2020, the monthly growth rate of clothing retail sales was 4.2% / 8.3%, which was the second highest / highest value since September 2019, which is a reflection of the recovery of demand.

After the epidemic, China's industrial chain recovered well and overseas garment orders returned. The epidemic situation in China was well controlled in March this year, and the manufacturing industry recovered faster and more stably. However, some overseas countries ushered in the second wave of outbreak in September, and the manufacturing industry recovered slowly, which was hit many times with the rebound of the epidemic. In India, for example, 25% of textile and garment mills may be closed permanently under the impact of the epidemic, according to the times of India, citing the Federation of textile industries of India (Citi). In the near future, the main consumption season of the end of the year in Europe and the United States is approaching, and a large number of orders are expected to return to China.

Benefited from multiple favorable factors such as order backflow, cold winter, late Spring Festival and large promotion, the demand of all textile and clothing sectors has been improved: (1) textiles: domestic demand recovered and part of overseas order backflow catalysed Q4 performance; (2) clothing and home textiles: since the outbreak of the epidemic, terminal inventory has been accelerated and new retail transformation, cold winter, late Spring Festival and promotion are expected to jointly drive the demand increase. From the perspective of valuation, the valuation of major companies in textile sub sectors is at a low level in recent five years. Undervalue + low inventory risk + higher performance will drive the sector valuation to get a certain repair.

Textile and clothing demand recovery upward transmission, upstream viscose staple fiber and spandex there are structural opportunities: the chemical fiber industry entered the downward channel in 2017, since August 2020, due to the Indian order transfer and cold winter expectations, the demand for textile and clothing has increased significantly, and the prices of some chemical fiber varieties have recovered. Among them, viscose staple fiber is the direct substitute of cotton, viscose staple fiber has increased by 23% since August; in addition, with the support of raw material pure MDI price rise, spandex ended the three-year downward trend and began to rebound.

Investment suggestion: driven by the "internal force" of active inventory elimination, as well as the external force of cold winter and late Spring Festival, large promotion and overseas order return, textile manufacturing, clothing and home textile are expected to perform well in Q4. At the same time, textile and clothing demand rebounded upward, bringing the prosperity of viscose staple fiber and spandex in the upstream. It is suggested to focus on the new e-commerce retail clothing enterprise, Antarctic e-commerce, and bosden, the functional clothing leader; in addition, it is suggested to pay attention to the viscose staple fiber and spandex sub industry leaders, Sanyou chemical and Huafeng spandex.