First-half 2010 Economic Performance of Listed Textile Companies in China

Significant revenue growth

100 Chinese firms engaged in the production and sale of textile have already announced their first-half 2010 financial results. Here we performed an analysis of economic performance of listed textile companies in China based on the data of the financial results of 67 of them, which included 31 textiles manufacturers, 18 apparel manufacturers, 15 chemical fibre manufacturers and 3 textile machinery manufacturers.

Six-month 2010 revenue for these 67 enterprises increased 45.94% y/y to CNY63.469 billion. Total operating cost for these 67 enterprises increased 42.67% y/y to CNY60.000 billion. Net profit attributable to owners of the parent for these 67 enterprises increased 69.44% y/y to CNY3.050 billion.

For apparel manufacturers, revenue growth was mainly due to ongoing improvement in brand image. Septwolves (sz002029), for example, its net profit attributable to owners of the parent for six-month 2010 increased 31.02%. Septwolves is a tobacco and clothing brand based in Fujian. It was the subject of a Hong Kong trademark case which divided it between two businesses. The clothing business, started in 1990 in Jinjiang, and is now based in Xiamen. In February 2002, US President George W. Bush was presented with samples as part of his visit to China. The increase in net profit in 2010 was primarily due to increased marketing efforts.

For textiles manufacturers, increase in revenue can be attributed to the demand recovery. Xinye Textile (sz002087), for example, its net profit attributable to owners of the parent for six-month 2010 increased 201.30%. Xinye Textile is a China-based company engaged in processing and distribution of medium-end and high-end cotton textile products. The Company's major products include grey cloth series products, yarn series products and colored weaving cloth series products, among others.

For chemical fibre manufacturers, increase in revenue can be attributed to ongoing demand for Spandex. With manufacturing slowly recovering amid improving economic conditions, Spandex demand has increased prompting more orders among mills. In the first half of 2010, Spandex price reached CNY 53789 a ton, adding 27.62% y/y. Yantai Spandex (sz002254), for example, its net profit attributable to owners of the parent for six-month 2010 increased 388.72%. Yantai Spandex is high & new tech stock company specializing in the production of special chemical fiber. Yantai Spandex is the biggest domestic meta-aramid spandex producer and one of the biggest spandex producers.

Table 1. First-half 2010 financial results for 67 Chinese firms engaged in the production and sale of textile

Source: National Bureau of Statistics of China, Sina

Stable economic performance

According to data collected from statistics-worthy Chinese enterprises surveyed by National Bureau of Statistics of China, the chemical fiber production rose 13.89 percent y/y to 17.1582 million tons in the first half of 2010. Looking further, from January to June, yarn output reached 15.0011 million tons, up 16.19 per cent from the previous year's period; fabric 35.434 billion meters, up 16.73 y/y; and garment 15.039 billion pieces, up 17.25% y/y.

From Jan. to Jun., China has made an investment of 204.829 billion yuan in chemical fiber industry, up by 26.03 percent over the same period last year.

Losing impetus

It is important to note that, although substantial progress has been achieved by listed textile companies in statistics in the first half of 2010, the chemical fibre industry this year later faces uncertain future. There is a long list of issues to keep an eye over the coming.

Firstly, China July official PMI fell. China's official purchasing managers' index fell to 51.2 in July from 52.1 in June, the China Federation of Logistics and Purchasing (CFLP) said. So what do the PMI numbers tell us? Well for one thing the index is still just above 50 which indicates expansion. But the indexes have both fallen off, which indicates that expansion is slowing down.

Next, for the United States, Japan and the Euro area�� economy, most economists are quick to point out the uncertainties. Specifically, they refer to the fragile nature of the recovery. Although we��ve seen some improvement in consumer attitudes, their confidence in the economy is still well below where it was in 2007. Figures showed global manufacturing activity expanded at a slower pace, reflecting slower growth of new orders and a waning boost from inventory building. The United States July ISM Manufacturing Survey was out and PMI came in at 55.5%. Last month's manufacturing ISM was 56.2%. June ISM manufacturing index declined -3.5% from May's 59.7%. While this is the 12th month for expansion, this is a slowing on the manufacturing ISM; Eurozone Aug. PMI index declined 1.7% to 55; and the Nomura/JMMA Japan Manufacturing Purchasing Managers Index (PMI) fell to a seasonally adjusted 50.1 in August from 52.8 in July, the lowest level since 48.2 in June 2009.

Thirdly, materials prices began to fall. On Aug. 27, China Cotton Index for 328-grade cotton was down 211 yuan per ton to 18018 yuan/ton. International cotton prices remained extremely firm last month. The Cotlook A index on Aug. 27 reached 97 cents per pound. In Aug., prices of Polyester Staple Fiber, Rayon Staple Fiber, and Spandex slumped by 4.66%, 14.17% and 6000 yuan per ton respectively from the level of Apr. to 9622 yuan/ton, 17366 yuan/ton and 51000 yuan/ton.

Besides, China clothes CPI Slide. From Jan. to July, the clothes CPI went down 1.0%. For July alone, the clothes CPI wend down 0.8%. From Jan. to July, the clothes PPI went up 1.8%. For July alone, clothes CPI grew 2.0%.

Raw materials have been increasing at an unprecedented level in China. Prices have been going up internationally as well. Mills face a challenging environment in high purchasing prices where it may be difficult to pass high material costs on to higher prices of manufactured products. Meanwhile, the uncertainties in demand will further slash the confidence of China's textile makers in the 2nd half of 2010.