High Quality Textile And Apparel Retail Enterprises Have Both Offensive And Defensive Capabilities.

Industry strategy: high quality textile and garment retail enterprises have strong growth performance, and plate valuation advantage is obvious (seven wolf 11 years dynamic price earnings ratio of 23 times, Semir and nine herdmen about 25 times, Luo Lai, fuanna and Meng Jie three home textile enterprises 30 times, Weixing 15 times), and cotton price decline is conducive to business operation, in the current market downturn, the retail sector is offensive and defensive;

Recommended portfolio: we continue to recommend high-quality textile and garment retail enterprises: seven wolves.

Industry view

Cotton continues to be a key factor affecting the industry in the second half of the year: the price of textile raw materials fluctuates basically with cotton prices, and the cotton prices since the middle of March have dropped, leading to the shift of the whole raw material price center, and the gross profit margin of manufacturing enterprises has also decreased. Before the price stabilizes, the whole industry chain is hard to return to normal; however, the price reduction of raw materials is obviously beneficial to the operation of textile and garment retail enterprises, on the one hand, the cost pressure is reduced, which is conducive to the stable and improved gross margin and, on the other hand, helps consumers to increase their purchase intention, thereby promoting the growth of sales volume;

Cotton prices may stabilise in the 4 quarter. We believe that the operational range may be around 20 thousand yuan: cotton prices will be determined in the new supply and demand situation before and after October. Considering the degree of consumer acceptance, industrial chain operation and national policies, we believe that the possibility of fluctuations in the future will be greater at about 20 thousand yuan.

The policy will play a major role in the operation of the industry in the second half of the year: the national industrial pformation policy can really enter the operational stage as a sign of the export tax rebate rate below, and the management may also strengthen the enforcement of the original policies such as labor contract law, environmental protection, energy consumption and so on, so as to promote the industrial pformation. Besides, exchange rate fluctuation will also affect the operation of the industry.

Although policy adjustment may lead to damage to the export manufacturing enterprises in the short term, it helps to regulate the order of market competition and prevent excessive competition, which is conducive to the long-term development of large and medium-sized enterprises.

We still maintain the expected growth in industry efficiency: the export growth rate is around 15%, and domestic revenue growth is about 25%.

Risk warning

Cotton prices have fallen so that prices of textile and clothing products will no longer improve next year.

When the price factor is eliminated, sales growth is the main concern of the market.

We believe that retail enterprises rely entirely on extension and endogenous expansion, and the original brand status to achieve sales volume and price conversion.

From the first quarter statistics, the domestic market sales growth has begun to pick up (Chart 10);

The risk of a Chinese newspaper or annual report is lower than expected.

Judging from the current order and market situation, although the room for raising performance expectations is not large, the possibility of downgrading is not great.

We believe that the future textile and garment retail stocks will be increasingly differentiated, and the difference between performance growth and valuation level will become increasingly evident.