CHINA SECURITIES(INT’L )RESE ARCH
Equity Research l HK & China l Textile OEM
6 March 2017
Texhong Textile
(2678 HK)
Margin uncertainty weighs on valuation
 Texhong’s FY16 results were strong as expected, primarily driven by
volume growth from capacity expansion and margin expansion
benefited from a low raw material inventory cost and rising yarn
prices.
 Despite the continual sharp rise in domestic cotton prices, the
increase in domestic cotton yarn price seems lagging behind (see
Figure 4). Hence, we expect GPM to fall back to 18% normalized level
in FY17E, from 20% in 2H16.
 We expect growth for FY17E to be supported by c.15% YoY yarn
production capacity expansion. Our PT were up slightly to HKD12.2
(prev. HKD11.5), still based on 8.2x PER (1-yr fwd historical PER
average), as we upped our yarn ASP assumptions. We reiterate our
HOLD rating, as we expect a more normalized recurring net profit
growth in FY17E, risks from larger working capital requirement and
interest rate reflation as Texhong’s net gearing is estimate at 69% in
FY17E, the highest among its comps.
GPM will normalize in FY17E. Texhong carries c.60 days of cotton
inventory on average. The PRC cotton price rebounded sharply starting
from 3Q16. According to the CC328 Index, the avg. cotton price in
1Q/2Q/3Q/4Q 2016 were RMB12,262/12,400/14,751/15,624 per tonne,
representing a YoY change of -9.1%/-7.2%/+9.9%/+20.4%. That means
Texhong’s cotton cost was around RMB13,376/tonne (average of 2Q and
3Q 2016) (or +2.7% YoY) in 2H16, whereas, its blended yarn prices grew
5.9% YoY in 2H16. Given the yarn prices follow the rising trend of cotton
price increase in 2H16, albeit a lower magnitude. This has resulted in
Texhong’s substantial GPM growth of 2.0ppt. HoH to 20.2% in 2H16. In the
first two months of 2017, the average cotton price continued to jump by
28% YoY to RMB15,872/tonne. This suggests Texhong’s cotton cost in hand
is c.RMB15,748/tonne level (average of 4Q16 and Jan-Feb 17) in 1H17E, an
increase of c.24% YoY. Hence, this would mean its yarn prices must
increase >24% YoY in order to maintain its margin, which we believed is
very unlikely as the China cotton yarn index rose only 17% YoY during the
same period. Hence, we expect GPM to drop 1.1ppt YoY to 18.3% in FY17E.
Texhong is highly sensitive to GPM changes, a 1 ppt. change in GPM, will
result in a 12% net profit changes according to our calculation.
Hold
(Unchanged)
Price Target
HK$12.2
(Revision)
(upside)
(+6.1%)
(+8.2%)
EPS
revision
2017E
+2.3%
Close price
HK$11.28
Market cap.
HK$10,321mn
Free float
27.0%
52-week range
HK5.14 – 12.86
3-mth ave. T/O
HKD12.6mn
2018E
+3.3%
Price as of 3 March 2017
Stock rel HSI performance (%)
200%
100%
0%
-100%
Mar-16
Jun-16
Sep-16
TEXHONG TEXTILE
Dec-16
HS Index
Capacity expansion continues. After expanding its annual yarn
production capacity by 31% to 600k tonnes in FY16, Texhong target to
further expand it by 15% to 690k tonnes in FY17E.
Valuation. We reiterate our HOLD rating, as we expect a more
normalized recurring net profit growth in FY17E. We adjusted our net
profit estimates upwards by 2.3%/3/3% for FY17/18E, hence PT up to
HKD12.2, still pegging to 8.2x PER, the 1-yr fwd historical average for the
past 3 historical years. Texhong currently trades at 7.3x PER for FY17E.
Please read the disclaimer on the last page.
Analysts
SO Lai Shan, Jennifer
(CE No.: AHA295)
[email protected]+852 3465 5781
Mar-17
Texhong Textile: Margin uncertainty weighs on valuation
Figure 1: Results summary
2016
2015
YoY
Change
Revenue
13,647.7
10,574.9
29.1%
7,825.9
5,821.8
34.4%
Ya rn a ccounted for 92.5% of total revenue (FY15: 93.0%)
- Ya rn
12,625.1
9,835.4
28.4%
7,265.9
5,359.2
35.6%
Vol ume +26% YoY to c.600k tonnes ; Bl ended a vg. ASP +c.2% YoY (1H16: -1.6%; 2H16: +5.9%)
608.2
545.4
11.5%
354.2
254.1
39.4%
Vol ume +8.6% YoY to c.65mn meters .
414.4
(11,002.6)
2,645.1
194.1
(8,669.0)
1,905.8
113.5%
205.9
208.5
26.9% (6,242.0) (4,760.6)
38.8% 1,583.9 1,061.2
-1.2%
31.1%
49.3%
Ga rment fa bri cs vol ume +70% YoY to 16mn meters .
19.4%
18.0%
1.4 ppt
20.5%
18.2%
RMB mn (FYE Dec)
- Grey fa brci s
- Ga rment fa bri cs & ga rments
Cos t of goods s ol d
Gross Profit
Gross Margin
Sel l i ng & di s tri bution cos ts
Genera l & a dmi ni s tra tive expens es
2H16
1H16
2H16
(HoH Change)
2.3 ppt
(496.7)
(546.7)
(369.0)
(380.9)
34.6%
43.5%
(280.5)
(319.8)
(216.3)
(226.8)
29.7%
41.0%
Other i ncome
Other ga i ns / (l os s es ) - net
Operating EBIT
EBIT Margin
EBITDA
EBITDA Margin
63.6
141.1
1,806.5
13.2%
2,354.4
17.3%
(85.0)
1,071.0
10.1%
1,525.6
14.4%
n.a.
n.a.
68.7%
3.1 ppt
54.3%
2.8 ppt
56.5
63.0
1,103.2
14.1%
1,409.1
18.0%
7.1
78.1
703.3
12.1%
945.3
16.2%
702.1%
n.a.
56.9%
2.0 ppt
49.1%
1.8 ppt
Net i nteres t i ncome/ (expens es )
Non-recurri ng i tems
JV & a s s oci a te contri bution
Pre-tax Profit
Income tax expens es
Net Profit for the Year
- Owners of the parent
- Minority Interests
Core Earnings for the Year - Owners of the parent
(403.4)
83.1
10.7
1,496.8
(295.7)
1,201.1
1,187.5
13.5
1,118.9
(418.7)
79.4
4.1
735.8
(146.8)
589.0
590.8
(1.9)
526.5
-3.7%
4.6%
158.6%
103.4%
101.4%
103.9%
101.0%
n.a.
112.5%
(244.3)
83.1
11.9
953.8
(208.9)
745.0
730.8
14.1
745.0
(159.1)
53.5%
(1.2)
543.0
(86.9)
456.1
456.7
(0.6)
456.1
75.7%
140.5%
63.3%
60.0%
n.a.
63.3%
1.330
1.329
0.440
0.180
0.260
0.668
0.668
0.240
0.120
0.120
99.1%
99.0%
83.3%
50.0%
116.7%
0.814
0.814
0.516
0.515
57.9%
57.9%
Ba s i c EPS (RMB)
FD EPS (RMB)
DPS (HKD)
- Interi m DPS
- Fi na l DPS
n.a.
0.260
0.180
n.a.
Comments
Benefi ted from l ower cotton cos ts a nd ya rn pri ce i ncrea s es .
%/ revenue +0.1ppt YoY to 3.6%, a ffected by c.RMB40mn one-off expens es from from XJ expa ns i on.
%/ rev +0.4ppt. YoY to 4.0%, a ffected by c.RMB80-90mn one-off expens es from from XJ expa ns i on.
Subs i dy i ncome from Xi nji a ng pl a nt i n FY16. Excl uded the ga i ns on a cqui s i tions of s ubs i di a ri es i n FY15.
Buoyed by cha nges i n fa i r va l ue of deri va tive fi na nci a l i ns truments a nd l ower FX l os s es i n FY16.
Buoyed by grea ter s ubs i dy i ncome.
Interes t expens es i ncl ude a net FX l os s es on fi na nci ng a ctivi ties (FY16: RMB166mn/ FY15: RMB196mn).
Incl uded one-off s ubs i dy i ncome a nd ga i ns on a cqui s i tion for s ubs i di a ri es / JV.
Effective tax ra te a l mos t fl a t a t 19.8% compa red to 20.0% i n FY15.
n.a.
n.a.
Source: Company data, CSCI Research
Results highlights and outlook
Strong revenue growth, driven by sales volume of yarn. Revenue from yarn sales rose
29% YoY. Texhong added c.31% YoY yarn production capacity in FY16, adding
0.43mn/0.26mn spindles in Xinjiang/VN facility. Hence total number of spindles
reached 1.64mn in the PRC and 1.21mn in VN. Texhong’s yarn sales volume rose
strongly in 2H16 by 30% YoY (1H16: +21% YoY), supported by rising efficiency of the
above two new yarn spinning plants. Total yarn sales volume increased 25.7% YoY
(versus our est. of 22.0%) to 600k tonnes in FY16. Texhong targets to increase the
production capacity of yarn by 15% YoY in FY17E, to a total of 690k tonnes.
Growing contribution from fabrics, garments & other. The total revenue from fabrics,
garments & others +38% YoY to RMB1,021mn, contributing 7.5% of Texhong’s total
revenue in FY16, versus c.6.9% in FY15. The strong growth was due to the contribution
from the sales of 3mn pieces of jeanswear through adjustments and restructuring of
the production lines in Shandong and Cambodia. Texhong also paved ways for
jeanswear production expansion in VN in 2017. It targets 7mn pieces of jeans wear
sales in FY17E.
Downstream garment JV. Texhong announced to form a JV with Changzhou Hualida, to
establish a garment factory in Vietnam. Hualida currently produce 70% Uniqlo’s down
wear and jeanswear. Hualida currently produces down wear and jean swear to Fast
Retailing’s Uniqlo and GU brands. We believe this is a good move to develop into a
more vertically-integrated textile apparel supplier. Nevertheless, revenue and earnings
contribution from downstream segment is immaterial in the near-term.
Yarn ASP turnaround in 2H16. The blended ASP for all yarn types +2.1% YoY in FY16,
compared to a drop of 7.5% YoY in FY15. ASP in 2H16 turnaround, rising 5.9% YoY from
-1.6% in 1H16, following a widespread rebound in the PRC cotton price. Hence, we
have revised up our assumptions on Texhong’s blended yarn ASP to +9.8%/+5.4% (prev.
-1.6%/-2.1%) for FY17/18E.
Please read the disclaimer on the last page.
2
6 March 2017
Texhong Textile: Margin uncertainty weighs on valuation
GPM jumped in 2H16. Benefited from a favourable raw material costs versus product
price environment, where yarn price increased while inventory cost lagged. GPM
increased 1.4ppt YoY to 19.4% (1H16:18.2%; 2H16: 20.5%). The GPM increment was
also contributed from product mix change, as contribution from denim yarn increased
versus cotton yarns, where denim yarn’s GPM increased faster than cotton yarns.
Nevertheless, we expect GPM to normalize and fall back to 18.3%/ 18.1%/17.9% in
FY17/18/19E as the low cost raw material inventory dissipated, as well as growing
contribution from garment fabrics, where GPM is 3-4ppt. lower than yarn.
Higher inventory level. Total inventory increased remarkably to RMB2,931mn FY16
from RMB1,893mn in FY15. Whereas, inv/sales ratio rose to 0.22x in FY16 from 0.18x in
FY15. We believe such increase was due to the stock up of larger cotton inventory, in
anticipation of further rise in cotton cost in 2017. Besides, part of the new cotton
purchase required advance cash payments in order to lock-up the cotton price ahead
of future price increase. Hence, we saw its total bank borrowings increased 51% YoY to
RMB6,109mn in FY16, primarily due to a 1.3x YoY increase in short-term borrowings.
Hence, this will raise Texhong’s working capital requirement.
Ability of raw material cost transfer
Figure 2: Historical relationship – Texhong’s yarn ASP, CC328 Index and GPM
YoY %
1H12
2H12
1H13
2H13
1H14
2H14
1H15
2H15
1H16
2H16E
1H17E
Texhong's blended ASP - yarn (YoY%)
-23%
-10%
4%
-3%
-13%
-11%
-9%
-6%
-2%
6%
???
???
2H11
1H12
2H12
1H13
2H13
1H14
2H14
1H15
2H15
1H16
2H16
1H17E
CC328 Index - (YoY%) (t -1)
GPM (YoY ppt.)
-12%
-31%
-6%
1%
4%
-4%
-19%
-28%
-17%
-8%
-5 ppt
3 ppt
8 ppt
4 ppt
-8 ppt
-12 ppt
4 ppt
7 ppt
1 ppt
2 ppt
2H17E
15% 27.3% (Jan-Feb 2017)
Margin erosion???
???
Source: Company data, Wind, CSCI Research
Figure 3: Graphical presentation of historical relationship
10%
10
5%
YoY %
-5%
0
-10%
-15%
-5
-20%
-25%
GPM (YoY ppt)
5
0%
-10
-30%
-35%
-15
1H12
2H12
1H13
2H13
Texhong's blended ASP - yarn (YoY%)
1H14
2H14
1H15
2H15
CC328 Index - (YoY%) (t -1)
1H16 2H16E
GPM (YoY ppt.)
Source: Company data, Wind, CSCI Research
We try to interpolate Texhong’s GPM trend by looking at the historical relationship
between the YoY % changes in Texhong’s yarn ASP to the CC328 Index (benchmark of
its raw material cost). For the ASP changes, we use the data in period t, whereas we
use the data in period t-1 for CC328 Index as Texhong holds an inventory of c.60 days.
Our findings showed that, if the drop in Texhong’s yarn ASP is greater than the drop in
the CC329 Index, Texhong’s GPM for that period will drop and vice versa. This holds
true historically, except in 2H13. Since, the CC328 Index rose 15% in 2H16, if Texhong;s
yarn ASP increment in 1H17E came lower than 15%, it will increase risks on GPM
squeeze.
Please read the disclaimer on the last page.
3
6 March 2017
Texhong Textile: Margin uncertainty weighs on valuation
Figure 4: Major raw material price index (YoY %)
2016
Jan
-6.5%
7.3%
-3.9%
Feb
-8.9%
9.2%
-9.1%
Mar
-11.7%
-5.7%
-10.3%
Apr
-10.6%
0.7%
-7.3%
May
-6.4%
7.6%
-7.1%
Jun
-4.7%
2.4%
-3.2%
Jul
8.6%
12.0%
4.5%
Aug
11.9%
17.2%
8.1%
Sept
9.2%
19.7%
9.7%
Oct
17.4%
19.4%
8.9%
Nov
20.8%
14.0%
11.6%
Dec
22.9%
23.7%
11.5%
2017
Jan
24.7%
19.7%
16.8%
Febt
27.3%
23.2%
20.1%
China Cotton Yarn Index
China Synthetic Yarn Index
China Polyester Cotton Yarn (32S、65/35) Index
-6.4%
-12.5%
-9.0%
-6.1%
-11.8%
-9.7%
-6.2%
-10.0%
-9.8%
-6.4%
-7.5%
-10.6%
-6.0%
-13.4%
-11.9%
-6.2%
-11.8%
-11.3%
-0.3%
-9.8%
-7.6%
7.1%
-6.6%
-0.9%
8.0%
-0.7%
-0.8%
10.3%
1.5%
-0.9%
13.1%
5.7%
-0.5%
13.1%
20.4%
2.3%
16.4%
30.2%
10.4%
17.9%
32.2%
13.0%
Spread between YoY Changes in CC328 v. China Cotton Yarn Index
Ja n-16
-0.1%
Feb
-2.8%
Ma r
-5.5%
Apr
-4.2%
Ma y
-0.5%
Jun
1.5%
Jul
8.9%
Aug
4.8%
Sept
1.2%
Oct
7.2%
Nov
7.7%
Dec
9.8%
Ja n-17
8.4%
Feb-17
9.4%
Major indices
CC328 Index (China domestic cotton)
CotLook A Index
FC Index (Foregin import cotton)
Source: Wind, CSCI Research
Figure 5: CC328 Index
35,000
30,000
RMB/ton
25,000
20,000
15,000
10,000
5,000
0
07/1/5
08/1/5
09/1/5
10/1/5
11/1/5
12/1/5
13/1/5
14/1/5
15/1/5
16/1/5
17/1/5
Source: Wind, CSCI Research
Please read the disclaimer on the last page.
4
6 March 2017
Texhong Textile: Margin uncertainty weighs on valuation
Major changes in our assumptions
Figure 6: Graphical presentation of historical relationship
FYE Dec
A. Sales Volume (YoY%)
Ya rns :
i ) Stretcha bl e core-s pun ya rns
i i ) Other ya rns
Fa bri cs :
Previous
2017E
2018E
Revised
2017E
2018E
Changes (ppt.)
2017E
2018E
15.0%
15.0%
10.0%
10.0%
10.0%
15.0%
15%
15%
15%
8%
8%
20%
0.0
0.0
5.0
-2.0
-2.0
5.0
-1.6%
-0.3%
-2.1%
-0.3%
9.8%
6.1%
5.4%
3.0%
11.5
6.4
7.5
3.3
18.6%
23.3%
17.7%
19.8%
18.7%
23.4%
17.8%
19.9%
18.3%
23.0%
17.4%
19.6%
18.3%
22.0%
17.4%
19.3%
-0.3
-0.3
-0.3
-0.2
-0.4
-1.4
-0.4
-0.6
19.2%
16.9%
15.4%
17.4%
18.7%
19.2%
16.9%
15.4%
17.4%
18.8%
18.9%
18.9%
15.1%
18.0%
18.8%
18.9%
18.9%
15.1%
18.0%
18.7%
-0.3
2.0
-0.3
0.6
0.1
-0.3
2.0
-0.3
0.6
-0.1
12.0%
10.4%
17.5%
13.2%
18.4%
12.0%
10.4%
17.5%
13.2%
18.4%
12.0%
8.6%
15.8%
12.9%
18.3%
12.0%
8.6%
15.8%
12.9%
18.1%
0.0
-1.8
-1.7
-0.3
0.0
0.0
-1.8
-1.7
-0.3
-0.2
C. Revenue
14,036
D. Adj. Net Profit
1,159
Source: Company data, Wind, CSCI Research
15,169
1,320
17,162
1,186
19,616
1,364
22.3%
2.3%
29.3%
3.3%
B. ASP (YoY%)
Bl ended ASP - a l l ya rn types
Bl ended ASP - fa bri cs
B. GPM
Ya rns :
i ) Stretcha bl e core-s pun ya rns
- Cotton
- Deni m
- Synthetic fi ber
i i ) Other ya rns
- Cotton
- Deni m
- Synthetic fi ber
Yarn: Sub-total
Fa bri cs :
- Stretcha bl e grey fa bri cs
- Other grey fa bri cs
- Ga rment fa bri cs
Overa l l Group GPM %
Valuation
We adjusted our net profit estimates upwards by 2.3%/3/3% for FY17/18E, based on a
higher yarn ASP assumptions (see Figure 6). Hence, our PT up to HKD12.2 (prev.
HKD11.5), still pegging to 8.2x PER, the 1-yr fwd historical average for the past 3
historical years. Texhong currently trades at 7.3x PER for FY17E. We reiterate our HOLD
rating, as we expect a more normalized recurring net profit growth in FY17E, risks from
larger working capital requirement and interest rate reflation as Texhong’s net gearing
is estimate at 69% in FY17E, the highest among its comps.
Please read the disclaimer on the last page.
5
6 March 2017
Texhong Textile: Margin uncertainty weighs on valuation
Figure 7: Peers valuation
Name
HK listed
Upstream: yarn/ fabric
Texhong Textile
Weiqiao Textile
Fountain Set
Pacific Textiles
Best Pacific
Taiwan Paiho
Sub-Average
Up-mid stream: fabric & garment
Texwinca
Shenzhou International
Victory City
Eclat
Sub-Average
Mid-stream: garment
Regina Miracle
Nameson
Win Hanverky
Eagle Nice
Makalot
Sub-Average
Average of all
Rating
Mkt Cap
(bn HK$) Currency Last Price FYE
PT Ticker
1-yr fwd PER
(x)
2-yr fwd PER
(x)
Sales Op Profit Cap Ex/
1-yr fwd PBR growth
Margin
Sales
(x)
(%)
(%)
(x)
ROIC
(%)
Dvd
ROA Yield
(%)
(%)
BUY
NR
NR
BUY
BUY
NR
12.2
N/A
N/A
11.4
7.7
N/A
2678 HK
2698 HK
420 HK
1382 HK
2111 HK
9938 TT
2678 hk equity
2698 hk equity
420 hk equity
1382 hk equity
2111 hk equity
9938 TT equity
10.3
6.7
1.3
12.9
5.8
7.0
7.3
HKD
HKD
HKD
HKD
HKD
TWD
11.3
5.6
1.1
8.9
5.6
23.4
12/2016
12/2015
12/2015
03/2016
12/2015
12/2015
7.3
N/A
N/A
14.7
17.5
17.5
14.5
6.4
N/A
N/A
13.5
15.1
15.1
12.8
1.4
N/A
N/A
4.3
3.6
3.6
3.3
29.1
(12.9)
(3.5)
0.3
10.1
3.6
4.4
11.8
18.3
2.4
16.7
19.9
20.3
14.9
10.5
3.8
1.9
5.1
6.0
7.1
5.7
13.0
4.7
N/A
20.8
13.5
11.4
12.7
5.8
3.5
2.6
17.3
12.0
8.6
8.3
2.0
5.1
N/A
7.9
2.4
N/A
4.3
HOLD
BUY
NR
NR
5.1
53.3
N/A
N/A
321 HK
2313 HK
539 HK
1476 TT
321 hk equity
2313 hk equity
539 hk equity
1476 TT equity
7.0
66.0
1.1
20.3
23.6
HKD
HKD
HKD
TWD
5.1
47.2
0.3
75.5
03/2016
12/2015
03/2016
12/2015
13.7
21.2
N/A
23.1
19.3
13.4
16.9
N/A
18.7
16.3
1.2
4.3
N/A
N/A
2.8
0.2
13.5
(4.4)
22.4
8.0
12.8
22.6
8.3
19.0
15.7
2.2
16.1
15.7
2.4
9.1
14.1
16.0
3.0
25.4
14.6
9.6
14.7
1.7
20.1
11.5
9.0
1.6
3.7
N/A
4.8
6.6
2.1
N/A
N/A
N/A
2199 HK
1982 HK
3322 HK
2368 HK
1477 TT
2199 hk equity
1982 hk equity
3322 hk equity
2368 hk equity
1477 TT equity
7.3
3.4
1.4
1.0
6.4
3.9
10.5
HKD
HKD
HKD
HKD
TWD
6.0
1.6
1.1
2.1
30.8
03/2016
03/2016
12/2015
03/2016
12/2016
41.0
9.9
N/A
8.0
16.3
18.8
17.4
19.0
7.3
N/A
7.1
14.0
11.9
13.2
N/A
2.1
N/A
0.9
N/A
1.5
2.6
21.2
7.7
7.5
1.2
(5.3)
6.5
6.2
12.6
10.3
7.0
10.9
11.3
10.4
13.1
17.9
7.0
5.9
1.6
2.0
6.9
7.0
8.1
13.1
9.7
9.9
19.6
12.1
13.1
6.0
11.0
6.9
8.0
13.8
9.2
9.5
0.9
10.3
12.8
N/A
6.0
5.1
BUY
BUY
NR
NR
NR
Source: Bloomberg, CSCI Research
Key takeaways from briefing:
 Chairman, Mr. Hung said the overall textile garment market is subdue and he
expects market consolidation to continues, where manufacturers having a more
vertically-integrated operations will have a higher competitive advantage. The major
threat remains to be Trump’s trade protectionist policy.
 The disappearance of TPP suggests a rather flat growth for textile garment industry
in Vietnam. Nevertheless, it is still supported by the free trade agreement between
Japan and Vietnam.
 Regarding downstream expansion into garment/ jeans wear production, Texhong
expects contribution to the group’s overall sales/ net profit will be minimal in the
near-term, with no specific target or timeline gave out.
 VN garment factory will launch production in March 2017, with target of 4mn pieces
of finished garment.
 Target revenue of RMB15bn for FY17E, mainly comes from upstream business
segment.
 Expect GPM to normalize in FY17E to levels comparable to FY15, given a slight
increase in yarn ASP.
 Among the other income of RMB126mn, RMB62.5mn came from policy incentives
for development in Xinjiang, Xuzhou, Shandong and Shanghai, which will not recur
in FY17, while, the remaining operating subsidies of RMB63.6mn is expected to
recur in FY17E.
 Capex for FY17E estimated at RMB1,000bn.
 Effective tax rate estimate lower to the range of 15-16% (given lower tax rate from
Xinjian).
Please read the disclaimer on the last page.
6
6 March 2017
Texhong Textile: Margin uncertainty weighs on valuation
 8: Operational data breakdown
Figure
Annual
2015
Sales Volume
A. Yarns:
i) Stretchable core-spun yarns (RMB/ton)
- Cotton
- Denim
- Synthetic fiber
Sub-total: strechable core-spun yarn
YoY %
ii) Other yarns (RMB/ton)
- Cotton
- Denim
- Synthetic fiber
Sub-total: other yarns
YoY %
Yarn: Sub-total
YoY %
B. Fabrics: (RMB/ meter)
- Stretchable grey fabrics
- Other grey fabrics
- Garment fabrics
Fabrics: Sub-total
YoY %
ASP
A. Yarns:
i) Stretchable core-spun yarns (RMB/ton)
- Cotton
- Denim
- Synthetic fiber
Blended ASP: strechable core-spun yarn
YoY %
ii) Other yarns (RMB/ton)
- Cotton
- Denim
- Synthetic fiber
Blended ASP: other yarns
YoY %
Blended ASP all yarn types
YoY %
B. Fabrics: (RMB/mn meter)
- Stretchable grey fabrics
- Other grey fabrics
- Garment fabrics
Blended ASP: Fabrics
YoY %
Revenue (RMB mn)
A. Yarns:
i) Stretchable core-spun yarns
- Cotton
- Denim
- Synthetic fiber
Sub-total: strechable core-spun yarns
YoY %
ii) Other yarns
- Cotton
- Denim
- Synthetic fiber
Sub-total
Yarn: Sub-total
YoY %
B. Fabrics:
- Stretchable grey fabrics
- Other grey fabrics
- Garment fabrics
Fabrics: Sub-total
YoY %
C. Garments & others:
YoY %
TOTAL - Revenue
YoY %
GPM
i) Stretchable core-spun yarns
- Cotton
- Denim
- Synthetic fiber
Sub-total: strechable core-spun yarns
ii) Other yarns
- Cotton
- Denim
- Synthetic fiber
Sub-total
Yarn: Sub-total
Fabrics:
- Stretchable grey fabrics
- Other grey fabrics
- Garment fabrics
Fabrics: Sub-total
Overall Group GPM %
2016
Interim
1H16
2H16
139,761
65,705
34,076
239,542
7.4%
173,732
90,375
41,712
305,819
27.7%
80,838
40,396
19,791
141,025
31.9%
92,894
49,979
21,921
164,794
24.3%
94,451
83,574
59,364
237,389
13.8%
476,931
10.5%
119,986
109,472
64,113
293,571
23.7%
599,390
25.7%
46,979
43,567
30,690
121,236
10.2%
262,261
20.9%
73,007
65,905
33,423
172,335
35.3%
337,129
29.7%
45.9
13.7
9.4
69
-14.8%
53.3
11.4
16.0
81
17.0%
22.7
5.0
8.1
36
10.8%
30.6
6.4
7.9
44.9
22.3%
22,453
22,862
22,510
22,573
-5.8%
21,998
23,630
23,788
22,724
0.7%
21,508
23,281
23,470
22,291
-1.8%
22,488
23,979
24,106
23,158
3.2%
18,394
17,753
20,336
18,654
-9.1%
20,622
-7.5%
19,505
17,960
21,354
19,333
3.6%
21,063
2.1%
17,738
17,073
20,803
18,275
-3.2%
20,435
-1.6%
21,272
18,847
21,905
20,390
10.7%
21,692
5.9%
10.1
5.8
19.0
10.5
-0.3%
9.9
7.0
16.7
10.8
3.6%
9.8
6.5
16.7
10.9
3.2%
10
8
17
11
4.1%
3,138
1,502
767
5,407
1.2%
3,822
2,136
992
6,950
28.5%
1,739
940
464
3,144
29.5%
2,083
1,195
528
3,806
27.8%
1,737
1,484
1,207
4,428
9,835
2.2%
2,340
1,966
1,369
5,675
12,625
28.4%
833
744
638
2,216
5,359
18.9%
1,507
1,222
731
3,460
7,266
36.3%
465.7
79.7
179.0
724.4
-14.5%
15.1
n.a.
10,575
1.0%
528.3
80.0
266.4
875
20.7%
148.0
880.7%
13,648
29.1%
221.8
32.3
135.5
389.6
14.1%
73.0
n.a.
5,822
20.1%
307
48
131
485
26.7%
18.3%
23.0%
17.4%
19.5%
21.0%
24.3%
22.3%
22.2%
19.8%
24.7%
21.2%
21.5%
22.2%
23.9%
23.4%
22.9%
18.9%
16.6%
15.1%
17.1%
18.4%
17.4%
18.9%
15.4%
17.4%
20.1%
14.7%
16.5%
14.6%
15.3%
18.9%
20.1%
21.3%
16.2%
19.6%
21.2%
12.0%
10.4%
17.5%
13.2%
18.0%
11.9%
8.6%
15.8%
12.8%
19.4%
12.4%
9.1%
13.2%
12.4%
18.2%
11.4%
8.1%
18.4%
13.2%
20.5%
n.a.
7,826
36.6%
Source: Company data, CSCI Research
Please read the disclaimer on the last page.
7
6 March 2017
Texhong Textile: Margin uncertainty weighs on valuation
Income statement (RMBm)
Y e a r e nd: D e c
Cash flow statement (RMBm)
2 0 15
2 0 16
2 0 17 E
2 0 18 E
2 0 19 E
Y e a r e nd: D e c
Revenue
10,575
13,648
17,162
19,616
22,188
E B IT
COGS
(8,669)
(11,003)
(14,021)
(16,059)
(18,205)
Gro ss pro fit
1,906
2,645
3,142
3,557
3,982
Selling & distributio n co sts
(369)
(497)
(738)
(843)
General & administrative expenses
(381)
(547)
(755)
(863)
63.6
51.7
39.2
Other inco me
Other lo sses - net
E B IT D A
Depreciatio n & A mo rtizatio n
E B IT
Net interest expenses/ (inco me)
(85.0)
Taxatio n
(419)
(403)
(271)
(269)
(243)
(954)
Taxes paid
(147)
(296)
(296)
(319)
(342)
(976)
Changes in wo rking capital
583
(2,078)
(537)
(388)
(409)
22.2
Others
1,009
1,196
1,378
1,584
1,790
C a s h f lo w f ro m o pe ra t io ns
1,6 4 3
(323)
1,3 4 5
1,7 7 8
2 ,0 5 8
68.7
78.7
2 ,7 4 6
3 ,0 4 4
788
1,0 7 1
1,8 0 6
1,7 5 9
1,9 5 8
4
736
(147)
M ino rity interests
Net pro fit
(891)
Net interest expenses/ (inco me)
689
JVs and asso ciates
2 ,15 3
Capex
(1,007)
(1,377)
A cquisitio ns
(4)
Dispo sals
(7)
269
243
Others
-
-
-
C a s h f lo w f ro m inv e s t ing
11
1,4 9 9
11
1,6 9 9
(1,000)
(1,000)
(36)
-
-
-
-
-
-
-
-
-
-
-
-
( 1,0 18 )
( 1,4 13 )
( 1,0 0 0 )
( 1,0 0 0 )
( 1,0 0 0 )
(351)
(403)
(461)
11
1,9 2 0
Dividends
(176)
(350)
(296)
(319)
(342)
Issue o f shares
(438)
(164)
(14)
(14)
(15)
(15)
Change in debt
1,038
1,188
1,189
1,366
1,563
N e t pro f it ( *a djus t e d)
527
1,119
1,18 6
1,3 6 4
1,5 6 1
B asic EP S (RM B )
0.67
1.33
1.33
1.53
1.75
C ha nge in c a s h
B asic EP S (RM B ) - (adjusted)
0.60
1.25
1.33
1.53
1.75
Cash and cash equivalents at B eg. o f the year
Diluted EP S (RM B )
0.67
1.33
1.33
1.53
1.75
C a s h a nd c a s h e quiv a le nt s a t E nd o f t he ye a r
Diluted EP S (RM B ) - (adjusted)
0.60
1.25
1.33
1.53
1.75
Free cash flo w
DP S (RM B )
0.20
0.39
0.39
0.45
0.52
Y e a r e nd: D e c
2 0 15
2 0 16
2 0 17 E
2 0 18 E
2 0 19 E
Cash
2,188
1,994
1,716
1,962
2,219
Balance sheet (RMBm)
Sho rt term investments
(1,000)
(296)
2
591
891
271
11
1,4 9 7
2 ,15 3
(788)
2 ,4 4 8
83
2 0 19 E
1,9 5 8
(689)
548
79
2 0 18 E
1,7 5 9
(548)
2 ,3 5 4
403
2 0 17 E
(455)
455
419
59.1
2 0 16
1,8 0 6
Depreciatio n & amo rtisatio n
1,5 2 6
No n-recurring items
P re t a x pro f it
141.1
2 0 15
1,0 7 1
Others
C a s h f lo w f ro m f ina nc ing
2,056
-
-
(272)
-
(130)
(340)
-
-
-
-
-
424
1,5 4 2
(623)
(533)
( 8 0 1)
1,0 4 9
( 19 3 )
(278)
245
257
1,138
2,188
1,994
1,716
1,962
2 ,18 8
1,9 9 4
1,7 16
1,9 6 2
2 ,2 19
631
s
616
1,039
1,293
2 0 15
2 0 16
2 0 17 E
2 0 18 E
2 0 19 E
17.9
Key ratios
Y e a r e nd: D e c
O pe ra t ing ra t io s
-
-
-
-
-
Gro ss margin
18.0
19.4
18.3
18.1
A cco unts receivables
1,032
1,590
1,806
2,064
2,334
EB IT margin (%)
10.1
13.2
10.3
10.0
9.7
Invento ry
1,893
2,931
2,968
3,400
3,854
EB ITDA margin (%)
14.4
17.3
14.3
14.0
13.7
17.8
Other current assets
T o t a l c urre nt a s s e t s
P P &E
Intangible A ssets
222
435
435
444
453
Effective tax rate (%)
20.0
19.8
19.8
18.8
5 ,3 3 4
6 ,9 5 1
6 ,9 2 5
7 ,8 6 9
8 ,8 6 0
Revenue gro wth (%)
1.0
29.1
25.8
14.3
13.1
5,549
6,926
7,237
7,450
7,559
Net inco me gro wth (%)
92.6
101.0
0.1
14.9
14.5
-
-
-
-
-
Net inco me (adjusted) gro wth (%)
79.9
112.5
6.0
14.9
14.5
64
99
110
121
131
B asic EP S gro wth adj (%)
79.9
110.5
6.0
14.9
14.5
454
1,308
2,156
2,494
2,853
DP S gro wth (%)
93.8
96.8
0.1
14.9
14.5
T o t a l lo ng t e rm a s s e t s
6 ,0 6 7
8 ,3 3 4
9 ,5 0 3
10 ,0 6 4
10 ,5 4 4
T OT A L A SSET S
11,4 0 1
15 ,2 8 4
16 ,4 2 9
17 ,9 3 3
19 ,4 0 4
ROE (%)
13.5
21.7
19.8
19.6
19.4
Sho rt term debt
1,548
3,550
1,718
1,588
1,248
ROCE (%)
16.0
22.9
17.1
17.3
17.3
A cco unts payables
2,295
3,044
3,140
3,597
4,078
A sset turno ver (x)
0.9
0.9
1.0
1.1
1.1
882
794
1,262
1,453
1,657
Op cash / EB IT (x)
1.5
(0.2)
0.8
0.9
1.0
4 ,7 2 5
7 ,3 8 8
6 ,12 0
6 ,6 3 8
6 ,9 8 3
(0.5)
(0.4)
(0.7)
(0.8)
(0.9)
2,505
2,560
4,120
4,120
4,120
Invento ry turno ver days
74.1
80.0
77.3
77.3
77.3
96
113
114
122
131
A cco unts receivable days
40.5
35.1
38.4
38.4
38.4
-
-
-
-
A cco unts payable days
83.4
88.8
81.8
81.8
81.8
39.1
A sso ciates and JVs
Other lo ng term assets
Other current liabilities
T o t a l c urre nt lia bilit ie s
Lo ng term debt
Deferred tax
Co nvertible bo nds
-
Other lo ng term liabilities
136
32
32
32
E f f ic e nc y ra t io s
Depreciatio n / CA P EX (x)
32
T o t a l lo ng t e rm lia bilit ie s
2 ,7 3 8
2 ,7 0 5
4 ,2 6 5
4 ,2 7 4
4 ,2 8 3
Le v e ra ge ra t io s
T O T A L LIA B ILIT IE S
7 ,4 6 3
10 ,0 9 3
10 ,3 8 5
10 ,9 12
11,2 6 6
Net debt/ equity (%)
Shareho lders’ funds
M ino rity Interests
T O T A L LIA B A N D E Q UIT Y
3,911
5,149
5,987
27
43
57
11,4 0 1
15 ,2 8 4
16 ,4 2 9
6,949
71
17 ,9 3 3
8,051
87
47.7
79.9
68.8
53.9
Net debt / EB ITDA (x)
1.2
1.7
1.7
1.4
1.0
Interest co ver (x)
2.6
4.5
6.5
7.3
8.8
1.1
0.9
1.1
1.2
1.3
16.3
7.8
7.3
6.4
5.6
16.3
6.9
2.2
1.8
7.8
5.5
1.7
3.5
7.3
5.3
1.4
3.5
6.4
4.6
1.2
4.0
5.6
3.9
1.1
4.6
Current ratio (x)
19 ,4 0 4
V a lua t io n
Net cash / (debt)
(1,865)
(4,115)
(4,121)
(3,746)
(3,149)
P ER (x)
P ER (x) - fully-diluted and adj. EP S
EV/EB ITDA (x)
P B R (x)
Dividend yield (x)
*A djusted net pro fit excluded o ne-o ff subsidy inco me and gains/ lo sses fro m acquisitio ns o f subsidiaries and JVs, adjusted fo r the M I tax impact.
Source: Company data, Bloomberg, CSCI Research estimates
Please read the disclaimer on the last page.
8
6 March 2017
Texhong Textile: Margin uncertainty weighs on valuation
Research
Institutional Sales & Trading
LIU Taisheng, Steven
TMT
(852) 3465 5652
[email protected]
XIANG Xinrong, Ron
(852) 3465 5633
[email protected]
SO Lai Shan, Jennifer
Consumer
(852) 3465 5781
[email protected]
CHAN Ka Yeung, Duncan
Commodity
(852) 3465 5654
[email protected]
TIAN Yang
Automotive
(852) 3465 5775
[email protected]
SUN Lingxiao, Roger
Industrials
(852) 3465 5785
[email protected]
XU Bo, Albert
Financials
(852) 3465 5789
[email protected]
ZHU Kexin
Renewable energy
(852) 3465 5653
[email protected]
CAO Xiaogang, Glen
(852) 3465 5658
[email protected]
ZHANG Meng, Maurice
(852) 3465 5656
[email protected]
HO Wen Hao, Jack
(852) 3465 5685
[email protected]
WANG Zhuo, Gary
(852) 3465 8655
[email protected]
HO Hung Wei
(852) 3465 5687
[email protected]
LEE Ying Ju, Rose
(852) 3465 5707
[email protected]
LI Jiageng, Mike
(852) 3465 5636
[email protected]
XIA Tian
(852) 3465 5670
[email protected]
XU Xiaowei, Vincent
(852) 3465 5795
[email protected]
LI Tianyi, Miranda
(852) 3465 8653
[email protected]
Please read the disclaimer on the last page.
9
6 March 2017
Texhong Textile: Margin uncertainty weighs on valuation
Company Rating Definition
The Benchmark: Hong Kong Hang Seng Index; Time Horizon: 12 months
Buy
Hold
Sell
12-month absolute total return: >=10%
12-month absolute total return: >-10% but <10%
12-month absolute total return: <=-10%
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6 March 2017