Textile and apparel industry 2017 annual investment strategy: pragmatic change waiting for the flower to bloom

2016 fabric workwear industry has not yet obvious recovery, the transformation of enterprises to the false. Cotton prices rebounded overlapping with the depreciation of the yuan favorable upstream fabric manufacturing; e-commerce growth slowed down under the new trend of retail industry upgrade brand workwear companies to actively improve supply chain governance, and quality frequently, pushing the transformation and upgrading strategy is clear, strong governance team execution, to the leading business model and performance growth for the direction of the company, taking into account the higher boom segmentation categories.

　　Investment highlights.

　　2016 upstream and downstream performance divergence, workwear category retail growth continued to decline, cotton prices stabilized and rebounded beyond expectations, accelerated devaluation of the RMB to enhance the elasticity of spinning business performance, valuation back down. The first three quarters of the industry as a whole net profit growth of 7.13%, including fabric manufacturing net profit increased by 17.6%, a significant rebound; industry valuation fell 10%.

　　Looking for positive change both realistic and pragmatic stocks is 17 years stock selection logic. 16 years of restructuring transformation is still a strong thrust stock prices, in contrast, 15 years part of the transformation of stocks this year canopy retracement, to turn to the essence tend to obvious.

　　17 cotton prices are likely to stabilize, spinning enterprise performance stabilization, focus on the transformation and upgrading is expected. 16 March since the spinning enterprise inventory cycle to promote cotton prices rose 36%, the current market did not appear supply and demand gap, cotton prices to labor key in March next year to throw the storage situation, it is estimated that the first quarter cotton price stability. Spinning enterprises benefit from the improvement of inventory and order concentration, industrial transformation and upgrading after the worry-free.

　　The slowdown in the growth of e-commerce triggered new retail business thinking, innovative retail model at the right time. Fast fashion brands represented by ZARA, deep supply chain governance, with accurate information flow and extremely fast logistics building station brand barriers.

　　Brand enterprises accelerate the implementation of the concept of supply chain flexibility, and the online and offline resources are in the process of being rectified, and the platform of supply chain management services is focused on the emergence of muddy water enterprises.

　　The trend of industrial conglomeration of branded workwear and the accelerated pace of merging and expanding to create a brand matrix. The high-end luxury group represented by LVMH breaks the single brand audience bottleneck and continues to acquire to play synergy. This year, overseas brand acquisition projects have been landed, it is recommended to pay attention to the light luxury brands and fast-growing designer brands in line with the trend of consumer tax upgrade.

　　Our investment strategy is pragmatic and realistic, and we recommend companies with clear transformation and upgrading strategies, strong execution of governance teams, advanced business models and growth-oriented performance, taking into account the high boom segmentation categories.

　　Promote less strong main looking for the transformation of the company Lianfa shares, backed by a large group of assets expected to be injected Shandong Ruyi, and supply chain management of new business expansion smoothly Sohuite.

　　Risk tips: end retail weakness; cotton prices canopy fluctuations; RMB exchange rate risk.