Profit Margins Of Cotton Textile Enterprises Have Been Improved

The rapid rise in cotton prices has benefited cotton growing enterprises, especially the cotton growing enterprises in Xinjiang. The reason is that cotton production accounts for about 60% of China's cotton output in Xinjiang, and the subsidy policy is tilted.

"There are fewer economic crops for cotton planting in Xinjiang area, and strong dependence on cotton. The cotton industry is directly related to the stability and prosperity of Xinjiang."

According to relevant industry sources, the state started the cotton direct subsidy pilot project in Xinjiang in 2014, and its subsidy amount is greater than that of the Yangtze River Basin and the the Yellow River River Basin.

Under the tilt of State purchasing and storage policy and subsidy policy, the cotton planting focus of the three cotton producing areas began to shift to Xinjiang.

The cotton industry's revenue contribution accounts for more than 3 of the company's total revenue. The rapid rebound in the current cotton price is conducive to further improvement of the company's performance.

As domestic textile enterprises demand higher cotton, and the market shows the phenomenon of "good cotton supply in short supply and bad cotton flooding into worries", the cotton holding enterprises have a larger increase in the price of lint cotton with better resources, and this is good for the crown cotton stake which is 23.05% of the main business income of the company.

In the specific company, Baron East is one of the leading color spun yarns in China. Cotton raw materials account for about 70% of the operating cost.

More, benefiting from rising prices of raw materials.

Assuming that the exchange rate and other external conditions remain unchanged, if cotton prices increase by 5%, 10% and 20%, it is estimated that the upward elasticity of net profit in the first quarter is 10.76%, 24.58% and 52.21%.

Huafu color spinning raw material accounts for about 75% of the operating cost. Because of the relatively low profit margins and the relatively high cost of raw materials, cotton growth has a greater impact on the performance elasticity.

The company adopts Xinjiang cotton and the government subsidy accounts for a relatively high profit ratio, which is relatively stable.

If cotton prices rise by 5%, 10% and 20%, it is estimated that the upward elasticity of net profit in the first quarter is 32.87%, 63.56% and 124.94%.

At present, the company has invested 500 million yuan to set up Huafu network chain Investment Co., Ltd., and actively create an Internet textile and apparel supply chain platform.

The joint stock company has formed the purchase of seed cotton from upstream, cotton spinning to the middle reaches.

Production, and then downstream clothing, bedding and other integrated production and sales chain, a variety of textile layout gradually improved.

The company said in April 22nd that cotton inventories for 1~2 months, and the long-term rise in cotton prices would lead to an increase in the cost of the products. If only the domestic cotton rose and the gap with the international cotton prices was large, it would affect the products of the company.

If domestic and international cotton prices both rise, the impact on the company will decline.

In the division of the cotton industry chain, the upstream is cotton farmers or cotton planting enterprises, mainly responsible for planting, picking and selling cotton.

However, due to weather, pests and human factors, cotton prices will fluctuate.

After the cotton mill has been processed, cotton becomes fluffy and becomes a cotton with a thickness.

And then sold to the downstream spinning and weaving enterprises through cotton traders, and finally made garments.

Therefore, "cotton prices will rise sharply in the short term, except for Lido planting outdoor, will also directly benefit cotton spinning enterprises."

Changjiang Securities believes that the reason why textile enterprises get good results is that the textile enterprises adopt the cost plus pricing method. The cotton that is being put into production is purchased over the past time. At that time, the price of cotton is relatively low, and the cost is relatively low.

Therefore, from the perspective of price pmission mechanism, in the early stage of cotton price rising, considering the current situation of domestic cotton textile enterprises (general cotton mill inventory in 3 months or so), cotton prices have increased, so that these cotton spinning enterprises not only enjoy the added profit of yarn products, but also have some benefit from the rising raw materials, which contributes to the short term gross margin and profit level of cotton textile enterprises.

In terms of investment opportunities, Huafu color spinning, Bailong Orient, Lutai A and Luen Fat shares have more solid fundamentals and strong defensive and performance improvement capabilities.