The Core Advantage Of Tianhong Textile Lies In Cost Control

Rainbow spin (02678. HK) announced that the company's profits in the first 10 months had exceeded the level of 2012, and it is expected that this year's performance will achieve substantial growth.

Tianhong Textile is undoubtedly the bull stock in the Hong Kong stock market for more than a year. At the end of September last year, the share price of Tianhong Textile was only about HK $2.5, while this year it reached a peak of HK $16.36, with a maximum increase of 554%. By the end of last week, the share price was still at HK $13.2.

The cotton textile industry in which Tianhong Textile is located is not booming. What is the reason why Tianhong Textile has become the winner of the Red Sea market? Analysts told reporters that the establishment of overseas factories reduced operating costs and was the direct reason for the company's performance.

Performance continues to grow significantly this year

Tianhong Textile Group, founded in 1997 by Mr. Hong Tianzhu, has become one of the top 20 competitive enterprises in the national cotton textile industry. At the end of 2004, Tianhong Textile was listed on the main board of the Hong Kong Stock Exchange, but its share price performance has been very low for more than five years after listing. In December 2008, the share price of Tianhong Textile fell to HK $0.26.

In 2010, the company's performance nearly doubled, and its share price rose from the highest of HK $1 to HK $6. However, in 2011, the company's performance fell sharply again, and its share price returned to about HK $2 again. In 2012, Tianhong Textile's performance rebounded again, and in 2013, it formed a rapid growth, and its share price ushered in a new round of soaring.

In August this year, Tianhong Textile released its 2013 semi annual report, and its net profit doubled year-on-year. The company's share price soared to an all-time high of HK $16.36 before technical adjustment.

Chen Geng, a senior analyst of Huili Securities, believes that the sharp rise in the share price of Tianhong Textile is driven by the significant growth of the company's performance, which is invaluable in the case of the downturn in the textile industry. He pointed out that while Tianhong Textile made huge profits, it also captured a large number of market shares, which is the charm of the winners of the Red Sea market.

In 2013, the share price of Tianhong Textile soared, on the one hand, because the company's performance increased nearly seven times in 2012, and this year's performance continued to grow. In this year's interim report, Tianhong Textile's accumulated net profit tripled to 447 million yuan in the same period of 2012.

On November 8 (last Friday), an announcement was made that the profits of the first ten months of this year had significantly exceeded the profits of last year. Therefore, it is expected that the profit of this year will continue to increase significantly compared with that of 2012. The company said that by the end of September this year, it had completed the trial production and expansion procedures of new production facilities. The group now has about 1.84 million spindles in full operation, and about 1.11 million spindles in China and 730000 spindles in Vietnam. In the first 10 months of this year, the Group sold about 216000 tons of yarn.

In addition, the Group is currently adjusting its product portfolio to meet the needs of customers for different products, so that the production and sales rate will reach or exceed 100% from November this year. At present, with the adjusted product portfolio, the monthly yarn output of the Group is about 32000 tons, and it is expected to reach the goal of annual yarn output of about 440000 tons by the second quarter of next year.

The core advantage lies in cost control

From the perspective of operating revenue growth, in fact, the revenue growth of Tianhong Textile is extremely limited in the past year. In 2012, the turnover growth rate was only 6.8%, and in the first half of this year, the turnover growth rate was only 8.5%.

Why can the company achieve such high net profit growth? Chen Geng pointed out that the significant increase of its profit was driven by the significant recovery of its gross profit margin, which rose 7.2 percentage points to 15.3% in 2012. Judging from the data in this year's interim report, this figure increased to 21.4% in the first half of 2013. Obviously, the reduction of costs directly boosted the profit growth.

Chen Geng believes that the main reasons for the decline of Tianhong textile costs include: the low international cotton price, which is significantly lower than the domestic price; The establishment of overseas factories has reduced the operating costs, which is the direct reason for the outbreak of performance. More importantly, the management of Tianhong Textile has a long-term vision and is active in layout. Its performance and share price are only the inevitable result of its strategic layout. In the growth process of Tianhong Textile, its management team has made at least three very successful decisions: 1. positioning itself as a differentiated product with core spun yarn as the core; 2. Set up factories overseas; 3. Introduce SAP to optimize business processes.

Tianhong Textile said that for the expansion plan next year, the expansion of the company's plant in Shandong will be reduced by half from about 120000 spindles to about 60000 spindles, while the plant in Vietnam will be increased from about 230000 spindles to 258000 spindles.

In addition, the application and approval process of Uruguay project is slow, and the military industry may be delayed to 2015.