Garment Foundry Factory IPO: Tens Of Millions Of Bad Debts Each Year

Another garment foundry enterprise has launched an impact on A shares.

In recent years, the Dalian based WAN Dai clothing Limited by Share Ltd ("Wan Dai stock") has disclosed the IPO prospectus, which is expected to raise 366 million yuan at the Shenzhen Stock Exchange, which is mainly used for the production base construction.

The outstanding problem of the company is that the company is small in scale, weak in profitability and poor in receivables. In this relatively surplus industry, compared with the giants of the same industry, Shenzhou International and Jingyuan international, there is basically no core competitiveness.

It is worth mentioning that the internal control of Wan Dai shares is lax. The company and its subsidiaries were punished 4 times. The Dalian subsidiary of the controlling shareholder, Kun Yu, was revoked by the relevant departments in 2013 and was not written off until February 2018.

OEM 80% outsourcing

The main business of Wan Dai stock is the processing and sales of woven garments.

Relying on its major client Indo Textile Group (Zara parent company), Armani group, bestseller fashion (Jack&Jones, Only, VeroModa, Selected parent company), Benetton (UnitedColorsofBenetton, Sisley parent company), about 80% of the company's business relies on overseas markets, and at the same time, there are still a small number of domestic customers, such as Mei Bang clothing (002269.SZ).

After the common style design of Wan Dai stock and clothing brand, independent research and development of raw materials and procurement of raw materials are followed by production and marketing.

It is worth mentioning that, as a supporting agency for garment brands, more than 80% of the company's businesses rely on outsourcing production.

In 2016 -2018, the operating income of Wan Dai shares was 1 billion 38 million yuan, 1 billion 197 million yuan and 1 billion 241 million yuan respectively, and the net profit attributable to them was 60 million 349 thousand and 200 yuan, 24 million 114 thousand and 300 yuan and 62 million 863 thousand and 900 yuan respectively.

As an export oriented company, the company's performance is highly dependent on export tax rebates. In 2016 -2018, the export tax rebates received were 91 million 592 thousand and 300 yuan, 111 million 489 thousand and 500 yuan and 111 million 2 thousand and 500 yuan respectively.

That is to say, if it is not for export rebates, the company's business losses during the reporting period will reach 167 million yuan.

Net profit fell sharply in 2017, mainly due to exchange losses. However, even if the amount of exchange losses is excluded, the net interest rate of the company is declining in recent years. In 2016 and 2018, the company's net interest rates were 5.81% and 5.07% respectively.

　 Related party funds occupy over 100 billion yuan

Tao Sen, the founder, actual controller, chairman and general manager of Wan Dai stock company, once served as the European manager of Liaoning garments import and export company, then resigned and started to make foreign trade in the European market.

Since 2004, Tao has registered 4 clothing companies, namely, Xin Wan Dai clothing, Hongkong Wan Dai, La do dresses, and Liang costumes. Registered in 2006, Wan Dai international trade (Dalian) Co., Ltd. (predecessor of Wan Dai stock).

By the end of 2016, Wan Dai stock had a premium of about 20% by increasing the registered capital, capital replacement and cash acquisition. It bought 4 companies engaged in garment processing and trading, including 4 garments processing and trading businesses controlled by the actual controller, and the listed companies.

According to the 2015 annual performance before the acquisition, the 4 companies accounted for 72.82% of the 10000 generation shares (combined), accounting for 88.12% of net profit.

The reason for the takeover is to avoid competition and related transactions. In addition, zebra consumption found that there was a large amount of capital occupation between the 10000 generation shares and related companies. In 2016 alone, nearly 100 million yuan was involved, and over 50 million yuan in 2017.

After the introduction of the anti listed company, the performance of the Hwan generation clothing and Hongkong Wan Dai's performance fluctuated greatly, and the performance of Lin Lang's clothing and adornment declined sharply.

　　 Rising labor costs eroding profits

Because it is for the clothing brand to do the work of clothing, the added value is low, so the gross margin of the garment industry is generally low. As of November 2018, the gross profit margin of the industry was only 15.40%.

Although the gross profit margin of the company is slightly higher than that of the industry, there has also been a serious downward trend. In 2016 -2018, the consolidated gross profit margin of the company was 19.92%, 14.92% and 17.38% respectively.

After the zebra consumption combing, we found that the gross profit margin of the company declined as a whole, mainly because of the increase in labor costs. For example, in 2016, the direct labor of the company's jacket products was 2.97 yuan, reaching 4.68 yuan in 2018, rising by nearly 6.

In the apparel industry, compared with twenty billion of the revenue giants, Shenzhou International (02313.HK), Jingyuan international and so on, the 10000 generation shares are regarded as the "small size" and the gross profit margin is not the same.

In 2018, the gross profit margin of Shenzhou International, Jingyuan international and WAN Dai shares was 31.60%, 18.80% and 17.38% respectively.

With the rise of labor costs, the profit margins of the garment industry have been further squeezed. A wave of overseas layout has sprang up in the industry. Shenzhou International, 02232.HK, virgin, 603558.SH, and South spin holdings have started factories in Vietnam and Kampuchea.

The company also registered Burma Wan Dai in 2015. As the only factory outside the company, Burma Wan Dai has not yet made a profit.

　 Tens of millions of bad debts are charged every year.

In addition to small scale and weak profitability, there are also problems of high accounts receivable in Wan Dai shares.

At the end of -2018 2016, the balance of accounts receivable of the company was 254 million yuan, 243 million yuan and 242 million yuan respectively, accounting for 59.07%, 51.48% and 48.99% of current assets respectively.

In the top five list of accounts receivable, there are always American state clothes. By the end of 2018, the company's accounts receivable for US bond clothing was 31 million 738 thousand and 200 yuan, only 39 million 712 thousand and 100 yuan from BenettonAsiaPacificLtd.'s.

In fact, in 2018, the list of the top five customers of the United States apparel company did not enter. Only in 2017, it ranked the fifth largest customer and purchased 57 million 916 thousand and 400 yuan of clothing.

This is really the "Butterfly Effect" of the clothing industry.

In 2016 -2018, the company accounts receivable account for 13 million 889 thousand and 400 yuan, 12 million 813 thousand and 500 yuan, 15 million 312 thousand and 900 yuan.

Even if some of the money is not paid back, the company has to resort to the law.

The company prospectus shows that because Tieling Xing Long Department Store Co., Ltd. owed 269 thousand and 500 yuan in payment, the company's wholly owned subsidiary, Xin Wan Dai, dropped its clothing to the court.

Zebra consumption has been found by enterprises, and the case of such money recovery under the name of Wan Dai shares is not unusual. It is only because the case has been closed and has not entered the scope of disclosure of the prospectus.