Textile And Clothing: Cotton Demand Innovation High, Driving Cotton Price Strong, Firmly Optimistic About Cotton Textile Leader

328 cotton index rose sharply from 18000 yuan / ton before the festival to more than 21000 yuan / ton after the festival. At the same time, according to industry research, Xinjiang new cotton seed cotton converted lint price has obviously exceeded 328 cotton index.

We believe that under the background of global cotton demand reaching a new high and inventory returning to normal, cotton prices are now well supported. We suggest that we should focus on leading cotton spinning companies led by Tianhong textile, Huafu fashion and Blum Oriental.

Key points of investment

Global: cotton demand reaches a new high and inventory returns to health

In terms of global supply and demand, the decline in demand brought about by the epidemic is over. According to USDA, although the global cotton consumption decreased from 26.23 million tons to 22.39 million tons in 19 / 20 years under the influence of the epidemic situation, after more than one year's recovery, it is estimated that the cotton consumption in 21 / 22 years will exceed 27 million tons, reaching the highest level in nearly 15 years.

On the supply side, with the significant recovery of demand, the world's major cotton production, except China, has increased. However, due to the impact of weather and disasters (such as the United States hurricane, Indian cotton bollworm, etc.) and the epidemic situation, the global cotton production is expected to return to the level of 26 million tons in the whole year, and the production level of nearly 27 million tons before the outbreak has not been restored.

Therefore, after two consecutive years of production less than demand, the global cotton inventory has dropped from 21.32 million tons in 19 / 20 years to 18.87 million tons in 21 / 22 years, basically close to the level of 17.5 million tons before the outbreak. The ratio of storage to sales of cotton is about 0.7, which is basically normal.

We believe that the global cotton supply and demand relationship has completely passed the difficult stage of the epidemic and returned to normal. With the recovery of demand, the global cotton price has the basic conditions for upward.

China: cotton production reduction, strong demand, cotton ginning plant increase, promote short-term price rise, China's supply and demand relationship also contributed to the rise in cotton prices. From the supply side, on the one hand, due to the weakness of cotton prices in the past few years and the rising prices of other crops, but also due to the weather problems in Xinjiang this year, USDA estimates that China's cotton production in 21 / 22 will be 5.82 million tons, a year-on-year decrease of more than 9%.

On the demand side, we can see that under the background of demand recovery but limited overseas textile production capacity, China's cotton consumption continued to rise to 8.93 million tons driven by the return of global garment orders, returning to the highest level in nearly a decade.

Therefore, we can see that China's supply and demand of cotton from the gap of more than 3 million tons; At the same time, after years of de stocking, China's cotton inventory level and inventory sales ratio has gradually dropped to the lowest level in ten years, which has become the basis of this cotton price rise.

At the same time, Xinjiang's ginning plant capacity has increased significantly in recent years. Under the current situation that the overall inventory is low and the supply of new cotton has declined, it has further accelerated the rise of short-term cotton prices.

Investment suggestion: cotton price has support in the current price, optimistic about cotton spinning leader to fully benefit. At present, cotton consumption both in the world and in China has rebounded rapidly. At the same time, the global cotton inventory, especially China's, has come to a relatively low position. We believe that the current cotton price of about 20000 tons per ton has strong support on supply and demand.

From the perspective of investment targets, we firmly recommend Tianhong textile, Huafu fashion and Blum Oriental, which are fully benefited from the investment

(1) as the global leader of elastic core spun yarn, Tianhong textile has reached 4.14 million spindles in 21h1. The huge yarn production capacity has brought about greater flexibility in cotton price performance. We estimate that the annual cotton consumption of the company's yarn business is more than 800000 tons, and the company maintains a cotton inventory for five months throughout the year.

The cotton price of 21h1 as the cost of the company is about 16000 yuan / ton. There are 350000 tons of inventory in the company's account + in transit. If the cotton price is maintained at the current price, this part of inventory is expected to contribute about 3000 yuan per ton of profits for the company. As of 21h1, the company's inventory value of raw materials is 3.26 billion.

We estimate that the performance of Tianhong textile in 21-23 years will be 24.7/23.2/2.68 billion, and the corresponding valuation is 3.4/3.7/3.2x. Considering the performance increment brought by the continuous expansion of downstream business and the additional profits brought by the rising cotton price, we believe that the company's 21 year performance is likely to continue to be improved. The current valuation will maintain the "buy" rating and firmly recommend it

(2) as the leader of color spinning, Huafu fashion also has 2 million spindles of yarn capacity as of 21h1, and the annual cotton consumption of yarn and net chain addition business is more than 300000 tons. From the perspective of inventory cycle, the company's inventory of cotton is also maintained at about half a year. We estimate that the company's cotton inventory for the main yarn industry is between 100000 and 150000 tons. Therefore, similar to Tianhong, Huafu is also expected to make a profit of about 3000 yuan per ton. As of 21h1, the company's inventory value of raw materials is 2.79 billion.

Similarly, without taking into account the current short-term sharp rise in cotton prices, we predict that Huafu fashion will achieve a performance of 4.8/5.5/630 million in 21-23 years, with the corresponding valuation of 15.5/13.7/12.9x. In addition to the additional flexibility brought by cotton price, Huafu is fully promoting the construction of its digital intelligent factory. It is expected to complete the installation of 1 million ingots in Xinjiang within this year. It is expected that the company's operational efficiency and profit margin will be significantly improved after the full completion. Therefore, the "buy" rating is maintained at the current valuation.

(3) Blum Oriental is also the leader of color spinning. At present, the yarn production capacity is about 1.8 million spindles, and the stock value of raw materials of 21h1 company is 2.32 billion. According to the consensus expectation of Wande, the company's performance in 21-23 years is 10.0/10.8/1.24 billion, corresponding to the valuation of 8.9/8.3/7.2x, which is also recommended to focus on.