Bright outlook for textile industry but investors should still be cautious

April 04, 2022 - 08:14

The textile and garment industry is forecast to have a bright prospect in 2022, but as share prices have increased sharply since 2021, many stocks may not continue to rise significantly. As a result, analysts say investors should only prioritise enterprises with good fundamental growth.

 

Workers make apparel for export to EU at TNG Investment and Trading Joint Stock Company. Việt Nam became the EU's sixth-largest non-regional textile supplier in 2021. VNA/VNS Photo Trần Việt

HÀ NỘI The textile and garment industry is forecast to have a bright prospect in 2022, but as share prices have increased sharply since 2021, many stocks may not continue to rise significantly.

As a result, analysts say investors should only prioritise enterprises with good fundamental growth.

Bright outlook

At the end of 2021, US President Joe Biden signed a law banning the import of cotton materials produced in Xinjian, China into the US. US Customs and Border Protection estimated that about US$9 billion of cotton products were imported from China in 2021.

This can be seen as a great opportunity for Vietnamese cotton yarn companies such as Việt Nam National Textile and Garment Group (VGT), Damsan Joint Stock Company (ADS), and Phong Phú Corporation (PPH) among others. 

It is similar to what happened in Europe in March 2021, when a series of major international fashion brands such as Nike, H&M, Uniqlo, and Zara announced they would stop using cotton materials from Xinjiang.

China's share of textile and yarn exports to Europe fell from 52.4 per cent in 2020 to 44.7 per cent in 2021.

Việt Nam became the EU's sixth-largest non-regional textile supplier in 2021, accounting for 3 per cent in value.

According to the European Textile and Apparel Federation (Euratex), the EU textile industry witnessed a strong recovery after COVID-19. Specifically, the value of textile and garment output had increased back to pre-pandemic levels by the end of November 2021.

Meanwhile, the International Monetary Fund (IMF) and the World Bank (WB) forecast global GDP growth to reach 4.9 per cent in 2022, and world textile demand in 2022 will return to 2019 levels, reaching about $740 billion.

The recovery of the world textile and garment industry will also help Việt Nam’s export turnover to complete the plan set out in 2022, at $43 billion, an increase of $4 billion compared to the figure of $39 billion in 2021.

Large textile companies such as Garment 10 Corporation JSC (M10), Century Yarn JSC (STK), Thành Công Textile Garment Investment Trading Joint Stock Company (TCM) have all had enough orders until the second quarter of and the third quarter of this year.

Profits between regions

Despite facing many difficulties in the third quarter due to the tight distancing policy amid COVID-19, 2021 will be a successful year for textile and garment enterprises.

According to estimates of VNDirect Securities (VND), total revenue in the fourth quarter of 2021 of listed textile companies increased by 24.1 per cent thanks to the recovery of textile companies in the south. After the end of the lockdown, most southern companies were running at 85-90 per cent capacity, compared with 50-60 per cent capacity in the third quarter.

Thanks to the fourth-quarter results, total revenue in 2021 of listed textile companies increased slightly by 7.6 per cent while net profit increased by 57.4 per cent. Companies recording impressive profit growth in 2021 include DamSan Joint Stock Company (ADS), up 303 per cent, Vietnam National Textile & Garment Group (VGT), up 161.4 per cent, and Century Synthetic Fiber Corporation (STK), up 93 per cent.

Business results in 2021 showed division among businesses in different regions. Northern garment companies such as Sông Hồng Garment Joint Stock Company (MSH), TNG Investment and Trading Joint Stock Company (TNG) have high-profit growths in 2021, both with an increase of more than 90 per cent.

The reason was that these enterprises had improved their product portfolio, increasing free on board (FOB) orders.

Garment companies in the south saw lower profit growth because their factories only operated at 50-60 per cent of capacity during the time of social distancing.

Among them, Thành Công Textile Garment Investment Trading Joint Stock Company (TCM) and Việt Tiến Garment Corporation (VGG) were the two listed companies that recorded negative profit growth in 2021, down 48 per cent and 41 per cent, respectively.

Factors to keep in mind

According to statistics, the textile and garment stock group has achieved impressive growth since the beginning of 2021, reaching between 48-291 per cent.

Vietnam National Textile & Garment Group (VGT) up 153 per cent, Sông Hồng Garment Joint Stock Company (MSH), up 126 per cent, Century Synthetic Fiber Corporation (STK) up 178 per cent, TNG Investment and Trading Joint Stock Company (TNG) up 116 per cent, DamSan Joint Stock Company (ADS) up 291 per cent.

For this reason, analysts recommend that investors be cautious when investing in textile and garment stocks at present. According to VNDirect Securities Co (VND), although the textile and garment industry is expected to have a bright prospect in 2022, investors need to invest selectively because most of the industry's shares are no longer cheap. Investors should only prioritise enterprises with plans of factory capacity expansion in 2022-2025.

DamSan Joint Stock Company (ADS), Thành Công Textile Garment Investment Trading Joint Stock Company (TCM), and TNG Investment and Trading Joint Stock Company (TNG) have expanded their business further to the segments of real estate and industrial park real estate. It is expected that the new business segments will help these businesses maintain profit growth in the period 2022-2025. VNS

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