2023Q1 Prospects: Men's clothing performance leads, manufacturing continues to be under pressure
This week, we made forward-looking predictions on the 2023 first quarter reports of key textile and apparel companies. On the brand side, clothing retail is recovering after the optimization of epidemic control policies. Broken down into sub-sectors, on the one hand, men's wear is still leading the growth rate in the high-prosperity sectors (Biyin, Haggis). On the other hand, the restoration of business/wedding and other scenes has also driven the growth of brands such as Good News Bird and Hailan to be faster than expected. , the overall growth of men's clothing is better than other categories, the growth rate is weak due to the high base of sports, and the public economy continues to be weak. On the manufacturing side, the weak economy will continue under the pressure of destocking. It is expected that under the drag of weak orders and low production capacity utilization, the Q1 performance of key manufacturing companies will continue to decline by more than double digits. Huali will benefit from internal forward-looking cost reduction and efficiency improvement. With strict control, profit margins are expected to be more resilient.
From the perspective of key companies, Heilan Home, Biyinlefen, and Baoxiniao are expected to perform better.
Heilan Home: Benefiting from the catalysis of the restoration of business and wedding scenes, the main brand is based on the positioning of cost-effective men's clothing, and its performance is significantly better than that of other mass companies. Retail sales are expected to grow by single digits from January to February, with a significant acceleration in March, and the overall Q1 is expected to achieve a growth of 10% to 20%. Profit is expected to grow by 20%-30%, driven by positive operating leverage due to improved store efficiency, which is significantly higher than revenue. Biyinlefen: Benefiting from same-store improvements and new store openings driven by the recovery of offline passenger flow, the retail side is expected to resume rapid growth, and it is expected that: 1) the backlog of business demand during the epidemic will be released intensively; 2) the company's high-speed rail and airport The proportion of online stores is higher than that of its peers; 3) The company's performance is better than that of its peers due to its continued superior discount control strategy. Q1 revenue and profit are both expected to increase by 20%-30%. Announcement Bird: On the retail side, the company expects Haggis to grow at a high double-digit rate from January to February, and its main brand to grow by about 10%. In March, both brands will accelerate to a growth rate of 30%+. On the revenue side, Q1 growth is expected to be 10%-20%, which is lower than the retail side and is expected to be related to the stable franchise delivery business, relatively stable growth under the high base of Baoniao, and weak growth of small brands. On the profit side, considering that Q1 expenses are less and the company controls discounts, coupled with the increase in the proportion of Haggis and Lucky Bird, which have relatively good profitability, profit is expected to grow by 15% to 25%.
Industry perspective
Brand clothing: The valuation of second-tier leading brands still has room for improvement. We recommend men’s clothing targets with better terminal prosperity. Since the beginning of this year, clothing brands have had relatively good growth rates in the consumer industry, and their valuations are still cost-effective. The current valuation level of the textile and clothing industry still has 22% room for repair compared to the historical average valuation. With a low base from March to Q2, brand retail sales are expected to record a substantial month-on-month acceleration. Catalyzed by data, Q2 brands may usher in a small climax during the year. Considering that the current front-line leaders have been repaired to the lower limit of the reasonable valuation range, we focus on the investment opportunities of menswear brands such as Biyinlefen, Baoxinniao, Heilan Home, etc. whose retail prices continue to outperform their peers and still have room for recovery. It is also recommended to pay attention to Opportunities to rotate high-quality targets such as Luolai Life/Peacebird/Disu. At the same time, we are firmly optimistic about the high prosperity of long-term sports. The acceleration of Q2 turnover is expected to catalyze the restoration of valuation. We focus on recommending Xtep International, which has better turnover growth, Anta Sports, which has high flexibility in performance, and Li Ning, which is more determined in transformation and upgrading.
Textile manufacturing: It is expected that Q3 manufacturing will usher in an inflection point for fundamental restoration, and focus on the layout of high-quality manufacturing at the bottom. The pace of destocking of overseas brands is basically in line with our early judgment. The inventory value has continued to fall after Q3. It is expected that inventory will return to relatively normal in the next 1-2 quarters. Under the relatively cautious retail expectations in the future, the willingness to place orders in Q2 is still weak. But the most pessimistic time has passed, and Q3 is expected to usher in a more obvious recovery. Considering that 2024 will be a big year for overseas brands to place orders for repairs after destocking and manufacturing at a low base, then manufacturing valuations and performance will usher in a double rise. Therefore, it is recommended to focus on the left-side layout opportunities of the current bottom-line high-quality leaders. It is recommended to focus on Pay attention to the investment opportunities of Huali Group, Shenzhou International, Weixing Holdings, etc.