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CSCI-Stock Connect-Textiles & Clothing：Textiles & Clothing stocks：light at the end of the tunnel - 20171227

Textiles & Clothing stocks: light at the end of the tunnel

China’s textiles and clothing sector ended the first ten months of 2017 down 15.81%–trailing the CSI300 index by 45.47pc and eclipsed by other consumer sectors such as food & drink and home appliances. Following a 19.42% retreat from the beginning of the year, the sector returned to its average valuation multiples since 2011, trading at a PE (ttm) of around 30 and a premium of roughly 1.08 to the broader stock market as of Oct. 31, 2017. In our view, this sector may be heading for a correction now that it has entered a “relatively low valuation” territory.

Stock picks

Textiles: We estimate Huafu Fashion (002042:CH), Xinye Textile (002087:CH) and Sunvim Group (002083:CH) to respectively have a net profit of RMB708mn/922mn, RMB302mn/357mn and RMB468mn/575mn for 2017/2018, up 47.8%/30.3%, 45.7%/18.1% and 23.8%/22.7% YoY, respectively, corresponding to EPS of RMB0.70/0.92, RMB0.37/0.44 and RMB0.52/0.63, and PER of 15/12, 16/14 and 14/11. And with Zhejiang Hangmin (600987:CH), our projection is EPS of RMB0.90/1.06 and 13x/11x PER for 2017/2018.

Supply chain management: We forecast Jiangsu Guotai (002091:CH) and Shenzhou International (2313:HK) to respectively have a net profit of RMB802mn/1.056bn and RMB3.68bn/4.58bn for 2017/2018, corresponding to EPS of RMB0.51/0.67 and RMB2.63/3.26 and PER of 20/15 and 21/17.

Clothing: We predict Anzheng Fashion (603839:CH) to realize a revenue of RMB1.445bn/1.766bn for 2017/2018, up 19.8%/22.2% YoY, corresponding to a net profit of RMB279mn/366mn, up 18.3%/31.1% YoY, EPS of RMB0.96/1.26, and PER of 25/19. For Peacebird Fashion (603877:CH) and Ellassay Fashion (603808:CH), our estimates for 2017-18 stand at net profit of RMB454mn/650mn and RMB286mn/370mn, respectively, translated into EPS of RMB0.95/1.37 and RMB0.84/1.09, and PER of 30/21 and 29.2/22.6.

Cross-border e-commerce: We project Global Top E-Commerce (002640:CH) to have a net profit of RMB888mn/1.302bn for 2017/2018, corresponding to EPS of RMB0.62/0.91 and 37x/25x PER.