Nowadays, when LV, GUCCI, and MK are all over the streets as fashion aesthetics, China’s clothing market segments are still waiting to be explored.
The blessing of e-commerce has allowed segmented brands targeting different age groups to emerge, which were once dominated by foreign brands. China’s squeezed apparel industry is slowly recovering. Taking advantage of this opportunity, many textile and clothing companies have also begun their journey of capital expansion. Yadong Group Holdings Co., Ltd. (hereinafter referred to as “Yadong Group”), the third largest textile dyeing and finishing service provider in Jiangsu Province, submitted its main board listing application to the Hong Kong Stock Exchange on November 27.
China has been a major country of silk and cotton textiles since ancient times. From the earliest sericulture and silk reeling technology, to the admiration of silk by the ancients, to the fine fabrics and wrinkles in modern life, The evolution of textiles is closely related to our lives, and the textile industry also plays an important role in the national economy.
Source: Internet
According to Ipsos statistics, from 2014 to 2017, China The total retail value of clothing increased from 1,256.3 billion yuan to 1,455.7 billion yuan. In 2018, due to the slowdown in China’s economic growth, the total retail value of clothing was 1,370.7 billion yuan. However, as the economic transformation deepens, it will continue to grow in the future, and is expected to reach 1.913 billion yuan in 2024, with a compound annual growth rate of 6.4%. Yadong Group, which recently submitted its Hong Kong stock listing application, was founded in 2011. It is located in Changzhou, where the textile printing and dyeing industry is concentrated, adjacent to Shanghai. It has a unique geographical location. At the same time, it is also a fabric supplier for brands such as Uniqlo and Semir. So, what is its strength in sprinting into the Hong Kong stock market?
Jiangsu ranks third, with annual revenue of nearly 900 million
In terms of the entire apparel manufacturing industry chain, East Asia Group is in the middle of the industry and is a provider of textile dyeing and finishing services.
Source: Prospectus
Thanks to the gradual recovery of the clothing industry, Yadong Group has also shown a trend of steady growth. From 2016 to the first half of 2019, Yadong Group achieved revenue of 387 million yuan, 662 million yuan, 861 million yuan and 405 million yuan respectively, with a compound annual growth rate of 49.1%. Net profit increased from 3 million yuan in 2016 to 49.1 million yuan in 2018, with a compound annual growth rate of 305.4%.
According to Ipsos statistics, in terms of revenue, Yadong Group ranks third in Jiangsu Province, accounting for 1.6% of the market share in Jiangsu Province, and is among the top five suppliers. The proportion is 6.3%. The business models of China’s textile dyeing and finishing service providers are divided into two categories, including distribution models and processing models. The distribution model requires you to purchase raw materials yourself; while the processing model requires customers to provide raw materials, and the group is responsible for processing and selling back to customers. Therefore, the profit margin of the distribution model is relatively larger, and Yadong Group’s business focuses on the former. From 2016 to the first half of 2019, the sales revenue of Yadong Group’s textile fabric products increased from 85% to 95%. The fabrics sold were mainly plain weave, followed by corduroy; the proportion of processing services continued to shrink.
Source: Prospectus
As far as customers are concerned, Yadong Group’s customers are mainly clothing manufacturers. In 2018, Yadong Group cooperated with Uniqlo purchasing agents and achieved sales of 123.4 million yuan, accounting for 14.5% of the revenue for the same period, making it the largest customer. In that year, the company’s overseas sales accounted for 25.3%, and the sales of the five major customers accounted for more than four become.
Source: Prospectus
It is worth noting that Yadong Group generally does not enter into long-term sales agreements with customers.
Industry insiders said that due to the rapid replacement of popular styles and fabrics in the clothing industry, clothing manufacturers prefer short-term contracts or even quarterly contracts. How to retain big customers is crucial to Yadong Group. The prospectus shows that if the company’s major customers change suppliers and the company is unable to discover new major customers or expand its customer base, the company’s revenue, business, financial condition and operating results will be materially and adversely affected. In addition, Yadong Group is also facing considerable market competition pressure.
The gross profit margin is only 13.6%
Although Yadong has experienced The group’s revenue has grown steadily, but the company’s overall gross profit margin is still at a low level. From 2016 to the first half of 2019, Yadong Group’s gross profit margin increased from 12.2% to 13.6%. The prospectus shows that the company’s gross profit margin increased slightly, mainly due to the fact that from the first half of 2018 to the first half of 2019, the average unit price of plain fabric products increased slightly by 3.4% due to market conditions; at the same time, since 2018, Yadong Group began to purchase products from Vietnam Textile fabrics have lower unit costs. But at the same time, the price reduction measures taken by the company to maintain product competitiveness of corduroy products reduced the gross profit margin of this product by nearly six percentage points, offsetting the increase in plain weave fabrics. On the other hand, UNIQLO’s efficient control of product costs means that it has a strong demand for low prices for midstream and upstream raw materials.Improving quality while maintaining price advantage may become one of the core competitiveness of supplier Yadong Group.
According to Zhiyan Consulting data, from 2017 to 2018, the average gross profit margin of the printing and dyeing industry was 20% and 15.6% respectively. The gross profit margin has declined due to the impact of rising raw material prices. , but still 3 to 8 percentage points higher than the East Asia Group. It is worth noting that textile dyeing is a highly polluting industry. Textile printing and dyeing wastewater has the characteristics of large water volume, high content of organic pollutants, and high alkalinity. It is recognized as one of the industrial wastewaters that is difficult to treat. The prospectus disclosed that in 2016, Yadong Group’s production and operations were significantly disrupted for about half a year due to technological upgrades in its sewage treatment system. For Yadong Group, if it cannot improve production efficiency and scientific research capabilities to effectively control production costs, gross profit margin will not be substantially improved. Yadong Group stated that the company has been committed to developing printing and dyeing fabrics that keep up with trends and meet customer needs. Yadong Group’s sales and design team consists of 37 members and is responsible for design activities including the research and development of new fabric products. However, Yadong Group did not disclose the specific R&D investment status in the prospectus.
The labor cost has increased and automation transformation is urgently needed
In addition, the company also It is said frankly in the prospectus that similar to the problems currently faced by most labor-intensive industries, Yadong Group is also facing the problem of rising labor costs. Well-known foreign brands such as Adidas and ZARA that previously set up factories in China have moved their factories to areas with lower labor costs such as Southeast Asia and Africa. In addition, Yadong Group disclosed in its prospectus that during the track record period, the company did not make full social security and housing provident fund contributions to employees. From 2016 to 2018, the unpaid amounts were 2.2 million yuan, 2.3 million yuan and 2.5 million yuan respectively. Ten thousand yuan.
If Yadong Group is successfully listed, these problems will be unavoidable. On the one hand, the company needs to control costs, and on the other hand, it must also pay attention to protecting the rights of employees.
In response to the problem of high labor costs, Yadong Group is pursuing automation transformation to reduce the number of employees required.
The prospectus shows that the funds raised from this listing will be mainly used for the expansion of production capacity and the upgrading of production machines. The upgrade of production lines and the addition of new knitted fabric production lines will be completed by 2020. .
In addition, Yadong Group will also acquire companies with production plants in order to increase production capacity. However, as of now, Yadong Group has not identified any target acquisition companies. In response, the chief science and innovation officer called Yadong Group, but no one answered. As of press time, no reply has been received to the consultation email.
Currently, the textile printing and dyeing industry is undergoing consolidation due to strict environmental regulations. On the one hand, it has raised the industry entry threshold, and on the other hand, it has also tested the operating capabilities of existing industry participants. Yadong Group, can this private printing and dyeing enterprise break through the current growth dilemma? Can you stand out in the fierce market competition? What do you think? Welcome to leave a message in the comment area. </p
