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Public company info - Texhong International Group Limited , 02678.HK
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Texhong International Group Limited, 02678.HK - Company Profile
Chairman HONG Tianzhu
Share Issued (share) 918,000,000
Par Currency Hong Kong Dollar
Par Value 0.1
Industry Textile & Apparels
Corporate Profile Business Summary: The Group is principally engaged in the manufacturing and sales of yarn, grey fabrics, non-woven fabrics and garment fabrics as well as garments. Performance for the year: Revenue decreased by 11.0% to RMB19.6 billion Profit attributable to shareholders decreased by 41.5% to RMB517.1 million Basic earnings per share was RMB0.57 Business Review: Against the backdrop of the global outbreak of COVID-19, which affected the economy and people’s lives around the world, the Group’s revenue in 2020 decreased by 11% to RMB19.6 billion as compared with last year, better than the expected decrease of 20% for the Year as set out in the interim report for the six months ended 30 June 2020, mainly due to the recovery of the textile market in the fourth quarter in 2020, especially for the PRC market. During the year ended 31 December 2020, the Group mainly derived revenue from the sales of yarns, grey fabrics, garment fabrics and garments, which covered the entire industrial chain. Revenue from the sale of yarns remained the primary source of the Group’s revenue, accounting for approximately 77.7% of total revenue for the Year. Revenue from the sale of yarn for the Year amounted to approximately RMB15.2 billion, representing a decrease of 9.0% when compared with last year, due to the decrease in selling prices of yarns in the first half of the year. In respect of midstream and downstream business, under the impact of the global pandemic on end-user consumption (particularly for the regions outside of China), the Group achieved sales revenue of RMB4.37 billion, representing a decrease of 17.3% compared with 2019. In 2019, the market demand of the textile products was seriously affected by the Sino-US trade friction, although there was a slight improvement in the market at the end of 2019. However, in late March 2020, due to the impact of the global outbreak of COVID-19, production capacity of the Group decreased as a result of a change in the product mix. Consequently, the production facilities of the Group equipped with approximately 4 million spindles did not operate effectively. Nevertheless, the Group’s staff overcame the difficulties, seized the opportunities arising from the recovery of the textile market in China in the fourth quarter, strived to sell its inventories in full swing , and changed the product mix in order to gradually return to an ideal condition. The total external sales of yarn remained at a similar level to the 750,000 tonnes seen last year, with a slight year-on-year increase of approximately 2,000 tonnes. As the Group adjusted its product mix to prioritize capacity utilization in times of market turmoil, the gross profit margin of yarn continued to be affected. However, the recovery in the fourth quarter partially offset the impact of weak demand in the first half of the year. As a result, the gross profit margin of yarn for the Year only decreased by 0.1 percentage point to 13.4% compared with the corresponding period of the previous year. As for grey fabrics, following the development of the Group’s own garment fabrics business, internal use of grey fabrics produced by the Group increased, while the external sales volume decreased from approximately 79 million meters last year to nearly 66 million meters this year. The gross profit margin of grey fabrics decreased from 17.2% in 2019 to 12.9% in 2020. As for woven garment fabrics, under the pressure of the impact of the pandemic on both sales orders and production volume, the sales volume of self-produced products decreased from approximately 100 million meters last year to approximately 88 million meters this year. The Group’s woven garment fabrics business was more significantly affected by the global pandemic than its other businesses, which was mainly due to its target customers being outside of the PRC and, to a lesser extent, employees of different enterprises around the world being encouraged to work from home under the pandemic, which had a substantial impact on the demand for woven fabrics apparel. The trading volume of the Group’s woven garment fabrics was also affected and the sales volume decreased by approximately 16% from approximately 38 million meters last year to approximately 32 million meters. Despite such a difficult operating environment, the gross profit margin of the Group’s self-produced woven garment fabrics was maintained at around 19.5% for the Year. The situation faced by knitted garment fabrics and woven garment fabrics are different. Given that different enterprises around the world are encouraging employees to work from home, the impact on the demand for knitted fabrics apparel is relatively low. It is also the Group’s first business segment to recover during the pandemic. The sales volume of self-produced knitted garment fabrics for the Year was approximately 16,000 tonnes, representing a decrease of only approximately 1,000 tonnes as compared with last year. Following the successful business restructuring, the gross profit margin of self-produced knitted garment fabrics has reached 18% for the Year. After the reform in second half of 2019, the jeanswear business was concentrated on production bases in Vietnam and Shandong, China, which are factories with an established earning base, thus the gross profit margin of self-produced jeanswear increased significantly to approximately 9.4% compared with last year. In addition, the non-woven fabrics business is still in its early stages and the products are mainly used in the production of tissue paper products. In 2020, the Group launched the first non-woven fabrics production line. With the other three invested production lines set to be launched gradually in 2021 in order to reduce the average production cost, the gross profit margin is expected to increase simultaneously. Despite the severe impact of the global pandemic, the Group in turn recorded an increase of 0.2 percentage point of overall gross profit margin to 13.8% as compared with last year under the impact of Sino-US trade friction. With an average gross profit margin of 11.4% in the first half of 2020, there was clearly a recovering in the second half of the year, mainly driven by the recovery of the textile apparel market and the rebound of the raw material price in the fourth quarter of 2020. With the exception of the woven garment fabrics business, which may not return to normal levels until the second quarter of 2021, the Group’s other business segments had largely resumed relatively normal operations by the end of 2020. The profit attributable to shareholders for the Year was RMB517 million, and basic earnings per share was RMB0.57, both representing a decrease of approximately 41% when compared with last year. As the Group’s business in the midstream and downstream is under development, in order to maintain business growth while increasing profitability, and the gross profit margin of woven and knitted garment fabrics has gradually increased which have potential to exceed the gross profit margin of yarn sales, the Group believe that the stability of the Group’s profit and the overall profit level will continue to increase. Prospects: As at 31 December of 2020, the Group’s major production facilities comprise 4.10 million spindles, 1,900 weaving and knitting machines and the related dyeing equipment. Of the spindles, 2.51 million were in the PRC and 1.59 million spindles were in overseas regions. After recovering from the business impact of the pandemic, the Group will continue to focus on making the best use of existing capacity in 2021 and to ensure optimal efficiency. With the recovery of the original yarn product mix, the commencement of expansion of the overseas production base for woven garment fabrics and the gradual revenue contributions from the knitted garment fabrics arising from the original production base in China and new production capacity in Vietnam, and assuming that the global pandemic gradually come to an end, the Sino-US trade relationship does not deteriorate further, and there are no other black swan events affecting the global economy, the Group’s profitability is expected to improve significantly in 2021, and total sales revenue is expected to see remarkable growth. The Group’s main project in progress is the construction of a new production base for knitted garment fabrics in Vietnam. In addition, the Group also intends to increase automation in its existing yarn production base in order to reduce human resources. It is expected that the Group’s business will recover significantly in 2021. Inferred from the current market conditions, excluding the sales volume of the trading business, the Group is aiming to sell 840,000 tonnes of yarn, 60 million meters of grey fabrics, 140 million meters of woven garment fabrics, 30,000 tonnes of knitted garment fabrics and 11 million pieces of jeanswear in 2021. On 27 July 2020, the Group was once again named among the “Fortune 500 Chinese Companies 2020”, and was also ranked third by the China Cotton Textile Association among cotton textile enterprises in terms of comprehensive competitiveness; a strong endorsement of its continuously expanding business and proven business model. The Group will continue to work tirelessly and exert every effort to bring long-term and sustainable returns to its shareholders.

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