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Rising Labor Costs: Textile Production And Distributors Face Challenges

2010/6/8 9:37:00 31

Recently, the rising cost of labor has become a common concern of the society.

Raising the minimum wage and raising the remuneration of the low income class bring certain cost pressure to the enterprises.

Textile and clothing

The industry, as a traditional labor-intensive and low margin industry, is inevitably affected by this round of pay rises.

In this report, we analyze the impact of rising labor costs on the performance of textile and apparel companies, and predict the degree of decline in net profit under different wage increases for investors' reference.

The calculation of static sensitivity showed that the average wage increased by 10% and the net profit decreased by 5%, including sports brand trends, Anta, Lining, men's brand Li Lang and so on. The net profit dropped from 5% to 10%, including home textile brand Luo Lai, Fuan (002327, stock bar), footwear brand BELLE, Daphne, garment manufacturing enterprise Shenzhou International, and the net profit decreased by more than 10%: processing manufacturing enterprise Yuyuan, Wei Qiao textile, and smaller brand operators Saturday (002291, shares bar) and so on.

Overall, upstream

Manufacturer

Distributors are more affected by the rise of labor costs than brand operators.

For brand operators, the expansion of sales scale has brought about significant operational leverage, and to some extent, it can resist the negative impact of wage increases.

The expansion of brand sales does not necessarily require the expansion of management teams in proportion. R & D, marketing and other departments can play a strong leverage role.

Therefore, under the similar business mode, the scale is bigger and the growth is faster.

brand

Operating companies are less affected by pay changes.

We believe that enterprises with lower net profit margins are relatively more affected by wage increases.

Research shows that many textile and garment enterprises with low profit margins and high labor costs have fallen more than 20% when wages have risen more than 20%.

Investment suggestion

Production and distribution enterprises have greater risks and avoid low profit and high labor costs, such as Yuyuan, Wei Qiao textile, Germany Yongjia, Baosheng and so on.

It is recommended to pay attention to brand operation companies, and recommend: Men's clothing (Li Lang, seven wolves (002029, stock bar)), sportswear (Lining, Anta, China trend), women's shoes (BELLE), etc.

CICC