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Textile industry: Stories

Although it has been a huge growth expectations, but since TPP formally adopted textile stock price has dropped to its lowest level over the past 1 year. Why?
2015 marks a year of great strides Vietnam in the international integration process with a series of free trade agreements are in the process of going to a special signing trade agreements across the Pacific (TPP ).

Accordingly, the main export items of Vietnam such as agriculture - fisheries, textiles is expected to step into a strong growth phase. The World Bank predicted, Vietnam's garment industry will benefit greatly if the TPP is completed, by 2020, the growth rate of the whole textile sector could reach 41%, corresponding to the value of export increased by $ 11.5 billion. In particular, the growth rate of exports to the US market could reach a record 90%.

Vu Duc Giang, Chairman of Vietnam Textile and Apparel Association also predicted TPP Agreement is in effect, this figure will increase to 25% / year and showed that textile and garment industry will have major benefits, with "playground" wide, comprehensive and tariff barriers will be about 0%, instead of the tax rate from 12-17% today.

With these optimistic forecasts come from many sides, the textile sector stocks have been very strong growth phase. From the moment in 2014, until the official TPP agreement is adopted, the textile sector stocks have strong growth. Except EVE fell 12%, as shares of JSC GIL Manufacturing Business Binh Thanh Import-Export (HOSE) increased by 20%, the Corporation TNG Investment and TNG (HNX) + 160 %, TCM Corporation Textiles - Investment - Trading JSC (HOSE) increased by 89% and GMC manufacturing Corporation Saigon garment Trading (HOSE) increased by 53%.

But strange things happen is calculated from the time of TPP through which to date, the share price of this sector unexpectedly strong reversal. Among large cap, except GIL increased 8% from the price up 34.1 thousand VND 31.5 thousand, other stocks fell sharply. Notably TCM, the name given great expectations from TPP decreased 27% from $ 38 thousand VND / share to 28 thousand VND / share, GMC also decreased by 20%, the biggest decline at 34 TNG %.

Although the influx of huge growth expectations, but since has been passed believe TPP textile stock price fell to its lowest level over the past 1 year, and considered not profitable for investors if held since the beginning of 2015 until now.

Textile stocks plummeted so for whatever reason, does the praise of the growth potential is only just the surface of the problem?

Low added value

According to the Vietnam Textile and Apparel Association, in apparel, only 40% of enterprises in Vietnam, while 60% belongs to foreign companies FDI. Most (85%) of 40% of Vietnamese enterprises do outsourcing garments, only 3% of enterprises can derive the value of the supply chain of the apparel industry, ie from the production, distribution and consumption.

Meanwhile, other segments of the supply chain with greater added value many times as research and development, design, distribution, branding, even the production of materials is done outside Vietnam.

Surf through the production business of textile enterprises are listed, though shares of the enterprise as Textile Success or Saigon Garmex are ranked as good stocks but this industry margins remain is very low.

For example, the case of Thanh Cong Textile Company (HOSE: TCM), ending in 2015, the company's total revenue reached 2792 billion but profit after tax at only TCM 153 billion. Revenue increased only slightly compared to the same period last year, but the expense was made simultaneously increase net profit was only 22 billion, down 44% compared to the same period in 2014, gross profit margin at 15% while margins TCM net profit was only 5.5%.

Likewise company Investment & Trading Joint Stock TNG (HNX: TNG), the company's net sales in 2015 increased compared with 2014, reaching 1.925 billion, but profit is only at 73 billion, gross profit margin is quite high at 19% but net profit margin was only 4%.

Although business cash flow is stable, but the stability in the framework of which it is a part of these stocks less attractive. Obviously, the textile business is still no breakthrough in improving operational efficiency, profitability is not commensurate with revenue shows the added value of this sector is a minus point for investors from.

Competition from inputs to outputs

With the stringent requirements of the principle of fiber TPP onwards, the field production of textile materials can be explosive in Vietnam. This helps solve the problem of the origin, but there will also be areas with a very high level of competition, in which local businesses will be subject to pressure from FDI.

A representative of a textile company said, looking in the textile field, the majority of FDI enterprises are global companies from the textile industry powerhouse, they tend to be closed from last investment fiber to finished garment, the design stage, distributed by the parent company to undertake.

This trend is expected to create greater competitive pressure due to lower cost of FDI, besides textile enterprises worry about fabric supply can not meet the needs of business growth and will create intense competition in the field of supply of raw materials at the request originated.

Him out, the occurrence of a "wave" of new investment in the textile industry is also set for Vietnam enterprises no small challenge, especially fears labor shortage. The more FDI enterprises operating in the textile sector in Vietnam increases the competitive pressure to attract labor makes labor costs may rise.

In 2015, the National Wages Council has fixed a minimum wage increase of 12.4% in 2016 will continue to be a burden on the cost of garment enterprises.

Talking to reporters, said Vu Duc Giang, Chairman of Vitas said gains as the National Council for Wages are key challenges for the textile industry.

For example, for a large business such as Vietnam Tien Garment Corporation has more than 10,000 employees are paid, if calculated with an increase expected in 2016, the cost of paying salaries of units increased approximately 100 billion VND (about 173 billion). When the new Insurance Law in effect in 2018, Vietnam Tien own insurance money to pay 407 billion, an increase of nearly 6 times higher than at present.

Obviously, for domestic garment enterprises will have more problems to worry because the current profitability ratios were low, if the costs continue to rise will hardly guarantee profits. With the company on the floor as Manufacturing Trade Joint Stock Company Saigon Garment (GMC) has about 4,000 employees, Joint Textile Garment Investment Trading JSC (TCM) 4,500 workers, the minimum wage increase is expected to work big profits.

Not high growth opportunities

The VN join TPP is obviously enormous opportunities, it is important that Vietnamese businesses never get out the old to the new, then seize the chance to create high added value. Currently, domestic enterprises can be ordered though more, but is based on extensive development, increase employment, scale factory to carry out the value-added segment has the worst, without the advantage of TPP to qualitative change. That's not to mention the sector consumes significant resources, pressure on the environment and also remains in the lower floors of the value-added supply chain.

"The issue is whether the concerns ultimately Vietnam can now take advantage of the preferential tariff treatment not before the high requirements of the rules of origin of the goods to enjoy preferential. Not all businesses in the initial stages can benefit from this provision. In the textile industry, can only about 30% of the exports to the United States meet this requirement in the initial stage. "According to Dr. Le Quoc An - Chief Advisor Vietnam Textile and Apparel Association

Therefore, although the group's share price fell on the bottom. But with the peculiarities of the textile enterprises on the floor today, it is hard to expect investors will pay a high price in the current period where these businesses have not demonstrated the advantages beyond dominant that they have got to be able to reap the "fruits" TPP.
Via: Người đồng hành

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