Textile & Garment – Passing through headwinds – Sector note

• 3Q21 aggregated revenue of listed T&G companies dwindled 4.6% yoy, while 3Q21 aggregated NP increased 1.8% yoy but plunged 43.8% qoq.
• We expect that the outlook of Vietnam T&G industry in 2022F follow by the recovery of the U.S. and E.U. T&G industry.
• Our top pick is STK while MSH is on the watchlist.

Earnings growth slew down in 3Q21

Vietnam’s T&G export turnover decreased 2.07% yoy in 3Q21 and 0.91% qoq due to sluggish manufacturing during stricter lockdown, especially in the South. Based on our estimates, 3Q21 aggregated revenue of listed T&G companies dwindled 4.8% yoy, while 3Q21 aggregated NP increased 1.8% yoy but plunged 48.1% qoq. For 9M21, aggregated NP of listed T&G companies accelerated 63.2% yoy and even 12.1% higher than that of 9M19. Top strongest 9M21 earnings growth including MSH (+103.1% yoy), VGT (+81.6% yoy), and STK (+70.6% yoy).

Riding on the demand surge in U.S and E.U. market

The U.S. and E.U. consumers have shown a solid pent-up demand after lockdown. The U.S.’s T&G import turnover in 9M21 increased by 29.9% yoy to US$82.2bn, of which import turnover for apparel grew 24.5% yoy (Source: OTEXA). Whereas, E.U.’s CPI for clothing and clothing accessories also rose 3.6% and 1.7% yoy in Aug-21 and Sep-21. We expect that the outlook of Vietnam T&G industry in 2022F follow by the recovery of the U.S. and E.U. T&G industry.

Local yarn manufacturers will benefit from the anti-dumpling tax

The Ministry of Industry and Trade of Vietnam (MOIT) has applied the preliminary anti-dumping tax on China and other foreign yarn manufacturers effective since Oct-21. According to the decision of the MOIT, most Chinese manufacturers will face an anti-dumping duty of 17.45%. While India, Indonesia and Malaysia yarn manufacturers will be subjected to 54.9%, 21.9% and 21.3%, respectively.  We believe that STK is the biggest beneficiary of the anti-dumping tax. According to STK’s management, imported yarns ASP from China in 1H21 was 10-12% lower than ASP of STK, respectively.

STK is our stock pick while MSH is on the watchlist

We think that positive prospect of T&G companies has been priced in. However, we believe that STK is still more upside regarding: 1) strong revenue growth from recycled yarn in FY22-23F; 2) capacity expansion plan – doubling capacity in 2025F and 3) gain more market share from local market thanks to taking advantage from anti-dumping tax.

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