Recently, Jingyuan International (02232.HK), an OEM manufacturer of Uniqlo , released a good semi-annual report, which is not inferior to other competitors.
During the reporting period, Jingyuan International achieved revenue of approximately US$1.242 billion, an increase of 17.75% year-on-year. The profit attributable to the company's owners was US$75.37 million, an increase of 18.44% year-on-year. It plans to pay an interim dividend of 5 Hong Kong cents per share.
For performance growth, Jingyuan International stated in its semi-annual report: Due to the recovery of terminal consumer demand, our brand customers' orders have been strong, and the revenue of most product categories has recorded double-digit growth.
Overseas sportswear business has grown strongly
Like the clothing OEM giant Shenzhou International (02313.HK), Jingyuan International’s customer base is mainly concentrated in overseas markets, mainly internationally renowned clothing brands.
In the first half of this year, the global sportswear market demand was strong, in sharp contrast to other slow-growing segments. Due to the failure to enter the supply chain of domestic leading sportswear brands such as Anta (02020.HK), Lining (02331.HK), Jingyuan International's growth in the first half of the year has largely relied on overseas customers, especially those sportswear brand customers.
Therefore, it can be seen that the growth characteristics of Jingyuan International in the first half of the year are as follows: the growth momentum of sportswear and outdoor clothing businesses is the strongest, and the recovery of the US and European markets is the most eye-catching.
In the first half of this year, Jingyuan International's revenue by region showed a trend: the Asia-Pacific region (mainly China, Japan and Hong Kong), and the European and American regions grew rapidly. During the period, the revenue of the Asia-Pacific region fell by 12.77% year-on-year to US$400 million; the revenue of the United States increased by 45.57% year-on-year to US$539 million, accounting for 43.4% of revenue, surpassing the Asia-Pacific region for the first time; the revenue of the European region was US$235 million, an increase of 32.98% year-on-year.
The business revenue in the Asia-Pacific region fell sharply, firstly due to the weak sales of Uniqlo, a major customer from Japan in the first half of the year, and secondly, the Chinese market is subject to factors such as epidemic control, and the operating performance of non-sports brands is not ideal.
Since the beginning of this year, Europe and the United States have relaxed control measures on the epidemic, and consumption in sports clothing and other markets has recovered significantly. Jingyuan International's foreign customer adidas revenue increased by 10% year-on-year in the second quarter of fiscal year 2022, and another customer, German sports brand Puma revenue increased by 23.5% year-on-year in the first quarter of fiscal year 2022, which performed no less than domestic brands such as Anta and Li Ning.
At the same time, Jingyuan International also obtained another internationally renowned sportswear brand during the reporting period, but the company did not disclose which brand it was.
During the reporting period, Jingyuan International's sportswear and outdoor service business stood out among all businesses, generating revenue of US$279 million, a year-on-year increase of 38%, the highest-growth business.
Previously, Jingyuan International has been committed to cooperating with fast fashion and casual brands for a long time, and the overall growth is not significant enough. Nowadays, Jingyuan International's focus is gradually moving towards the field of sports clothing, and sports clothing brand customers are also expanding, which is conducive to bringing more possibilities to the company's growth. From 2017 to 2021, the business revenue increased from US$216 million to US$427 million, with a compound annual growth rate of 18.6%, making it the fastest growing business among the company's major product lines.
However, the conversion of channel customers means that Jingyuan International and competitors such as Shenzhou International and Yuyuan Group (00551.HK) have overlapped in terms of categories, and are facing competition with these competitors. The addition of Jingyuan International has made the competitive landscape of the sports clothing OEM market more intense. In order to expand customers and obtain more orders from customers, Jingyuan International has to make concessions. In the first half of this year, the company's sportswear and outdoor clothing business' gross profit margin was 17.6%, a year-on-year decline of 0.4 percentage points, the lowest since 2017.
At the same time, the gross profit margin of this business is also significantly lower than the gross profit margin of the company's casual clothing and underwear businesses.In addition, Huali Group (300979.SZ), which disclosed the gross profit margin of its sportswear product business, reached 27% in the first half of this year, nearly 10 percentage points higher than Jingyuan International.
This shows that when Jingyuan International develops sports clothing brand customers at home and abroad, its product bargaining power needs to be improved. In terms of business scale and customer relationship binding, Jingyuan International and Shenzhou International still have a lot of gaps, so they are in a passive position in market development.
vertical integration + overseas expansion
Nowadays, the clothing OEM industry is undergoing an evolution towards a vertical integration model. Shenzhou International is at the forefront of the industry in this regard, and Ruhong, a leading clothing manufacturing company from Taiwan, is also actively promoting this core business model.
Clothing Office The vertical integration model of is to integrate fabric manufacturing, dyeing and post-organization, embroidery printing, cutting, etc. This model can not only reduce intermediate links to improve operational efficiency and reduce production costs, but also help to strategically provide customers with one-stop service.
Jingyuan International currently only focuses on the manufacturing of ready-to-wear. In the past, its advantages were mainly reflected in the procurement cost advantages under the scale effect and the advantages of overseas production capacity layout, but the advantages of integrated lacked the advantages.
has a business depth in the industrial chain and can obviously distribute profits in more links. This can be a glimpse of the gross profit margin. Since 2015, Jingyuan International's overall gross profit margin has generally been below 20%, significantly lower than Shenzhou International and Ruhong.
Nowadays, we have to compete head-on with other experts in sportswear and other fields. In order to improve profitability, Jingyuan International still has to take the path of integrated development.
Last year, in order to seek vertical integration opportunities, Jingyuan International acquired a Vietnam fabric factory for more than 30 million US dollars, which is engaged in textile weaving, dyeing and sorting business. Jingyuan International believes that the acquisition of the fabric factory is an important milestone in the company's vertical integration plan to achieve the long-term development of the group.
In the semi-annual report, Jingyuan International stated that the process of integrating Vietnam's cloth factory business into the company's business is progressing smoothly. After acquiring Vietnam cloth factory, the Group continues to pay attention to opportunities to expand its cloth factory business, including operating its own cloth factory in an internal growth manner and adopting appropriate goals through external acquisitions. The long-term goal is to gradually regionalize and localize fabric supply in the geographical distribution of the company's clothing facilities.
At the same time, in order to support the development of sportswear business, Jingyuan International continues to increase its overseas production capacity expansion. In its semi-annual report,
Jingyuan International said that it will continue to invest prudently in Vietnam, Cambodia and Bangladesh based on the demand to support customer orders to expand the group's multi-national manufacturing platform. It is expected that the capital investment throughout the year will be higher than the level in 2021. In 2021, the company's capital investment was US$132 million and US$54 million in 2020.
Currently, Jingyuan International has about 20 factories equipped with automated manufacturing facilities, distributed in five countries: China, Vietnam, Cambodia, Bangladesh and Sri Lanka, most of which are located in other countries outside China. With the expansion of production capacity, after the end of the epidemic, these production capacity is expected to cater to the trend of consumption recovery and drive the company's growth. As a new concept of preventing social and environmental risks and promoting sustainable development, it has been recognized by many countries and has become an international consensus. In Hong Kong stock and A-share market , more and more companies have issued social responsibility or ESG reports.
In this regard, Jingyuan International has shown transparency and a sense of responsibility, which is incomparable to most other peers. In the semi-annual report, Jingyuan International spent a large amount of space to introduce its sustainable development achievements to the market.
Jingyuan International stated on its official website: We are transparent and responsible for sustainable development performance, so we set and publish the Sustainable Development Goals , and publish the Group Sustainable Development Report every year to summarize the many sustainable actions and achievements taken at Jingyuan International.
To this end, Jingyuan International has adopted the concept of sustainable development in five aspects: environmental protection, innovation, product integrity, employee care and community participation.
, especially in environmental protection, Jingyuan International has put in a lot of effort.
Since 2007, Jingyuan International has set five-year global environmental goals, pledging to achieve net zero emissions by 2050 and following climate science to keep global warming below 1.5 degrees Celsius. The company also sets a medium-term goal to reduce the total greenhouse gas emissions by 35% by 2030. The company's commitment and carbon reduction plan have also been awarded the Commitment Carbon Neutrality Certificate issued by the Hong Kong Quality Assurance Authority.
The following are the results of Jingyuan International's sustainable development in the first half of 2022, and some achievements even play a role in reducing costs and increasing efficiency for the company.
●Since 2007, the company's carbon footprint for each garment has decreased by 40%. At the same time, the company has planted 2.9 million trees in the country where its business is located;
●The total solar photovoltaic capacity of the rooftop is 6.7 megawatts, and the carbon reduction combination is expected to reduce total carbon emissions by 3-5%.
●Recycling water use and other measures have greatly reduced the fresh water consumption of each garment by 54% compared with 2017;
●Since 2018, the company's operating countries have participated in various community services, and the number of volunteer service hours has reached about 60,000 hours, exceeding the goal set under the third global five-year Sustainable Development Goals.
ESG competitiveness has given the market more expectations for its development, provided a reference for the upgrading of the clothing industry, and can even become an important tool for high-quality development of enterprises. As can be seen above, in addition to carbon reduction, Jingyuan International's sustainable development actions have achieved some results in water and electricity cost control. For Jingyuan International, this is not only a social responsibility, but also provides impetus for future development.
Author: Yaoyuan
