Texhong Textile Group Ltd. is one of the largest cotton textile manufacturers in the People’s Republic of China (PRC) and is a leading textile enterprise focusing on manufacturing high value-added core-spun textile products. The group is principally engaged in the manufacture and distribution of quality yarn, grey fabrics, garment fabrics as well as garments, especially high value-added core-spun yarn.
Since 1997, the group has grown rapidly and has over 3,000 customers in China and overseas, with its sales network spanning across the PRC, Vietnam, North America, Europe, Brazil, Turkey, Bangladesh, Japan and South Korea. With its sales headquarters in Shanghai, the group has production bases in the PRC, Vietnam, Cambodia and Nicaragua respectively, with major production facilities comprising about 35,00,000 spindles and 1,389 weaving and knitting machines.
In order to satisfy strong customer demand for the differentiated products, Texhong continued expanding its yarn production capacity. In 2018, approximately 470,000 spindles were added as part of the original two-year expansion plan. The group’s new yarn production capacity after satisfying internal needs would be fully utilized to fulfil external demand.
Expansion plan
The expansion plan of the group in 2019 is expected to cost approximately RMB 1.5 billion, excluding the consideration for the acquisition of the Winnitex Group to form the joint venture. Excluding the sales volume under trading business, the group targets to sell 720,000 tonnes of yarns, 80 million metres of grey fabrics, 120 million metres of woven dyed fabrics, 18,000 tonnes of knitted dyed fabrics and 18 million pairs of jeans in 2019.
In addition to the original two-year expansion plan for 2018 and 2019, in developing overseas yarn bases, Texhong will acquire and build facilities with approximately 80,000 spindles in Turkey so that it may quickly respond to and directly meet the local market demand and in turn increase related profit.
As at the end of 2018, the group’s major production facilities were equipped with approximately 3.50 million spindles and 1,389 looms. Of all the spindles, approximately 2.12 million were in the PRC and approximately 1.38 million were in Vietnam. With the uncertainties in the Sino-US trade dispute, Texhong will slightly slow down its investment in China. Outside China though, to back the woven dyed fabrics business which the group and the Winnitex Group jointly invested in, Texhong Group will focus on expanding the existing woven dyed fabrics production lines in Vietnam and Nicaragua in 2019, as well as adding spinning and weaving facilities to supply for the dyeing and finishing process.
It targets a vertically integrated dyed woven fabrics production base with spinning, weaving, dyeing and finishing processes handled all under one roof. These undertakings, when all completed, combined with Winnitex Group’s existing production base in China, will see Texhong become a comprehensive integrated dyed woven fabrics business that can effectively avert trade barriers and restrictions and serve customers worldwide, showing its integrated capability to develop, produce and distribute annually more than 180 million metres of woven dyed fabrics for fashionable garments and special workwear.
Texhong began to invest in and establish plants in Vietnam a decade ago, having proven to be an initiative that has enabled it to maintain its industrial leadership to date. It expects to implement and carry out its industry chain integration concept so that it will continue to thrive in the future.
Having built premium production and operation conditions for its industry chain platform in the industrial park in Northern Vietnam, the group rapidly achieved high-level industry chain integration in Vietnam, enabling it to complete production, operation and management of the entire industry chain in a single industrial park. Its expedient delivery can satisfy the requirements of the current brands to minimise inventory risks and place additional orders to meet consumer demands during the same season.
Texhong Textile Group derives revenue from sales of yarns, grey fabrics, garment fabrics as well as jeanswear. During the year, sales of yarns reached RMB 15.5 billion, an increase of 6.7% when compared with last year, accounting for 81.2% of the group’s total revenue for the year.
In 2018, the group’s total production volume of yarns was approximately 720,000 tonnes. As trial run for most of the new capacity started only in the second half the year, and approximately 45,000 tonnes of the yarns produced by the group were used by its midstream and downstream businesses, growth in external sales of yarns slightly slowed down in 2018. The group’s new yarn production capacity, after satisfying the internal needs, would be fully utilized to meet external demand.
As for grey fabrics production, the group’s grey fabric factory in northern Vietnam started full production in mid-2018 after completing trial run in the second half of 2017. Although a fair portion of the fabrics produced was used by the group’s dyeing factory in Vietnam to meet increased sales orders, sales of grey fabrics still saw a significant increase of approximately 45% against last year, to approximately 96 million metres. Benefitting from partial vertical integration of the fabrics and yarn factories in Vietnam, the average gross profit margin of grey fabrics also increased markedly to 14.8%.
As for woven dyed fabrics, with the completion of trial production of the group’s woven fabric factory in northern Vietnam in the second half of 2017 and the acquisition in May 2017 of the Asian denim business (including a woven fabric factory in Nicaragua) of the Nien Hsing Group in Taiwan, revenue from sales of woven fabrics amounted to approximately RMB 612 million in 2018, representing an increase of 24% when compared with last year, with sales volume reaching 42 million metres. As the group’s woven fabric production business is at an early stage of development, it currently has a single-digit gross profit margin.
However, with the integration of the relevant production business of the Winnitex Group with that of Texhong, the production technology, product development and marketing capabilities of the woven dyed fabric business will improve markedly. The business is expected to turn around to profit in 2019 and gradually reach the world-class level under the management of the Winnitex Group.
As for knitted dyed fabrics, following the acquisition of the knitting and dyeing plant which was originally an associate company at the end of 2017 by increasing 51% to 100% equity interest, the group also began to try to build a dyeing production line for knitted fabrics in Vietnam in 2018. For 2018, the group sold self-produced dyed knitted fabrics of approximately 15,000 tonnes in all, and approximately 1,900 tonnes were sold via trading.
Alongside, with the increasing use of self-produced yarns which help vertical integration and increase in production capacity in Vietnam, the business is expected to see notable enhancement in profitability.