Textile and garment firms have been through a roller coaster ride, with profits going up in the first half of 2022 and nosediving during the second half.
Financial problems plague apparel firms
The textile and garment industry has steadily recovered from the impacts of the Covid-19 pandemic. It expanded rapidly in the first quarter of last year and contributed greatly to the nation’s export sector. Data from the General Department of Vietnam Customs showed the industry’s total export value topped US$37.5 billion, up 14.7% year-on-year. Exports to the U.S., Europe, Japan and Korea rose 7.9%, 34.7%, 25.8% and 12.1% to over US$17.3 billion, US$4.4 billion, US$4 billion and US$3.3 billion, respectively.
Despite the industry’s impressive results in the first half of last year, a slump in global demand in the second half sent apparel companies into difficulties, with the export value falling to a whole-year low due to fewer new orders since September.
As a result, their profit plummeted in the final quarter. Statistics from 15 major textile enterprises showed their consolidated profit after tax in the fourth quarter totaled VND440 billion, down 63%, or VND762 billion, over the year-ago period.
A sharp drop in orders from e-commerce giant Amazon has sent Binh Thanh Import – Export Production & Trade JSC’s (Gilimex) profit in the fourth quarter down 92% year-on-year to nearly VND10 trillion. Gilimex posted VND3,167 billion in revenue for 2022, decreasing 24% over 2021. Still, its profit after tax expanded 9% to VND361 billion thanks to the positive business performance during the first half.
Major apparel firm Vinatex reported VND5 billion in loss after tax in the fourth quarter, while it made VND450 billion in the year-ago period, marking its first quarterly loss since its establishment. However, good business results in the first half helped Vinatex earn over VND1,000 billion in the year, though the profit slid 20% versus 2021.
Facing the same fate, Garmex Saigon Corporation (GMC) saw a loss after tax of VND59 billion in the fourth quarter, a plunge of VND94 billion over the year-ago period. The company attributed the loss to the suspension of manufacturing at some of its factories in mid-August to improve product quality, so the goods were kept in stock. GMC posted a net loss of VND66 billion last year as it only made a profit in the second quarter, making 2022 the first year the company reported losses.
Other large apparel firms such as Song Hong Garment Joint Stock Company (MSH), Century Synthetic Fiber Corporation (STK) and Everpia JSC (EVE) witnessed their profit in the fourth quarter plunging 40-50% year-on-year to VND55 billion, VND43 billion and VND27 billion, respectively.
Price-to-earnings ratio to drop further
According to SSI Research’s latest release on the performance of stocks in the textile and apparel sector in 2023, inflationary pressures may continue to put a strain on the textile market. Global management consulting firm McKinsey forecast that the luxurious clothing segment would grow from 5% to 10% while other segments would drop by 3% year-on-year. Apart from that, the regional factor also plays a role in the sector’s development. For example, the U.S. economy has been expected to see slower growth, but its size remains bigger than others.
The Vietnam Textile and Apparel Association has estimated that Vietnam’s textile export in 2023 may expand from 7% to 11% over 2022, bringing in US$45 billion to US$47 billion. Such a result may be challenging as the fiber segment reported losses in the fourth quarter of 2022, while Vinatex said its new orders in 2023 may plummet 25% year-on-year.
Meanwhile, cotton fabric and crude oil prices have plunged since the second quarter of 2022, leading to waning input cost pressures for garment manufacturers. Though lower input prices are expected to compensate for the drop in selling prices, the sector’s gross profit margin is forecast to decrease because producers could not get a good foothold in negotiations with retailers, especially during weak demand periods, and the base salary may increase by 20% over the year-ago period. Besides, interest rates may stay high throughout the year, causing soaring financial expenses and thus affecting businesses’ net profit margin, especially for high financial leverage such as TNG Investment and Trading JSC (TNG).
In the stock market, the prices of the textile and apparel sector slumped by 41% in 2022, way higher than the fall of the VN-Index. Of these, stocks with the poorest performance include NDT (losing 70% of value over the beginning of 2022), GIL (losing 64%), VGT (losing 60%), and TNG (losing 52%). The plunge in fiber prices in the second half of 2022 has been highly influential in the stock price of fiber companies such as NDT and ADS.
According to SSI Research, the price-to-earnings ratio of the textile and garment sector may drop to a record low as in the 2010-2012 period in the expectation of a global economic recession in the third quarter of 2023. Businesses in the industry may see the sharpest fall in profit growth during the period. However, they are expected to show signs of recovery in the next quarter, with the average market price-to-earnings ratio returning to eight times the earnings.