The burden of costs “pull” the profits of textile enterprises
Textile and garment is one of the key export industries with an impressive growth rate in the first months of 2022. After the heavy impact of the Covid-19 pandemic, textile and garment enterprises have gradually recovered. The country’s export value of textiles and garments in 2022 reached 37.57 billion USD, up 14.7% compared to 2021.
However, at the time of the third quarter of 2022, the textile and garment industry gradually entered a difficult time due to the constantly increasing inflation causing a decrease in consumption demand. By the fourth quarter – which was the peak of production, orders fell sharply vertically, causing factories to operate moderately. This difficulty was evident in the business results of the last quarter of the year of textile and garment enterprises.
The financial statements of the fourth quarter of 2022 of the textile and garment enterprises group on the stock exchange also recorded a large divergence and no longer achieved the impressive growth rate as before.
As an industry leader, Vietnam National Textile and Garment Group (Vinatex; code: VGT) unexpectedly recorded a loss of more than 5 billion dong in the fourth quarter of 2022. This is also the first loss quarter since the company was equitized in 2014. In the whole year of 2022, Vinatex still has a profit of more than 1,000 billion dong, down 20% over the same period thanks to the large profit in the first half of the year.
Vinatex leaders explained that this loss result was due to the influence of China’s zero Covid policy, which led to a decrease in demand in some markets at the end of the year, thereby affecting consumption and commodity prices. yarn inventory. The group’s member yarn companies had to make full provision for devaluation of inventories to match market prices.
Similar, Garmex Saigon Textile (code: GMC) also suffered a loss after tax in the fourth quarter of 2022 at 59 billion dong while the same period profit was nearly 35 billion dong.
According to the explanation, the company had to stop production at some factories from mid-August to fix the quality, so most of the manufactured goods had to be stored, the inventory had not been consumed. For the whole year of 2022, Garmex Saigon had a net loss of nearly 66 billion dong – recording the first year of losses since listing.
Gilimex (code: GIL) recorded with fourth quarter net revenue down 81%, reaching nearly 262 billion dong while the same period last year reached nearly 1,400 billion dong. Profit after tax decreased by 92%, earning less than 10 billion VND. In the whole year of 2022, Gilimex recorded revenue of VND 3,167 billion, down 24%, but profit after tax still increased 9% over the same period to VND 361 billion thanks to contributions from the first two quarters of the year.
Century yarn (code: STK) reported net sales of 430 billion dong, down 13% y/y due to slow consumption market, lower sales. Other expenses did not change significantly, however, the business recorded a net profit of 43 billion dong, down 43% compared to the same period last year.
Many well-known enterprises in the industry such as Song Hong Garment (code: MSH), Everpia (EVE) also recorded the fourth quarter profit decreased by 40-50% compared to the same period last year, reaching 55 billion dong and 27 billion dong, respectively.
In the opposite direction, there are 4 textile enterprises with positive growth of up to 2 or even 3 digits. In there, Textile – Investment – Trade Thanh Cong (code: TCM) impressive when the profit after tax in the fourth quarter reached 60 billion dong, an increase of nearly 140% over the same period. In the whole year of 2022, Thanh Cong Textile and Garment recorded VND 281 billion in profit, up 95%.
Phong Phu Corporation (code PPH) is the most profitable enterprise in absolute terms. Specifically, after-tax profit reached VND 99 billion, the same period last year recorded VND 44 billion, equivalent to an increase of 125% compared to the fourth quarter of 2021.
Accumulated in 2022, Phong Phu reported a record profit since its operation of VND 486 billion, up 42% over the same period. This business set a profit after tax plan of 377 billion dong. With the results achieved, the enterprise has exceeded 30% of the set plan.
Another textile enterprise that also recorded growth in profit in 2022 is Viet Tien Garment (code: VGG). Despite a 14% decrease in profit over the same period in the fourth quarter, the company still fulfilled and exceeded the target of profit before tax of VND 150 billion for the whole year. The company achieved pre-tax profit of 218 billion dong, more than 2 times higher than the same period last year.
Many challenges in 2023
Thanks to making good use of the effective free trade agreements and increasing the compliance with the rules of origin to enjoy preferential tariffs as committed in the FTA, the export results of textiles and garments will increase in 2022.
However, Vietnam’s textile and garment industry still faces many difficulties and challenges when it depends heavily on input costs, labor costs and economic recession. Notably, the current global economic recession has pushed down demand in both the domestic market and major importing countries: the US, Japan, South Korea, etc.
According to a report of VNDirect, the demand of Vietnam’s leading export markets such as the US, EU and China will continue to decrease in 2023.
VNDirect’s experts pointed out that Vietnam’s export orders have decreased since July last year due to high inventories at major US retailers such as Adidas, Nike, etc. Meanwhile, data from the US market still shows that the textile and garment inventory level is expected to last until the second quarter of 2023.
Despite many challenges, Vietnam’s textile and garment industry still sets a target that export turnover in 2023 will be higher than the record level of 2022. Specifically, the industry poses two growth scenarios. Accordingly, the positive scenario is that textile and garment exports can reach 47-48 billion USD and the less positive scenario is about 45-46 billion USD, which is still higher than the level of more than 44 billion USD in 2022.
Under favorable scenario conditions, uncertainties from the world market can be controlled, the garment industry is forecasted to recover by the end of the first quarter of 2023. So the scenario $47-48 billion can come true. However, scenario 2 is less favorable when the market recovers in the second half of 2023 – the growth rate is about 4.5% and reaches 45 billion USD.
According to Mr. Vu Duc Giang – Chairman of the Vietnam Textile and Apparel Association (Vitas), the basis for this ambition is information about trade agreements that are the driving force for the shift of investment from abroad into Vietnam. , helping businesses diversify markets and products.
For example, in the past, Vietnamese enterprises supplied products to Muslim countries with a small proportion, but up to now, the businesses that are supplying goods to this market are very large, they shift a part of their orders from Bangladesh, Myanmar.
In addition, Vietnam’s textile and garment has been promoting to reduce imports and increase the localization of domestic raw materials. According to preliminary statistics of Vitas, currently, textiles and garments have been localized about 49%, in the coming 2023-2025, this number is expected to increase to 51-55%..
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