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April social zero by the holiday wrong month drag, clothing monthly negative growth, consumption stabilization to good fundamentals remain unchanged. In April 2019, retail sales of consumer goods totaled $3058.6 billion billion, up 7.2 percent year-on-year, a decrease of 1.5 pct from the previous year, the first time in nearly a decade that it fell below 8 percent; real growth after price factors was 5.1 percent, a decrease of 1.6 pct from the previous year. We believe that the slowdown in the growth rate of social zero in April was mainly dragged down by the wrong month of the May Day holiday: the two days of the May Day holiday in 2018 fell at the end of April, while the May Day holiday this year all fell in May, and the last weekend of April was taken off, the impact is more obvious. If you take into account the holiday wrong month factors to measure, April social zero year-on-year growth rate of 8.7, the growth rate is the same as the previous month, to maintain a stable and good situation, in line with our expectations.

Optional consumption as a whole by the holiday wrong month impact is more obvious, the higher correlation of clothing is the most drag on the negative year-on-year growth. In April, the growth rates of cosmetics, home appliances, audio-visual and communication equipment were 6.7, 3.2 and 2.1 respectively, with the growth rates of -7.7pct,-12pct and -11.7pct respectively. Retail sales of clothing, shoes, hats, needles and textiles were 100 billion yuan, down 1.1 year on year, with a growth rate of -7.7pct month on month, of which retail sales of clothing was 71.7 billion yuan, down 1.1 year on year. From January to April, the retail sales of clothing, shoes, hats, needles and textiles were limited to 441.81 billion yuan, an increase of 2.2 percent over the same period last year, of which clothing retail sales were 322.65 billion yuan, an increase of 1.7 percent over the same period last year. May benefit from the holiday effect, clothing consumption growth is expected to achieve a significant rebound, while the full year continues to maintain the first low after high growth expectations.

Textile clothing tax increase pre-risk landing, not involving clothing home textile products, there is still uncertainty. The U.S. government officially announced that it will increase the tariff rate from 10% to 25% on the $200 billion list of imports from China from May 10, 2019. According to the preliminary arrangement of the China Textile Industry Federation, there are about 900 tax numbers and 927 products related to textile and clothing in the list, involving almost all products in the HS50-60 chapter. Including all yarns, fabrics/fabrics of various raw materials (cotton, wool, silk, hemp and chemical fibers), as well as industrial textiles and some textile machinery products, the annual export value to the United States is about US $4 billion. The list does not include clothing products (woven clothing, knitted clothing) and most home textiles that are exported to the United States.

The tax increase is the continuation of the part of the textile raw materials and intermediate products since last year, the risk of tax increase, before last October there is a certain amount of textile clothing to grab exports, since then by trade uncertainty brought about by external orders cautious, exports slowed down. Exports continue to be under pressure this year, January-April 2018 textile yarn, fabric and products exports increased slightly by 0.92 percent year-on-year, clothing and clothing accessories exports fell by 7.94 percent, the two exports in April were down 6.74 percent, down 11.33 percent, the current $200 billion tax increase list landed, the export situation is still not optimistic.

Subject recommendation

Q3 cotton supply and demand, the Sino-US trade war makes spinning enterprises overall stocking enthusiasm decline, coupled with the new cotton centralized listing and the issuance of 800000 tons of import quota set still form a positive support, while the national storage inventory close to the bottom, there is a round of expectations, but also bring upward support. Upstream plate benefit cotton rise expectations, gross margin recovery space, while the market concentration to bring domestic and foreign orders to the leading enterprises to gather, the manufacturing end of the strong Hengqiang. Since May this year, the depreciation of the RMB has brought positive export revenue, gross profit margin and exchange gains and losses. At the same time, production capacity continues to expand, leading overseas layout scale increased, more benefit from labor, tax dividends, while hedging the risk of trade war, exchange rate fluctuations.

Downstream clothing and home textile enterprises are greatly affected under the pressure of retail sales. Home textile line is still under the pressure of low-cost social e-commerce diversion, but the leading brand strength, product quality competitiveness is still leading, in the low-cost e-commerce to cultivate home textile consumer groups, to meet the entry-type consumption, brand grade demand will also be strengthened. At the same time, the leading differentiation line line, clear line to build a cost-effective product collection, in order to better adapt to the online customer group. While the brand apparel industry is experiencing a period of pressure, it is also a period of opportunity for high-quality leaders. External pressure will inevitably lead to accelerated industry integration and faster increase in the market share of high-quality leaders. We firmly believe in the power of brands. Long-term selection of industry leaders with clear endogenous extension, especially mass brands with high cost performance, will be more stable when consumption momentum goes down.

From the perspective of investment, clothing belongs to high-frequency consumer goods, and the industry has a huge market space of trillions. We are optimistic about the two sub-sectors of children's clothing and sports. Children's clothing can form a strong brand premium and obtain more channel support by looking at quality and sports. Moreover, the fashion degree is relatively low, the convergence of consumer demand is strong, and it has more efficient supply chain integration capability and cost advantage under scale effect, it is conducive to the leading brands to continuously raise the barriers to competition, and the market share is higher. Focus on Senma clothing, Anta sports.

At present, the market is facing a downward trend in consumption data. Under the background of partial degradation of consumption, strong demand for brands with high cost performance is strong. In the short and medium term, high cost performance is the first choice for popular clothing leaders. Hailan Home is recommended. Its valuation is at the bottom of history. The dividend rate in 2017 is 7%, and dividends are expected to bring stable returns. As well as Bosideng, the absolute leader of down jacket, has strong brand and high cost performance, focusing on the main business.

Medium and high-end brands are optimistic about the endogenous extension of clear, multi-brand landing is better, the ability to resist risks of the company, recommended growth is relatively stable, Anzheng fashion, as well as golf clothing and professional travel clothing blue sea leader, brand strength is gradually formed Biyin Lefen. In addition, home textiles continue to be optimistic about the first echelon brand, the market share pattern is stable, the design and research capacity is outstanding, the scale effect is strong, in line with the trend of home textile demand upgrading, recommended Mercury home textiles, Lorai life, Fuana.

In the upstream sector, short-term RMB depreciation, cotton price increases are expected to heat up, industry concentration continues to increase, and the release of overseas production capacity leads to increased profitability. At present, the plate attention is low, Q3 valuation continues to bottom, while the performance of steady growth, with a strong margin of safety. Still focus on recommending Huafu Fashion, Blum Oriental, Tianhong Textile, Shenzhou International.

(Source: CITIC Construction Investment)