GTHT Securities has issued a research report initiating coverage on TEXHONG INTL GP (02678) with an "Add" rating. As a global leader in yarn manufacturing, the company possesses advantages in scale and customer base, with mature production capacity established early in Vietnam. The firm views the company's high inventory levels as largely cleared and believes its profitability is entering an upward cycle. GTHT forecasts net profit attributable to shareholders for 2025-2027 to be RMB 890 million, RMB 1.04 billion, and RMB 1.13 billion, respectively. Applying a 2026 P/E ratio of 8x and converting at an exchange rate of HKD 1 to RMB 0.89, the report sets a target price of HKD 10.20. Key points from GTHT Securities are as follows:
Global Yarn Leader Entering Profitability Upswing TEXHONG INTL GP was founded in 1997 and is one of the world's largest suppliers of core-spun cotton textiles. The company began strategically building yarn production capacity in Vietnam as early as 2006. Having navigated challenges such as rapid cotton price increases and supply chain disruptions during specific periods, the company responded proactively. Its previously high inventory is now essentially cleared, and profitability is beginning an upward trend. Founder and controlling shareholder Mr. Hong Tianzhu holds a 52.9% stake, indicating relative concentration of ownership among core management.
Cyclicality Influenced by Cotton Prices; Investment Stabilizes and Debt Repayment Accelerates Raw material cotton constitutes 76.1% of the company's costs. GTHT estimates the company maintains 3-4 months of cotton inventory, causing profit fluctuations to exhibit cyclicality influenced by cotton price cycles. Benefiting from brand inventory replenishment and the substantial clearance of high inventory, the company successfully returned to profitability in 2024. Currently, capital expenditure is stabilizing, operating cash flow is robust, and debt repayment is accelerating.
Global Yarn Market Size CAGR Projected at +5.9% from 2025-2032 The global yarn industry size is projected to reach RMB 845.66 billion in 2025 and grow to RMB 1.26029 trillion by 2032, representing a compound annual growth rate (CAGR) of 5.9%. In 2024, TEXHONG INTL GP's yarn revenue was RMB 17.91 billion, accounting for 2.1% of the global market.
Future Outlook 1) Debt repayment and leverage reduction are expected to lower financial expenses. The company is currently in an active debt repayment phase. GTHT believes near-term benefits will include reduced financial expenses from lower leverage, thereby boosting profits. The report anticipates annual debt repayment of RMB 800 million to RMB 1 billion from 2025-2027, leading to interest expense savings of approximately RMB 130 million, RMB 50 million, and RMB 40 million in the respective years. 2) Opportunities for market share gains arise from trends towards diversified production locations and increased brand traceability requirements. Against the backdrop of tariff parity, brands are strengthening their demand for diversified supply chain origins. The company's mature overseas production capacity positions it to secure more orders. Furthermore, increasing brand requirements for tracing cotton origin further enhance the competitive advantage of overseas production bases, supporting a positive outlook for the company's continued market share growth. 3) Internal technological upgrades and photovoltaic investments are driving internal growth. The company is actively pursuing internal growth through technological upgrades and investments in photovoltaic energy. The wage component per unit of revenue has decreased from RMB 0.084 in 2017 to RMB 0.075 in 2024. Plans are in place to construct a 180-megawatt photovoltaic power station in 2025. These initiatives are expected to lower comprehensive production costs and achieve profit growth from internal efficiencies.
Risk Warning Potential risks include fluctuations in raw material prices, tariff disruptions, weak demand, and insufficient capacity utilization.
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