Investment Rating - The investment rating for Bros Eastern is "Outperform" with an expected relative return exceeding the benchmark index by more than 10% over the next 12-18 months [4]. Core Insights - The report highlights a significant supply contraction in two major cotton exporting countries: the USA and Brazil, marking a turning point in global cotton supply with a "double reduction" pattern [5][6]. - The USA's cotton yield forecast has been cut by 8% to 856 pounds per acre, leading to a 2% reduction in final output, while Brazil's planting area is expected to decrease by 2.8% and production by 6.3% to 3.82 million tons, the first decline in five years [5][6]. - The report indicates that the US cotton price is showing bottoming characteristics, with current prices around 65 cents per pound, significantly below the average planting cost of 80 cents per pound, suggesting limited downside potential [6][8]. - Brazil's supply-demand changes are identified as a key variable affecting US cotton prices, with estimates indicating a 15.6% cost return rate loss for Brazilian cotton farmers, further supporting the supply contraction narrative [7][8]. Summary by Sections Supply Contraction - The USA's WASDE report indicates an increase in harvested area but a significant yield reduction, easing inventory pressure [5]. - Brazil's CONAB report predicts a decrease in both planting area and production, particularly in Mato Grosso, which accounts for 70% of Brazil's cotton output [5][6]. Price Dynamics - The ICE No. 2 cotton futures price is at a historical low, indicating a clear bottoming trend, with a significant cost inversion against planting costs [6][8]. - The basis analysis shows that the cotton basis is at historical lows, with signs of structural recovery, suggesting potential price increases in the medium term [6][8]. Investment Recommendations - The report recommends Bros Eastern due to its low-cost cotton inventory, which is expected to provide significant profit elasticity as cotton prices rise [8]. - The anticipated increase in raw material prices is expected to boost yarn sales prices and restore gross profit margins through inventory appreciation [8].

Investment Rating - The report assigns an "Accumulate" rating for the industry [2] Core Insights - The supply contraction from two major cotton-exporting countries has been established, with a downward revision in U.S. cotton yield and the first decline in Brazilian cotton production and area in five years [3] - U.S. cotton prices are showing significant bottoming characteristics, with ICE 2 cotton futures significantly below planting costs and basis signals confirming this trend [3] - The core variable is anchored in Brazil, with multi-dimensional data confirming the inevitability of production cuts [3] Summary by Sections Supply Dynamics - The global cotton supply is reaching a critical turning point characterized by a "double reduction" pattern. The USDA's January 2026 report indicates an 8% downward revision in U.S. cotton yield to 856 pounds per acre, leading to a 2% decrease in total production compared to December forecasts. This has alleviated inventory pressure [5] - Brazil, as the world's largest cotton exporter, is experiencing a termination of its supply expansion cycle. The CONAB report predicts a 2.8% reduction in planting area and a 6.3% decrease in production to 3.82 million tons for the 25/26 season, marking the first reduction in both area and production in five years [5] Price Dynamics - U.S. cotton prices have been in a prolonged downturn for nearly three years, with current ICE 2 cotton futures around 65 cents per pound, placing it in the 20% historical low range since 2015. The current price is significantly below the average planting cost of approximately 80 cents per pound, indicating limited downward price potential [5] - Historical data shows that the basis for U.S. cotton has reached a low point, with high-quality cotton exhibiting a positive basis in January, suggesting a structural basis recovery as a leading indicator for mid-term price increases [5] Investment Recommendations - The report is optimistic about the performance elasticity of Bailong Oriental under the upward driving force of U.S. cotton prices. The expected downward revision in U.S. cotton production and the end of Brazil's capacity expansion provide a solid foundation for U.S. cotton price support [5] - The report recommends Bailong Oriental, which holds low-cost cotton inventory that will release significant profit elasticity as cotton prices rise. The increase in raw material prices is expected to boost yarn sales prices and significantly restore gross margins through inventory appreciation in a positive basis environment [5][6]