2025-06-10 15:26Summary of Conference Call Notes Industry Overview - The textile and apparel industry is facing profit pressure due to increased tariffs, which may lead to the exit of low-margin companies and short-term supply tightness. However, leading companies with strong profitability are expected to expand market share in the medium to long term [1][3][8]. Key Points and Arguments - Tariff Impact: The increase in tariffs is expected to significantly impact the profitability of the textile industry, with brands facing challenges in cost transfer to consumers. The limited ability to share costs along the supply chain may lead to a squeeze on profits [3][6]. - Cost Sharing Strategy: Suppliers are expected to bear only about 5% of the tariff costs, with the remaining burden passed on to consumers through price increases. This could result in the loss of orders for low-margin suppliers, concentrating market share among leading firms [1][8]. - Brand Responses: Brands with lower exposure to the U.S. market, such as Puma and Adidas, are likely to mitigate tariff risks through growth in non-U.S. markets or by enhancing brand premiums. In contrast, brands heavily reliant on the U.S. market, like Decathlon and Under Armour, are expected to face margin pressure [1][9]. - Production Capacity: Companies like Shenzhou International have domestic capacity solely for local sales, while expanding overseas. Huayi Group has all its capacity overseas, primarily in Vietnam and Indonesia, which reduces tariff risk [1][10]. - High Net Profit Margin Companies: Companies with higher net profit margins, such as Shenzhou International (20%) and Huayi Group (16%), have stronger bargaining power to negotiate more orders with brands, helping to offset some tariff impacts [11][12]. Additional Important Insights - Investment Recommendations: Focus on textile manufacturing companies with leading net profit margins and lower U.S. market exposure, such as Shenzhou International and Huayi Group, as well as other quality firms like Weixing Co., Taihua New Materials, and Kairun Co. [2][14]. - Regional Tariff Implications: Southeast Asian countries, particularly Vietnam and Cambodia, are major importers of U.S. sports shoes and apparel. The likelihood of very high tariffs being implemented is considered low, which may help mitigate overall impacts [5][6]. - Long-term Strategies: Brands are adopting long-term strategies to address cost pressures, including price increases, supply chain diversification, and establishing global production capacities. These strategies require significant capital and experience, favoring leading suppliers [7][8]. Conclusion - The textile and apparel industry is navigating significant challenges due to tariff increases, but leading companies with strong profitability and strategic positioning are likely to emerge stronger. Investors are advised to focus on companies with lower U.S. exposure and higher net profit margins to capitalize on potential market shifts.