Yangtze River Business Daily reporter Xu Jia
The impact of overseas clothing brand destocking continues, Blum Orient (601339. SH) business remains under pressure.
On April 15, Blum Orient disclosed its annual report that in 2023, the company will achieve operating income of 6.914 billion yuan, a year-on-year decrease of 1.08%, a net profit attributable to shareholders of listed companies (net profit, the same below) of 504 million yuan, a year-on-year decrease of 67.75%, and a net profit (net profit after deducting non-recurring profit and loss, the same below) loss of 21.3534 million yuan, a year-on-year decrease of 102.69%.
The Yangtze River Business Daily reporter noted that in the face of the unfavorable situation of reduced overseas orders and low factory capacity utilization, Blum Oriental will sell a total of 216,600 tons of yarn in 2023, a year-on-year increase of 22.40%, achieving contrarian growth. However, due to the low price of products throughout the year, the company's gross sales margin fell by 18.53 percentage points year-on-year to 7.47%.
Not only that, Blum Orient has been carrying out raw material cotton futures business to stabilize the purchase price of raw material cotton and stabilize the supply of cotton.
In 2022, Blum Orient made a big profit of 777 million yuan from investing in cotton futures, but in 2023, the company's investment income from investing in cotton futures will be 127 million yuan, a significant decrease of 650 million yuan year-on-year.
On the same day, Blum Orient also announced that it will continue to carry out cotton futures business in domestic and overseas markets in 2024, and the maximum trading margin for cotton futures business in 2024 will not exceed 990 million yuan.
It is not the first loss deducted in the past 12 years of listing
As one of the leading yarn-dyed yarn manufacturers in China, Blum Oriental's main business is the R&D, production and sales of yarn-dyed yarns. In June 2012, Blum Orient was listed on the main board of the Shanghai Stock Exchange.
According to the annual report, in 2023, Blum Oriental achieved operating income of 6.914 billion yuan, down 1.08% year-on-year, net profit of 504 million yuan, down 67.75% year-on-year, and non-net profit loss of 21.3534 million yuan, down 102.69% year-on-year.
The Yangtze River Business Daily reporter noticed that this is the second decline in net profit of Blum Oriental after 2019, and the deduction of non-net profit is the first loss after listing.
From 2020 to 2022, Blum Oriental achieved operating income of 6.135 billion yuan, 7.774 billion yuan and 6.989 billion yuan respectively, a year-on-year increase of -1.4%, 26.73% and -10.1%, a net profit of 366 million yuan, 1.371 billion yuan and 1.563 billion yuan, a year-on-year increase of 22.92%, 274.47% and 14%, and a non-net profit of 287 million yuan, 1.318 billion yuan and 793 million yuan, a year-on-year increase of 9.16%. 358.72%、-39.83%。
According to Blum Oriental, due to the impact of the increasing downward pressure on the global economy at the end of 2022, the inflationary pressure in major economies in Europe and the United States has not been effectively alleviated, and the terminal consumer demand continues to be weak, and the inventory of overseas clothing brands is still at a high position, resulting in unprecedented pressure and challenges on the global textile industry in 2023.
In the first half of 2023, in the face of the unfavorable situation of declining overseas orders and low factory capacity utilization, Blum Oriental adjusted its sales strategy in a timely manner, exchanging price for volume, and actively promoting sales achievement. The company's overall capacity utilization rate has been able to rebound rapidly in a short period of time to achieve a balance between production and sales.
According to the annual report, in 2023, Blum Oriental yarn production will be 213,200 tons, a year-on-year increase of 11.57%, and the total sales of yarn will be 216,600 tons, a year-on-year increase of 22.40%. However, due to the low price of products for the whole year, the company's gross sales margin fell by 18.53 percentage points year-on-year to 7.47%.
In terms of product lines, in 2023, Blum Oriental's yarn-dyed yarn and grey yarn will achieve operating income of 3.141 billion yuan and 3.315 billion yuan, respectively, a year-on-year increase of -13.5% and 19.44%, and a gross profit margin of 12.82% and 2.41%, a year-on-year decrease of 14.33 and 22.09 percentage points.
It is worth noting that in addition to subsidiaries in Zhejiang, Jiangsu, Shandong, Shenzhen, Hong Kong and Macau, Blum Oriental has also established a large production base in Tay Ninh Province, Vietnam.
In FY2023, due to the destocking of overseas apparel brands and the shrinking demand in overseas markets, the capacity utilization rate of Vietnamese factories throughout the year was insufficient, and selling prices were under pressure and costs were high.
In this unfavourable situation, Blum Orient actively explored overseas sales markets, actively expanded its product market share in the sluggish market environment, and achieved contrarian growth in annual sales revenue driven by sales volume. In 2023, Blum Vietnam will achieve an operating income of 5.305 billion yuan, an increase of 11.90% year-on-year, and a net profit of 126 million yuan, a year-on-year decrease of 81.66%. By the end of 2023, Blum Vietnam has a total production capacity of 1.26 million spindles.
Returns from investing in cotton futures fluctuate wildly
The sharp decline in performance was not only due to lower product prices, but also to fluctuations in investment income from Blum Orient.
In fact, raw materials have always accounted for about 70% of Blum Orient's operating costs, with cotton accounting for the highest proportion. In recent years, according to the domestic and foreign production capacity layout, Blum Oriental has formed a model in which domestic cotton is mainly purchased and imported cotton, and futures cotton is used as a supplement to the cotton spot market procurement in a timely manner, while Vietnamese factories purchase all cotton from the international market.
In recent years, with the expansion of the company's production scale year by year, the demand for raw material cotton has been increasing. In order to stabilize the supply of cotton and stabilize the purchase price of raw material cotton, Blum Oriental has been carrying out raw material cotton futures business.
The Yangtze River Business Daily reporter noted that in 2022 and 2023, the maximum trading margin of Blum Oriental for cotton futures business will not exceed 390 million yuan and 990 million yuan respectively.
In 2022, Blum Orient's non-recurring profit and loss amounted to $769 million, of which the investment income from investing in cotton futures was approximately $777 million. This has also driven Blum Orient to increase the margin limit for cotton futures trading in 2023.
However, there are also risks associated with investing in futures. According to the annual report, in 2023, Blum Orient's non-recurring profit and loss will be 525 million yuan, of which the investment income generated by investing in cotton futures will be 127 million yuan, a significant decrease of 650 million yuan year-on-year.
On April 15, Blum Orient disclosed another announcement showing that in order to avoid the impact of large fluctuations in domestic and foreign cotton prices on the company's performance, stabilize the purchase price of raw cotton and stabilize the supply of cotton, the company decided to continue to carry out cotton futures business in domestic and overseas markets in 2024.
According to the margin rate of domestic and foreign futures exchanges, combined with the company's annual procurement plan, Blum Orient has decided that the maximum trading margin for cotton futures business in 2024 will not exceed 990 million yuan, and the funds within this limit can be used on a rolling basis.
The financial pressure on Blum Orient has increased due to the decrease in the income from investing in cotton futures and the weakening of the profitability of its main business. As of the end of 2023, Blum Oriental's total assets were RMB16.084 billion, with an asset-liability ratio of 39.11%, an increase of 1.14 percentage points from the end of the previous year.
It is worth mentioning that in 2021, Blum Oriental planned to raise an additional 1 billion yuan for the construction of Blum (Vietnam) expansion of 390,000 spindles yarn project, which was approved by the China Securities Regulatory Commission in 2022. However, in March 2023, the company's private placement approval will become invalid. So far, since its listing in 2012, Blum Orient has not implemented equity refinancing.
In the annual report, Blum Oriental plans to distribute 3 yuan (tax included) for every 10 shares, and is expected to pay a dividend of 447 million yuan, accounting for 88.65% of the current net profit.
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