Bags / Shoes & Accessories

- Healthy lifestyle; national tide superimposed supply chain recovery

We believe that the "national tide" trend that started in early 2021 may have a lasting and far-reaching impact on China's textile and apparel industry in 2022, because this trend stems from the demographic changes of Gen Z consumers. Despite the high base impact the industry will face in the first half of 2022, we expect it will continue to benefit from consumers' pursuit of healthy lifestyles and fashion. We like the stock performance of the textile manufacturing sector, followed by the sportswear sub-sector, children's wear and casual wear.

- Domestic brands are expected to expand their market share in the future

China's footwear and apparel industry is still dominated by international brands, with Nike (NKE US), Adidas (ADS GR) and Uniqlo (9983 JP) ranking among the top three brands in 2020, followed by domestic brands - Anta. nulltheless, we note that the market share of the top ten domestic Chinese brands increased by 2.1 percentage points to 5.7% during 2017-2020, faster than the 1.5 percentage points of international brands. We expect that domestic brands will continue to gain more market share and narrow the gap with international brands in the future.

-Sportswear is expected to become the main beneficiary of Guochao

The "National Tide" trend will continue to have a significant and lasting impact on the textile and apparel industry in the future, as it stems from the shift of the consumer population to Generation Z and their growing sense of national pride. In the industry, we believe that the sportswear sub-sector will be the biggest beneficiary of the "national tide" because: 1) Sports are an important part of national identity, and the successful performance of national sports teams in global sports events is often regarded as a Indicators of national value; 2) Consumers pay more attention to physical health and pursue a better work-life balance; 3) Gen Z consumers prefer a more comfortable and casual daily dress style.

-Apparel companies continue to improve operational efficiency

Industry leaders will: 1) further enhance branding and marketing capabilities to more closely integrate Chinese elements; 2) invest in product design and R&D to win consumers' trust; 3) improve supply chain and direct retail to more quickly respond to changing consumer demands.

- Textile segment expected to see revenue and margin recovery in 2022

Although major shoe and apparel manufacturers temporarily suspend production in 2021 due to the spread of the global epidemic, their production capacity expansion is still on track. We believe that as the death rate of the new crown epidemic declines, the restrictions or relaxation of the government's epidemic prevention and control measures in 2022 should ensure a stable environment for textile manufacturers. We expect that due to production disruptions and unfavorable foreign exchange environment in 2021, the revenue growth and profit margin of the textile sector in 2022 are expected to be supported by a low base effect.