tag:blogger.com,1999:blog-4631423976894080706.post1278015036467303984..comments2023-10-17T06:55:06.255-04:00Comments on the red corner: Texhong Texile Group - Yarnsred.http://www.blogger.com/profile/04089263693762295793noreply@blogger.comBlogger48125tag:blogger.com,1999:blog-4631423976894080706.post-46505124507870716622014-08-14T10:13:13.341-04:002014-08-14T10:13:13.341-04:00Lucky to have worked on it before the events playe...Lucky to have worked on it before the events played out. Here's to H2.red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-68841740507724846622014-08-11T10:17:34.069-04:002014-08-11T10:17:34.069-04:00Congratulations, Texhong really seems to be playin...Congratulations, Texhong really seems to be playing out so far.<br /><br />-AndreAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-74306264758521660092014-07-17T09:22:40.856-04:002014-07-17T09:22:40.856-04:00Jeff,
Yah, I think it goes down before it goes up...Jeff,<br /><br />Yah, I think it goes down before it goes up. I've been trying to move into high beta stocks so that I can take advantage of that volatility. H1 will look terrible and low float plus weak hands could see this thing trade down to $5.red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-60852052159274283072014-07-14T23:42:03.106-04:002014-07-14T23:42:03.106-04:00Hi Red.
Have you exited (part of) your Texhong po...Hi Red.<br /><br />Have you exited (part of) your Texhong positions @ $6.4? <br /><br />Is it because you anticapite better entry prices after the interim results?<br /><br />JeffAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-34958909660611217012014-06-19T11:04:59.499-04:002014-06-19T11:04:59.499-04:00David,
See the discussion of Texhong in my newest ...David,<br />See the discussion of Texhong in my newest post. <br />http://quinzedix.blogspot.com/2014/06/ordem-e-progresso-half-time-report-part.html<br /><br />-- 90 days of cotton inventory<br />-- Cotton bought 3 months ago is being sold at lower ASP<br />--> Temporary compression in gross margin<br /><br />red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-14154959626031183802014-06-19T07:12:49.558-04:002014-06-19T07:12:49.558-04:00Red,
Could yo please comment a little bit these n...Red,<br /><br />Could yo please comment a little bit these news:<br /><br />http://www.texhong.com/Public/Uploads/539694df75674.pdf.<br /><br />They are expecting a drop in their results because of the decline in the cotton price.<br /><br />Sorry for my english, I´m writting you from Spain.Davidnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-44880661199286103922014-06-17T11:24:05.854-04:002014-06-17T11:24:05.854-04:00Hi Sam,
Let me try answering question no. 3. Whil...Hi Sam,<br /><br />Let me try answering question no. 3. While there is a quota for imported cotton(raw material form), 4:1 ratio as imposed by the Chinese government recently. There is, however, no quota imposed on imported cotton yarn(value-added cotton). <br /><br />Red's cotton sourcing datafor 50% of imported cotton for China might be referring to cotton yarn.<br /><br />ThomasAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-41417947970950955952014-06-16T09:03:37.454-04:002014-06-16T09:03:37.454-04:00Eepi - buying the stock "entitles" you t...Eepi - buying the stock "entitles" you to a dividend stream denominated in HKD so the share price is going to be pegged to that. If HKD/CNY moves, your present value of that stream will move with it.It's worth doing a sensitivity analysis at different exchange rates.<br /><br />Sam - the debt prospectuses in the dropbox materials above give cotton cost as a % of gross profit and one then can calculate cotton cost per per tonne of yarn and things (non-cotton COGS etc) play out from there. <br /><br />Sorry for the brief replies but I'm on vacation<br /><br />red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-10934398386854684702014-06-16T04:30:30.535-04:002014-06-16T04:30:30.535-04:00Hi red,
Thanks for your reply.
I have read your ...Hi red,<br /><br />Thanks for your reply.<br /><br />I have read your article again and have a few questions about your model:<br />(1).It seems you set cotton to yarn conversion rate to be 1:1, i.e., it takes 1 ton cotton to produce 1 ton yarn. Is it accurate? I haven't found the exact numbers but some articles say it takes around 1.1 ton cotton to produce 1 ton yarn; the conversion ratio depends on the types of yarn and cotton. This may change your cost and gross margin estimates.<br />(2).How did you get the non-cotton cogs? Did you just use the average cost multiplied by the percentage of non-raw-material costs shown in annual reports? However, raw materials are not just cotton, which makes it hard to calculate a more detailed cost structure. <br />(3).You have set the cotton sourcing of domestic and imported via allocated quota to be 50% each. How did you get this number? Some industry news reported 3:1 ratio in industry, but I can't find the exact percentages used by the company. Again, this number may change your model results.<br /><br />Btw, in your reply, you mentioned the long term 10 million spindles target. Where do you find this number?<br /><br />This is a nice article. Thanks.<br /><br />SamAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-48228854960200289672014-06-16T01:30:59.311-04:002014-06-16T01:30:59.311-04:00Thanks for the interesting blog and idea, always g...Thanks for the interesting blog and idea, always good to read posts that are thought-out. <br /><br />Just a quick question that relates to other similar situations as well, where the stock is listed in currency X and reports in currency Y. I'm wondering if there's a reason you decided to convert to HKD (stock's currency) instead of just converting the stock price to renminbi/CNY (which I feel is a lot more simple)? Is there any reason why converting the stock price is not a good idea? I appreciate the help on this small question.Eepinoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-26058717244553949002014-06-15T09:48:15.798-04:002014-06-15T09:48:15.798-04:00Sorry for the delayed response - i was traveling.
...Sorry for the delayed response - i was traveling.<br /><br />I don't have a Bloomberg. Embarrassed to say that I don't know enough about its features to evaluate its cost effectiveness. I googled for those materials, starting from last summer when i was intrigued by the contradictions in the VIC writeup. <br /><br />TPP - it's not about cooton prices but about tariffs on garments. <br /><br />When VN joins, it can export to the US & other members free of tariffs, which increased its addressable market. Also, if the yarn forwarding rule is included, as VN wants it to be,PRC yarn will essentially be classed as VN yarn. US textile industry association estimates that VN share of US textile consumption would grow from ~7% to ~30%.<br /><br />Both developments would benefit Texhong since fabric/garment production in VN would explode and Texhong is best placed to supply yarn to satisfy this increased demand.red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-51792919150748370162014-06-14T09:11:43.104-04:002014-06-14T09:11:43.104-04:00thanks for posting. How do you have access to thes...thanks for posting. How do you have access to these reports? Through bloomberg or something?<br /><br />One thing I dont understand about this one is how does the TPP affect this one positively? There is no price spread in cotton between vietnam and the west right? Do they get a much bigger premium for value added products in the west or something?johnnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-89921805834368781642014-06-14T07:29:40.599-04:002014-06-14T07:29:40.599-04:00Sure
https://www.dropbox.com/s/c7rii1vvpzkhzjj/Te...Sure<br /><br />https://www.dropbox.com/s/c7rii1vvpzkhzjj/Texhong%20Materials%20-%20for%20Web.zipred.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-70815360062866741742014-06-13T16:09:05.448-04:002014-06-13T16:09:05.448-04:00Hey red.
any chance you could upload one of those...Hey red.<br /><br />any chance you could upload one of those analyst reports? Seems I'm having a hard time finding a good one on Bloomberg.<br /><br />AndreAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-63001413241544058452014-06-13T06:56:43.754-04:002014-06-13T06:56:43.754-04:00Sam,
1) 15 and 7 makes sense
2) The owner-operat...Sam,<br /><br />1) 15 and 7 makes sense<br /><br />2) The owner-operator is targeting 10 million spindles by the end of the decade <br /><br />3) I have my doubts about whether this is in fact a commodity industry but the company's next step in Vietnam seems to be vertical integration, just as you suggest.<br /><br />Also, the production facility in Turkey (start 2016) is a JV with a customer. <br /><br />red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-76517319629597940232014-06-13T02:05:23.593-04:002014-06-13T02:05:23.593-04:00Hi Red,
Very nice model and analysis.
(1). I was...Hi Red,<br /><br />Very nice model and analysis.<br /><br />(1). I was trying to calculate the valuation of this stock by looking at the long-term average ROE. Looks like the asset turnover ratio has dropped in last year, the financial leverage is more constant. The net profit margin varies a huge lot over the past years due to the volatile gross margin. Since this company has relatively low cost structure in the industry and by looking at its historical performance with/without the production outside China, I assume a base case can be 15% gross margin which translates to about 7% net profit margin. The long term ROE can be around 20%. Does this make sense to you?<br /><br />(2). The industry is quite fragmented. With 2 million+ spindles in the near future, it will become one of the largest companies in the industry, but still a small percentage of the whole market. Due to the volatile nature of this industry, I guess it may be wise to expand prudently instead of aggressively. What do you think its growth potential in the next several years?<br /><br />(3). One major risk is that it is still a commodity industry. The performance of the company depends a lot on the cotton price trend which is hard to predict and to hedge. Companies in the industry have little bargain power over the upstream cotton suppliers and downstream fabrics/clothes makers. I guess it may be a good idea for it to extend the industry chain, e.g., enter the downstream business to enjoy better margins and to make the profits more stable. What do you think?<br /><br />Thanks,<br />SamAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-45457606692044962872014-06-12T19:22:30.909-04:002014-06-12T19:22:30.909-04:00There are various analyst reports out there that l...There are various analyst reports out there that list capacity and location.<br /><br />Or you could reconstruct it from the various statements about capacity in the ARs and the debt prospectus<br /><br />Revenue/ASP = production,which at full capacity = capacity<br /><br />Let me know if you can't get hold of an analyst report and I'll place one in the cloud.red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-17682866291357793002014-06-12T11:01:35.415-04:002014-06-12T11:01:35.415-04:00Where did you pull the capacity (in tons per year)...Where did you pull the capacity (in tons per year) going back to 2007? <br /><br />The company only seems to list capacity in # of spindles, with only a brief mention in the AR about capacity reaching "32,000 tons per month on average" by end of 2013. <br /><br />But your numbers are exact, including the breakdown between Vietnam & China. Source document?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-31314466247809709432014-06-12T06:40:08.698-04:002014-06-12T06:40:08.698-04:00Great thanks Red. Really appreciate you taking the...Great thanks Red. Really appreciate you taking the effort. 6000RMB looks like a reasonable assumption to use as a cotton-yard spread.Fraserhttps://www.blogger.com/profile/18437921884070204027noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-254715413145470702014-06-11T17:31:16.246-04:002014-06-11T17:31:16.246-04:00Oops, Link here:
https://docs.google.com/spreadshe...Oops, Link here:<br />https://docs.google.com/spreadsheets/d/1OzqP8RbEcndv6nf6kw8ETL0w-KoZSBDE3aYtZqolLm4/edit?usp=sharingred.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-16522137005660583502014-06-11T17:30:08.367-04:002014-06-11T17:30:08.367-04:00Fraser,
I've linked to the data that I have f...Fraser,<br /><br />I've linked to the data that I have found for Texhong's ASPs going back to 2007. <br /><br />The 2014 ASPs are 1-for-1 reductions wrt to the price of cotton. So, for example, if cotton prices* fall by 1000 RMB/tonne, I assume that cotton yarn ASPs also fall by 1000 RMB/tonne. (i.e. the savings are passed on to the customer).<br /><br />*Bearing in mind that Texhong's domestic operations use both yarn priced at domestic spot and yarn imported via their allocated quota. So Texhong PRC's effective cost of cotton is an average of those two different prices.<br />red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-90816633018201528402014-06-11T07:27:10.541-04:002014-06-11T07:27:10.541-04:00Thanks for taking the time to spell out the case R...Thanks for taking the time to spell out the case Red.<br /><br />I've a question about ASPs. I presume these historically look something like the Chinese cotton price plus a relatively constant premium, but haven't been able to find any yarn pricing data to confirm or deny this theory.<br /><br />Secondly, what is the source of the undisclosed ASPs that you used to determine revenue in the second table in the 2014 section?<br /><br />Similarly how did you arrive at an ASP of 21,442 in the final table?<br /><br />Thanks in advance.Fraserhttps://www.blogger.com/profile/18437921884070204027noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-31618816775056649892014-06-11T07:18:59.190-04:002014-06-11T07:18:59.190-04:00AndreS,
There are two things going on:
1) Texhon...AndreS,<br /><br />There are two things going on:<br /><br />1) Texhong carries 90-100 days of cotton inventory so cotton bought at higher prices three months ago is not going to fare well when ASPS fall today. The interim results won't look pretty and deserves a profit warning. (You can see this play out in extreme form in 2011. And the opposite was happening in 2010: ASPs rising because the spot price of cotton was rising while Texhong still had "old" lower price cotton inventory).<br /><br />2) in the longer-term, what one would call "run-rate", lower ASPs will correspond with lower cotton prices and I believe my thesis will play out as expected.<br /><br />So I suspect that the price action may have something to do with the interplay between year ahead performance money and patient capital.<br /> <br />red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-2460123189886481482014-06-11T06:56:30.232-04:002014-06-11T06:56:30.232-04:00Hi red.
Yesterday a profit warning came out by ma...Hi red.<br /><br />Yesterday a profit warning came out by management, today the stock is up over 5%. <br /><br />Can you make any sense out of this? Does the profit warning contradict your hypothesis (which I found very well constructed by the way)?Andrehttps://www.blogger.com/profile/16086942679391069999noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-52912513005754679392014-06-10T08:51:46.218-04:002014-06-10T08:51:46.218-04:00G,
Maybe. Insurance and tax concessions from the ...G,<br /><br />Maybe. Insurance and tax concessions from the VN government should make up for any losses. Yarn/Textiles is a privileged industry in Vietnam.red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.com