SYNTHETIC FABRIC maker China Taisan posted sterling 1Q08 results yesterday, with profit attributable to shareholders nearly tripling to Rmb 64.5 million (up 188.8% y-o-y).
Listed on 6 June 2008 on SGX at 24 cents, China Taisan is an approved supplier of high-tech fabrics to manufacturers of renowned sporting apparel brands such as Nike and Adidas.
For the big names in sporting apparel in China today, just look at a sample of Taisan’s customer list: Anta, Bossini, Diadora, FILA, K-Boxing, Li Lang, Li Ning, Mizuno, Qiaodan, Reebok, Septwolves, and Umbro.
Big brand since early days of consumerism
China Taisan made its mark in China by introducing polar fleece to its population of more than one billion a decade ago.
”Today, every Chinese national owns at least one piece of polar fleece winter wear”, says its CEO Lin Wenzhang, 45, in an interview with NextInsight.
Serving an industry as fickle as fashion, one has to be nimble-footed.
After polar fleece became popular in the mass market, Taisan introduced functional knitted polyester in 2006.
Sales soared that year with functional fabrics generating nearly double the sales of normal fabrics. Today, Taisan’s “Lianjie” is a top brand in China for functional knitted polyester.
Taisan's functional fabric behind Nike dry-fit
1Q08 sales grew more than two-fold to Rmb 290 million (up 151%), driven by higher sales of functional fabrics (which go for double the price of normal fabrics), as well as higher selling prices.
That is to say, other than an improved product mix, prices for functional fabrics have been trending up, jumping 8.5% y-o-y to Rmb 74,000 a ton in FY07.
The average sale price of Taisan fabrics rose as much as 41% y-o-y to Rmb 56,400 a ton for 1Q08.
Functional fabrics contributed 95.6% to 1Q08 sales. The company also provides fabric-processing services (3.8% sales contribution) and continues to produce normal fabrics (0.6%).
As China’s wealth grows, its consumers are increasingly discerning, creating a rage in demand for quality clothing.
The popularity of high-tech sporting apparel is translating into lucrative selling prices for fabric manufacturers which make the mark expected by purchasing managers for top brands.
Taisan’s “Lianjie” brand of fabrics keeps wearers dry even as they perspire, offers protection against ultra-violet rays, removes body odor, destroys germs and even produces negative ions!
Taisan's gross margins jumped 5.3 percent-points y-o-y to 32.6% for 1Q08, thanks to increases in the following:
1. Proportion of sales in functional fabrics, which are more lucrative – 3,462 tons of functional fabrics were sold in 1Q08, a 132% increase y-o-y.
2. Selling prices relative to cost of sales - cost of sales grew 132.7% y-o-y to Rmb 195.5 million for 1Q08 (compared with top line growth of 151%).
3. Equipment utilization rate - capacity utilization has exceeded 80%, compared with 76.6% for FY07.
Net margins are an enviable 22%.
Mr Lin brims with optimism for FY08 sales.
After all, retail outlets for clients are multiplying: Li Ning for example, is projecting a 30% increase y-o-y in its retail boutiques for FY08.
That's why orders are increasing: Taisan now sits on some Rmb 225.8 million worth of orders (as at 18 Apr 2008).
| FY07 results | Stock Price | Mkt Cap | Sales | Historic PE | Operating Margin % |
| CHINA TAISAN | 25 cts | $232m | $161m | 4.9 | 31.1 |
| FORELAND FABRICTECH | 29 cts | $128m | $83m | 5.9 | 33.8 |
Source: Bloomberg / NextInsight, Tue 17 Jun 2008
Another functional polyester player listed on SGX is Foreland Fabrictech. Unlike Taisan which specializes in knitting, Foreland’s niche is in weaving technology.
Coming up next: Why top sporting apparel labels use Taisan.
Related synthetic textile stories:
| 23 Mar 2008 | C&G Industrial: 24% discount to NTA |
| 14 Jan 2008 | FORELAND widens margins with new fabric types |