Major textile and garment manufacturers Eclat Textile Co (儒鴻), Makalot Industrial Co (聚陽) and Quang Viet Enterprise Co (廣越) last week reported lower revenue for last month as the Lunar New Year holiday reduced the number of working days by nearly a week.
Eclat’s revenue decreased 4.73 percent year-on-year and 16.13 percent month-on-month to NT$2.65 billion (US$87.96 million), Makalot’s revenue fell 2.4 percent annually and 1.96 percent monthly to NT$2.09 billion, and Quang Viet’s sales dropped 18.57 percent from a year earlier and 11.33 percent from the previous month to NT$727.48 million, company regulatory filings showed.
A disruption in the Chinese supply chain due to the 2019 novel coronavirus is adding to uncertainties on whether textile makers are able to resume normal production this month amid concerns over raw material supplies, labor shortages and product shipments, analysts said.
Quang Viet said its factories in Vietnam began operations on Jan. 31 and work at its Chinese plants is to restart today.
“The main growth force for Quang Viet in 2020 will be sportswear brands (such as Adidas, Nike, Under Armour),” the company said in an e-mail on Friday, adding that contributions from outdoor clothing brand Patagonia would decline slightly this year due to clients’ inventory adjustments, while other brands’ orders would be on par with last year’s levels.
Eclat, one of Nike Inc’s top five suppliers, has operations in Taiwan, Vietnam and Cambodia, and plans to establish a new plant in Indonesia to address its lack of capacity and labor in Vietnam.
The company told the Central News Agency (CNA) on Friday that operations at its Vietnamese plants began on Monday last week and factory utilization increased as workers were returning to production lines.
However, the coronavirus outbreak has caused some raw material suppliers in China to suspend operations, Eclat said, adding that it is contacting suppliers outside of China to ensure a sufficient supply of raw materials, CNA reported.
Makalot continued to expand capacities at its plants in Indonesia and Vietnam last year in the wake of the US-China trade dispute. The company also operates plants in Taiwan, China, Cambodia and the Philippines.
Although Eclat and Makalot are expected to ride the long-term tailwind of international brands’ supply chain consolidation, their growth in the near term might face challenges on tighter capacity in Vietnam due to labor shortages, rising labor costs and unfavorable foreign exchange rates, Credit Suisse Group AG said in a note on Thursday.
Even if the companies could successfully increase their workforce by raising salaries and adding more outsourcing partners, most of its growth would be at the expense of margin, Credit Suisse said.
As a result, Credit Suisse downgraded its rating on Eclat to “underperform” from “neutral,” while retaining its recommendation on Makalot at “underperform.”
But Capital Investment Management Corp (群益投顧) expected Eclat to continue growing in the near term thanks to orders from new clients and its reach to the outdoor clothing market, while the coronavirus outbreak’s impact on the firm could be relatively mild as it already shut down its last garment plant in China in 2016, according to a research note issued on Thursday.
Capital Investment maintained its "buy" rating on Eclat.
This story has been updated since it was first published.
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