New Billionaire Makes Money Off Vietnam-China Cotton Gap; Shanghai-based Texhong Textile (2678) have soared 438 percent in the past 12 months

August 29, 2013 Leave a comment

New Billionaire Makes Money Off Vietnam-China Cotton Gao

A textile maker’s cost-cutting move to shift cotton production to Vietnam has ignited a yearlong rally in its stock, minting a new billionaire in China. Shares of Shanghai-based Texhong Textile Group Ltd. (2678) have soared 438 percent in the past 12 months, boosting the wealth of its co-founder and largest shareholder Hong Tianzhu to $1 billion, according to the Bloomberg Billionaires Index. Hong, 45, hasn’t appeared on any wealth ranking. He owns almost 62 percent of Texhong, which is traded in Hong Kong. He couldn’t be immediately reached for comment by phone.Textile makers in China, the world’s largest cotton user and importer, have been “gravely hurt” by the government’s policy to purchase domestic cotton to shield local farmers from slumping prices caused by a global oversupply, according to the China National Textile & Apparel Council. The policy led to a two-tier market where China’s cotton prices are about 75 percent higher than in Vietnam.

“Texhong is very early in expanding capacity overseas, most notably in Vietnam, which allows it to capture the price difference by procuring cotton in global markets from Vietnam and selling products back in China,” Dennis Lam, an analyst at DBS Vickers Hong Kong Ltd., said in a phone interview.

Founded in 1997, Texhong operates 11 plants in China and four in Vietnam. It specializes in spandex, used in sports apparel and underwear, and benefits from lower labor costs in Southeast Asia, according to Lam of DBS. Vietnam accounts for half of the company’s manufacturing capacity, said Lam, who rates the stock a buy.

’Bold Steps’

“In relation to the purchase of the principal raw materials, especially cotton, we stood out from our industry peers in terms of operating results by taking bold steps and measures to leverage on the difference in prices of domestic and overseas cotton in 2012 and rapidly increasing the consumption of overseas cotton,” Texhong said in its 2012 annual report.

Texhong’s profit tripled to $73 million in the first half of 2013, according to a filing to Hong Kong Stock Exchange on Aug. 12. Revenue rose 8.5 percent to $588.2 million. The company has more than 1,600 customers and gets about 83 percent of revenue from China. With the exception of Toray Industries Inc. (3402) of Japan, all of its top 10 customers are Chinese manufacturers in Zhejiang, Jiangsu and Guangdong, the country’s manufacturing hubs, its annual report shows.

The company plans to build plants in Turkey and Uruguay in 2014 to reduce raw material costs and bypass tariffs and other trade barriers, Hong said in a speech in Beijing in June.

To contact Bloomberg News staff for this story: Michael Wei in Shanghai at mwei13@bloomberg.net; Feiwen Rong in Beijing at frong2@bloomberg.net

Filed under Investing Process, Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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