Profits has just reported increased, textile enterprises are worried about the lack of orders

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Orders in the fourth quarter are currently very low due to high inventories in export markets. Photo: Nguyen Thanh

Many businesses report profits

The financial reporting season of the third quarter of 2022 has recorded positive growth of many textile and garment enterprises. For example, Garment 10 Corporation, the consolidated net profit in the third quarter of 2022 reached VND 25 billion, an increase of 35% compared to the same period in 2021.

In 9 months, Garment 10 reported a profit of VND 75 billion, an increase of one and a half times compared to the 9 months of 2021. According to Mr. Than Duc Viet, General Director of Garment 10, sales and service provision increased during the period due to the recovery of the world and domestic markets after the Covid-19 pandemic, export orders and FOB exports increased. In addition, export activities accounted for over 91% of revenue and due to the increase in exchange rate fluctuations, the revenue from exchange rate difference also increased in the period. Enterprises focus on system administration, so they can save production and business costs and increase profits.

Similarly, the net profit in the third quarter of 2022 of TNG Investment and Trading Joint Stock Company also increased by 25% compared to the third quarter of 2022, reaching VND106 billion; accumulated 9 months reached USD 231 billion, up 37%.

According to Mr. Nguyen Van Thoi, Chairman of the Board of Directors of TNG, the addition of automatic machinery and equipment along with the control of production according to the hourly mark to each employee has helped increase labor productivity. In addition, the thorough application of software in production management and control of production preparation, machinery and equipment, and pre-production conditions also helps to increase labor productivity.

Accordingly, the ratio of COGS in the third quarter of 2022 decreased by 0.76% compared to the same period in 2021. In addition, the large number of orders along with the purchasing demand as well as the scarcity of containers has improved, and export goods are no longer congested at the port, helping to increase revenue in the third quarter of 2022 by 18% compared to the same period in 2021.

At Thanh Cong Textile - Investment - Trading Joint Stock Company (TCM), the profit after tax in the third quarter of 2022 reached VND 92 billion, while in the same period last year a loss of VND 2.5 billion.

In 9 months, TCM net profit is VND 221 billion, up 87%. TCM said that the situation in the textile and garment export market was not favorable in September due to the impact of inflation and high inventories in export markets, leading to a decrease in export orders and a decrease in input material costs and logistics costs increased in the first 9 months of 2022. But solutions to increase productivity and cut costs have brought positive business results for TCM.

Meanwhile, the net profit in the third quarter of 2022 of Century Yarn Joint Stock Company (STK) decreased by 20% compared to the same period last year, reaching VND 50 billion; 9 months' net profit reached VND197 billion, down 3%. The main reason for the decline came from the exchange rate loss in the third quarter of 2022 due to the purchase of input materials and short-term payments in USD.

Worry about orders and exchange rates

Although the 9-month results are quite positive, businesses predict that the situation in the fourth quarter will be difficult. According to Mr. Cao Huu Hieu, General Director of Vietnam National Textile and Garment Group (Vinatex), in the fourth quarter of 2022, the economic context of Vietnam and the world is still facing many difficulties, in which the price of cotton enters a new season with high output, but consumption was the factor that supported prices to fall.

Yarn demand and selling prices are still low, until October, enterprises only had orders of about 50%-70% of capacity; no orders were received in November and December. The yarn market is also expected to continue to face difficulties, demand has not shown any signs of improvement, and fiber prices in 2022 will increase due to fluctuations in oil and cotton prices. The garment industry is also forecast to be more difficult due to the end of the winter season and preparing goods for the spring. Orders of most sewing units for November and December lack about 35% to 50% of capacity or have orders but fierce competition on price.

In a recent report, Viet Capital Securities Company pointed out some risks to STK's business activities. In particular, the rising inventories of customers in the value chain exacerbated the impact of end demand on apparel sales. The effects are even more pronounced in the case of STK - an upstream raw material producer. Meanwhile, recycled yarn, especially high-grade recycled yarn, grew better than other items, but sales in the third quarter of 2022 were still only flat compared to the second quarter and the price difference (price yarn sales - input PET grain price) increased by 8% QoQ, to a new high. Meanwhile, the primary yarn segment recorded a net loss due to a decrease of about 13% QoQ in both sales volume and price difference.

In the fourth quarter of 2022, STK's revenue and profit after tax plan is almost flat compared to the third quarter. Management expects it will take several months before customers consume all their inventory and the sales volume of STK can recover.

For 2023, Mr. Le Tien Truong, Chairman of Vinatex said that the world economic growth will be low, close to a state of crisis, inflation will continue to be high and the policy of high interest rates will continue.

Therefore, it is likely that the total demand for textiles and garments will not increase or even decrease to the level between 2020 and 2021. According to Mr. Truong, it will not be until April 2023 that there will be a recovery corresponding to the decrease in inflation. In that context, the strong VND continues to be an obstacle in comparison with competitors. Along with that, high VND interest rates, higher minimum wages than competing countries are obstacles in attracting low-priced orders.