Shenwan Hongyuan: The recovery of domestic demand in the textile and apparel sector is resilient, and the outdoor boom is nurturing structural opportunities

According to the Zhitong Finance APP, Shenwan Hongyuan released a research report stating that from January to August, the retail sales of clothing, shoes, hats, and textile products in China reached 940 billion yuan (up 2.9% year-on-year), with July and August showing year-on-year increases of 1.8% and 3.1%, respectively, indicating a mild recovery trend. The essential nature of sports consumption, combined with the outdoor craze, has created structural opportunities that jointly support the high prosperity of the sports sector. There is a clear K-shaped differentiation within the sector, with the high-end and high-cost-performance markets performing better due to meeting different demands. The improvement in domestic demand is an important bullish clue for 2025, as quality domestic brands begin to reverse their predicaments; the textile manufacturing sector is temporarily affected by the "reciprocal tariffs" from the United States, leading to significant overselling of quality blue-chip stocks, and it is recommended to actively consider long-term positive factors.

Shenwan Hongyuan's main viewpoints are as follows:

Domestic demand recovery is resilient, textile exports outperform clothing and footwear, and the competitiveness of overseas production capacities such as Vietnam is highlighted.

1) Domestic demand: From January to August, the retail sales of clothing, shoes, hats, and textile products in China reached 940 billion yuan (up 2.9% year-on-year), with July and August showing year-on-year increases of 1.8% and 3.1%, respectively, indicating a mild recovery trend.

2) External demand: From January to August, China's textile and clothing export value was 197.3 billion USD (down 0.3% year-on-year), with textile exports at 94.5 billion USD (up 1.6% year-on-year) and clothing and apparel accessories at 102.8 billion USD (down 1.7% year-on-year). In contrast, from January to September, Vietnam's textile exports reached 29.7 billion USD (up 8.6% year-on-year), and footwear exports were 17.8 billion USD (up 7.4% year-on-year). Vietnam's export growth rate is higher than that of China, reflecting the differentiation of orders in the textile supply chain transfer. Shenwan Hongyuan believes that the U.S. tariff policy has created tariff differences among different production areas, which will further exacerbate differentiation and accelerate transfer, benefiting companies with mature overseas capabilities and the ability to allocate production capacity globally in the medium to long term.

Hong Kong stock sports: Policy boosts sector prosperity, outdoor craze breeds structural opportunities.

The essential nature of sports consumption, combined with the outdoor craze, has created structural opportunities that jointly support the high prosperity of the sports sector. There is a clear K-shaped differentiation within the sector, with the high-end and high-cost-performance markets performing better due to meeting different demands. It is expected that in Q3 2025, Anta/FILA/outdoor brands will see revenue growth year-on-year of mid-single digits/mid-single digits/+40%, with outdoor brand groups continuing to achieve ultra-high growth, and the cost-performance brand 361 degrees seeing offline revenue growth of +10% year-on-year, while the main brand of Xtep is expected to see low-single-digit growth year-on-year.

Men's and women's children's clothing: Most brands are still in the recovery process, with consumption oriented towards quality-price ratio.

Men's clothing: It is expected that Hai Lan's revenue/net profit attributable to the parent company in Q3 2025 will increase by +5%/+20% year-on-year, with the main brand's offline channels maintaining positive growth, demonstrating operational resilience, while JD.com continues to open outlets, which is expected to gradually contribute more. In contrast, it is expected that high-end men's clothing will still face profit pressure in Q3 2025. Women's clothing: The recovery of domestic demand is still ongoing, with expectations for Xinhai/Ge Li Si/Di Su to see revenue growth year-on-year of +7%/flat/flat in Q3 2025, with net profit attributable to the parent company turning profitable/turning profitable/+20% year-on-year. Children's clothing: It is expected that Semir and Jiama will see slight revenue growth year-on-year in Q3 2025, with profits remaining flat year-on-year, showing some recovery compared to Q2 2025, and there are expectations for pro-natalist policies to stimulate maternal and infant consumption Brand Home Textiles: National subsidies boost short-term retail, focus on resilient targets with α

Luolai focuses on high-frequency reviews of e-commerce data and refined retail operations, expecting strong performance in e-commerce and direct sales channels in Q3 2025, with revenue/net profit attributable to the parent company up by 8%/40% year-on-year, exceeding market expectations. Mercury is expected to maintain high growth online in Q3 2025, with offline sales turning positive, and revenue/net profit attributable to the parent company up by 15%/17% year-on-year. Fuanna is still in a period of operational adjustment, with expected declines in revenue and net profit in Q3 2025.

Personal Care and Household Cleaning: Currently in an opportunity period for quality upgrades and demand expansion, with volume and price increases driving performance upward

It is expected that Jianjian/ Yanjing/ Nuobang will see revenue growth of 28%/15%/20% year-on-year in Q3 2025, with net profit attributable to the parent company up by 48%/250%/18%, continuing the high growth trend from Q2 2025. Among them, Yanjing benefits from smooth capacity ramp-up, with expected sequential improvement in profit margins, and performance is likely to exceed expectations. Nuobang benefits from the brandization of quality personal care and household cleaning products in supermarkets, while successfully entering the supply chain for Yonghui's selected wet wipes, rapidly increasing its manufacturing base. The distribution of seasonal bonuses and a higher income tax rate have somewhat suppressed profit growth. Jianjian shows a higher apparent profit growth due to the consolidation of acquired companies.

Textile Manufacturing: Repeated tariff negotiations between China and the U.S. highlight the value of companies with global production capacity layout

Midstream: It is expected that HLIG will see revenue/net profit attributable to the parent company grow by 8%/-15% year-on-year in Q3 2025, with short-term profit margins temporarily affected by the ramp-up of several new factories. Looking ahead to Q4 2025, profit margins are expected to rebound sequentially. In the medium term, HLIG is expected to benefit from the future recovery of the Nike supply chain.

Upstream: Domestic capacity exposure is more significantly impacted by tariff shocks, highlighting the value of overseas capacity. It is expected that Baolong/Xin'ao will see revenue growth of 8%/flat year-on-year in Q3 2025, with net profit attributable to the parent company up by 20%/5%, with Xin'ao benefiting from a surge in Australian wool prices, which is expected to gradually translate into performance elasticity.

Investment Recommendations

Improvement in domestic demand is an important clue for bullish positions in 2025, with quality domestic brands initiating a reversal from difficulties; textile manufacturing is temporarily disturbed by the U.S. "reciprocal tariffs," and the prices of quality blue-chip stocks have significantly declined, suggesting a willingness to price in medium to long-term positive factors.

In terms of targets, recommended: Sports and Outdoor: ANTA (02020), Bosideng (03998), LI NING (02331), Taobo (06110), 361 Degrees (01361), and suggested to pay attention to Xtep (01368), and Bosihe (has submitted a prospectus); Discount Retail: Hailan Home (600398.SH) (under JD.com Outlet); Personal Care and Household Cleaning: Yanjing Co., Ltd. (300658.SZ), Nuobang Co., Ltd. (603238.SH), Jianjian Medical (300888.SZ), and Jieya Co., Ltd. (301108.SZ).

Sleep Economy: Luolai Life (002293.SZ), Mercury Home Textiles (603365.SH); IP Economy: Suggested to pay attention to Jinhong Group (603518.SH); Sports Manufacturing: Xin'ao Co., Ltd. (603889.SH), Shenzhou International (02313), HLIG (300979.SZ), Baolong Oriental (601339.SH), Weixing Co., Ltd. (002003.SZ), and suggested to pay attention to Zhejiang Ziran (605080.SH) Risk Warning

Consumer recovery is below expectations; market competition intensifies; tariff risks; exchange rate risks; fluctuations in raw material prices