Vietnam Shutdown Brings Mixed Fortunes to Textile and Apparel Stocks

[Asia Economy Reporter Minji Lee] The spread of COVID-19 in Vietnam is causing mixed fortunes for the textile and apparel sectors. This is because the production share in Vietnam varies significantly among companies.

According to the Korea Exchange on the 18th, the stock price of footwear manufacturer Hwasung Enterprise fell 4.1% the previous day. This decline is attributed to negative investor sentiment following the announcement of a one-month extension of lockdown measures in Ho Chi Minh City, Vietnam's largest city, due to the persistent spread of COVID-19. Hanse Industrial also dropped about 5% the previous day. In contrast, the situation was different for Youngone Trading, which has a low production share in Vietnam. Youngone Trading's stock price rose about 4.6% this month, from 39,850 KRW to 41,700 KRW, as OEM demand increased and production operations improved.

The differing stock price trends among textile and apparel companies reflect concerns that production disruptions will be prolonged due to lockdown measures following the spread of COVID-19 in Vietnam. According to the Vietnam Textile and Apparel Association (VITAS), more than one-third of textile and apparel factories were closed this month due to the ongoing spread since April.

These effects are expected to continue into the second half of the year. Hanse Industrial is forecasted to record operating profits of 20 to 30 billion KRW in the third quarter, which is a 50-60% decrease compared to the same period last year. This is half of the securities market's expectations from last month. Hanse Industrial's Vietnam factories have been shut down since mid-July, and despite a recovery in U.S. apparel consumption, production disruptions are anticipated. Hwasung Enterprise is also expected to post operating profits of 4 to 5 billion KRW in the third quarter. Last month, securities firms predicted profits around 20 billion KRW, but the outlook was lowered to reflect the prolonged impact of COVID-19. Researcher Jeonghyun Yoo of Daishin Securities explained, "Hwasung Enterprise's Vietnam production accounts for 65% of total operations, and due to the sharp increase in COVID-19 cases in Southeast Asia, the operating rate of its Vietnam production facilities temporarily dropped to around 60%."

Youngone Trading is expected to maintain its improvement trend in the second half following an earnings surprise in the second quarter. The company's regional production share is 80% in Bangladesh and 15% in Vietnam, making it relatively less affected by shutdowns. Researcher Hyunjin Park of DB Financial Investment said, "Youngone Trading, which has no production share in Vietnam, is judged to have lower uncertainty in short-term performance within the textile and apparel sector, highlighting its relative investment attractiveness. Small and medium-sized OEM companies, including Hwasung Enterprise, are expected to continue confirming their stock price bottoms for the time being due to the absence of short-term profit momentum."