Clothing OEM 'Super Cycle' Is Coming

Exterior view of Hanse Industrial Vietnam factory.

[Asia Economy Reporter Kwon Jae-hee] This year, domestic clothing Original Equipment Manufacturer (OEM) companies are expected to enter a 'super cycle' of unprecedented boom. This is due to the anticipated growth rate of over 10% in the clothing market centered on Western countries such as the United States, along with rising import clothing prices and the resolution of production disruptions in Vietnam, a major production country, following the relaxation of COVID-19 quarantine measures, creating a favorable environment with these three factors aligning.

According to the Korea Exchange on the 17th, Hanse Industrial saw its stock price rise by more than 10% in a single day on the 15th. Hanse Industrial closed at 23,700 KRW that day and rose another 2.74% on the 16th. Youngone Corporation began a three-day consecutive rise starting with a 9.67% increase on the 11th. Hwasung Enterprise closed at 14,500 KRW on the 15th, up 1.75%.

The simultaneous strong performance of clothing OEM stocks is due to securities industry forecasts that a super cycle will arrive this year. Meritz Securities stated in a report titled "OEM, the Super Cycle is Coming" that the global clothing market is showing strong performance this year, leading to increased orders. The expected growth rate for the clothing market in Western countries is 10%, with retail clothing turnover in the U.S. reaching an all-time high. Meanwhile, inventory rates have fallen to their lowest levels, and the movement to stockpile inventory is leading to price increases.

Accordingly, the performance of leading domestic clothing OEM companies is also expected to improve this year. Meritz Securities forecasts Youngone Corporation’s sales to rise 7% year-on-year to 2.9822 trillion KRW. Youngone is expected to benefit from reopening effects as it holds many buyers in outdoor and sportswear sectors. Hanse Industrial is expected to achieve sales of 1.9841 trillion KRW this year, an 18% increase from the previous year. Hwasung Enterprise, considered the biggest beneficiary of the resumption of operations in Vietnam, is expected to see sales rise 18% year-on-year to 1.3476 trillion KRW.

Hanuri, a researcher at Meritz Securities, said, "Warehouses of upstream clients are empty, so companies are raising prices to facilitate smooth inventory stocking. Production disruptions are being resolved due to the Vietnamese government's relaxation of quarantine measures. Additionally, the strong dollar is creating a performance balloon effect, and the implementation of the Xinjiang Uyghur Forced Labor Prevention Act is causing a shift away from China, resulting in a Southeast Asia rebound effect. The macro environment is very favorable."