THE RECENT analyst visit to China Taisan was spread over two days, with a day dedicated to meetings with key customers and the other touring the Group’s production plant.
Analysts from 5 research houses participated in this event, namely, Carey Wong from OCBC Investment Reseach, Ang Soo Kee from Daiwa Institute of Reseach, Wong Say Tian from Westcomb Securities, Chew Boon Leong from Riedel Research, and Linus Loo from Lim&Tan Securities.
More orders from growing China sportswear market
During the meeting with China Taisan Technology Group’s key customers Anta and Xtep, analysts asked the procurement managers for their view on the China sportswear industry and how its growth can translate into increased demand for China Taisan’s performance fabrics.
“Even after the Beijing Olympics, we still foresee the demand for sportswear to grow domestically. There is currently no sign of slowdown. Orders from distributors for 2009 summer season are up by 40% year-on-year,” said Mr Lan Chong Han, manager of Xtep.
According to Carey Wong’s visit note after the trip, Anta also expects its apparel segment to grow 30% in FY2009 and plans to increase its stores from 5300 to 7000 next year.
China Taisan is one of a few approved suppliers of fabrics used in the production of apparel for international and local sports and leisure apparel brands, such as Nike, Adidas, Umbro, Puma, Anta and Xtep. The group is set to benefit from the rising affluence of China’s middle-income families and increasing sports awareness in China.
Linus Loo’s report noted: “China Taisan’s key customers are all top tier players who are expected to gain market share from the smaller players over the next few years, thus benefiting China Taisan eventually.”
China Taisan supplies around 50% and 90% of Anta’s and Xtep’s knitted polyester fabrics requirements, respectively. Both companies have been working with China Taisan for more than three years. They cited reasons such as product innovation, consistent product quality, scale, and prompt product deliveries for their continued dealings with China Taisan.
Linus Loo noted in his report that the company’s multi-functional fabrics are superior to that of competitors, providing better functionality but at a lower cost.
High precision color tone can be achieved using China Taisan's unique computerized color matching process.
To remain competitive in the sportswear industry, Mr Lan of Xtep added, “We can only vary apparel color and cutting in product designs. Collaborations with high end fabric producers like China Taisan to produce products with multiple functionalities fit for the various sportswear needs would definitely provide a competitive edge.”
China Taisan has the capability to integrate functional properties such has stretchability, UV-protection, cooling effect, and anti-bacterial into fabrics.
Backed by proprietary technical know-how, advanced equipment from Taiwan, Germany and Japan, and collaboration with Industrial Technology Research Institute in Taiwan (ITRI), the group can now incorporate up to 6 different functionalities onto the same fabric. Most other fabric manufacturers can only incorporate up to 1-2 functionalities.
China Taisan works with ITRI to gain access to their technical knowledge and research achievements in the manufacture of new performance fabrics. CEO Lin Wen Chang, who has more than 20 years in the industry, leads the Group with a strong Taiwanese culture.
He emphasizes, “It is very important to constantly innovate to produce newer and better performance fabrics to keep up with market trends. I believe we are currently one of the few fabrics producers in China who can knit up to 14% spandex content into our performance fabrics. We will continue to grow our production capability for this sought after high end product.”
Heat setting ensures that fabric maintains its shape and size and prevents wrinkling.
Mr Lin led the analysts through China Taisan’s plant in the sequence of the production process. They first viewed the inventory warehouse, existing knitting machines, dyeing facilities, and finishing facilities.
Analysts also toured the R&D facility, which showcased advanced machinery such as the computerized color selection equipments that can match colors with specifications from customers.
The tour ended with the testing room that showcases the different functionalities of China Taisan’s fabrics. Live tests were conducted on China Taisan’s fabrics.
Analysts were impressed by the water absorbency test, which showed that that China Taisan’s fabrics are able to absorb moisture at a faster rate than rival products.
With IPO proceeds from its listing in June this year, the Group intends to expand its spandex knitting capacity to 7,000 tonnes by the end of FY08 with the acquisition of 50 knitting machines, out of which 14 has already been installed.
Knitting capacity will increase to 10,000 tonnes by mid-2009 with the addition of 45 computerized jacquard knitting machines to produce complex jacquard designs with enhanced texture and aesthetics. With the added production capacity, China Taisan will shift its product mix to higher margin performance fabrics that can demand higher ASPs.
Capacity expansion plans
In response to concerns over a slowdown in Chinese exports, Mr Lin said that the Group has little exposure to export demand as up to 80% of the final products are sold to Chinese consumers.
After the visit, Soo Kee noted in his report, “We are more assured of the medium term outlook for China Taisan” while Linus mentioned that he “will be tracking China Taisan’s performance closely given their diversified exposure to the leading sportswear brands serving the China market.”
New machines will increase knitting capacity to 10,000 tons by mid 2009.
The Group recently announced its status as an approved supplier to Metersbonwe, which is ranked as the No.1 casualwear brand in China by Euromonitor, ahead of leading international brands such as Baleno and Esprit.
According to its listing prospectus, Metersbonwe has over 2,200 outlets nationwide and recorded a total turnover of RMB 3.2 billion in 2007.
“To be selected by the No.1 casualwear retailer also sets the stage for us to supply performance fabrics for casual and leisure apparels. With the growing popularity of knitted performance fabrics as the fabric of choice for casual wear, we will be able to widen our product offerings and to partner Metersbonwe in enhancing its market presence. The increased requirement for apparel inventories in beefing up the company’s expanding retail chain is expected to translate into more orders for qualified suppliers such as China Taisan,” Mr Lin said.
Linus added in his report: “This new customer will likely provide meaningful contributions from 2009 onwards, helping to fill the new production capacities.”
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