Garment orders expected to improve from Q4

Companies in Vietnam's textile and garment industry are expecting revenue in the third quarter of 2023 to match that of the second quarter and gradually improve in the fourth quarter, says top broker SSI Securities.

Analysts expect textile and garment companies to record positive net profit growth in the last quarter of the year.

Negative quarterly results have been reflected in stock prices, but investors can expect an industry-wide recovery in 2024, an SSI Research report notes.

According to data released by SSI, in July 2023, Vietnam's textile and garment export turnover reached $3.8 billion, down 9% year-on-year, compared to a 17% decrease in the first half of 2023.

In July 2023, the industry recorded its highest monthly export value since the beginning of the year. In the first seven months of the year, the industry reported export turnover of $22.8 billion, down 15%. Of which, export turnover to the U.S., the largest export market, accounted for 39% with $8.7 billion, down 24%.

Exports to Europe and Japan reached $2.7 billion and $2.2 billion, down 10% and up 4%, respectively.

The Vietnam Textile and Garment Group (Vinatex), the country's largest textile and garment maker, expects Vietnam's textile and garment export turnover in 2023 to reach about $40 billion, a decrease of 10% year-on-year.

While orders are expected to recover in Q4/2023, Vinatex commented that the recovery will be slow as spending on non-essential items will take time to recover.

SSI Research estimated the average selling price will continue to remain low, about 20% lower than the average in the first half of 2022, and only slightly improve over the same period for freight on board (FOB) orders.

Profit margins among manufacturing enterprises will continue to narrow although input material costs are gradually improving. Gross profit margins are unlikely to return to their peak in 2019.

Vinatex expects more orders with smaller volumes and faster delivery times until 2024. Previous delivery times were up to two months, but have now be shortened to 3-4 weeks.

Domestic garment manufacturers expect orders in Q3/2023 to remain equivalent to Q2/2023, but after the sharp price drop during the public holidays in Q4/2023, revenue outlook will improve.

Most companies recorded low business results in Q4/2022, but expect to achieve positive profit growth from Q4/2023. When the amount of clothing inventory in the U.S. peaked in January 2007, the market had taken two years to absorb it before making a recovery in December 2009.

Vietnam's textile and garment giants Vinatex, Century Corp, Viet Tien Garment, and Phong Phu Corporation reported a plunge in profits in Q2 of this year amid declining orders and high material prices.

According to the Vietnam Textile and Apparel Association (Vitas), in 2023, Vietnam's textile and garment industry will be affected by the economic recession and global political upheaval, causing a decrease in orders from major markets such as the U.S. and EU.

The State Bank has reduced policy interest rates four times, but due to high deposit interest rates from the end of 2022, loan interest rates remain high. Businesses are struggling to access support packages, for example, a package of VND40,000 billion ($1.65 billion) with the interest rate cut by 2%.

Enterprises in the textile and garment industry also face difficulties due to a sharp fall in unit prices of up to 50% compared to normal.

Vitas forecasts that the production and export situation will gradually improve, but difficulties will continue until the end of 2023 as many businesses do not have enough orders for Q3 and Q4 of this year.