Spandex prices soaring

In the past one and a half months, after the price of spandex rose by 6.5%, on July 30th, the price was increased by 2,000 yuan per ton. On Monday afternoon, Wenzhou-based spandex company Huafeng Spandex (002064) surged in volume, once close to the daily limit price, and eventually closed up 8.45% to end at 9.63 yuan, and the stock price hit a new high in two years. Yuli Holdings (000584) and Taihe Xincai (002254), which are also spandex shares, were driven by Huafeng Spandex, and both closed up more than 4%.

At present, the spandex industry welcomes an inflection point between supply and demand, and it is expected that the supply will become even tighter in the second half of the year to next year. In terms of industry structure, the spandex supply end capacity growth rate was between 2% and 3% in 2013-2014, while the average growth rate of the demand side during the past five years was maintained at over 10%, and in 2013, the demand was increasing under the trend of consumption upgrade and apparel thinning. The speed may be close to 20%. After spanning 2-3 years of industrial losses, spandex will usher in an inflection point between supply and demand this year. The price increase in the off-season in June is the best evidence. It is expected that the supply will become even tighter from the second half to the next year, and the degree of prosperity is expected to continue to increase.

Last week, Huafeng Spandex announced its semi-annual report. Its operating income in the first half of the year increased by 48.97% compared with the same period of last year. Deducted net profit attributable to shareholders of listed companies increased by 302.1% year-on-year. Huafeng Spandex said that under the circumstances that the overall macroeconomic situation is not optimistic, the company will take advantage of new production capacity, further reduce production costs, and highlight cost advantages. Second, the company adjusted its product structure in a timely manner to increase its market share. In the first half of 2013, the domestic and foreign spandex market experienced an unexpected increase in demand for fine denier yarn. The company adjusted the production line in time to achieve full-load production, which led to a significant increase in the production and sales of fine denier spandex and increased the overall gross profit margin.

As the spandex industry has been fluctuating over a long period, with obvious cyclicity and scattered production capacity, the company seized the current opportunity to build an annual production of 60,000 tons of differentiated spandex projects in Chengdu, which will help increase market share and industry status in the future.

Hongyuan Securities (000562) is optimistic that the spandex industry will return to the booming season and continue to recommend relevant targets. According to the elastic order, Huafeng Spandex, Taihe Xinmiao, Xinxiang Chemical Fiber (000949) and Woori Holdings. Shanxi Securities (002500)'s performance and valuation of Huafeng Spandex is expected to be 0.28, 0.35 and 0.41 per share for the company from 2013 to 2015. The current spandex industry is in an upward trend and the spandex price in the third quarter continues to improve. It is expected that the performance in the third quarter will exceed expectations, and the “overweight” rating will be given for the first time.

In addition, in August, Guohai Securities (000750), Hongyuan Securities and Lianxun Securities gave “Buy” and “Overweight” ratings to Huafeng Spandex respectively.