CICC: Assigns "outperform industry" rating to TEXHONG INTL GP (02678) with a target price of 8.39 Hong Kong dollars.

CICC released a research report stating that it once again covered TEXHONG INTL GP (02678) with an outperform industry rating, giving the company a 6.0x price-to-earnings ratio for 2026, corresponding to a target price of 8.39 Hong Kong dollars. The company's current trading P/E ratios for 2026 and 2027 are approximately 4.4x and 3.9x, respectively, which represents a 37.0% upside potential from the current stock price. The bank expects the company's EPS for 2026 and 2027 to be 1.24 yuan and 1.37 yuan, respectively, with a compound annual growth rate of 17.5% from 2025 to 2027. The bank believes that the company's global production layout and differentiated products are its core competitive strengths; at the same time, the company's efficiency improvements and gradual reduction in financial leverage in recent years are expected to bring profit elasticity. CICC's main points are as follows: Global leader in cotton spinning capacity, building barriers through globalization The company's total spinning capacity reaches 4.26 million spindles, ranking stably at the forefront of the global cotton spinning industry. By 2025, 42.5% of the company's yarn production capacity is located overseas, forming a synergistic network across Southeast Asia, the Americas, and Europe. The company's overseas layout is more balanced than its peers, with significant advantages in external cotton procurement costs. Differentiated yarn product capabilities, high value-added products build a moat The company is the world's largest supplier of core-spun cotton textiles, with core-spun spandex yarn as the core to build a differentiated yarn platform. Nearly 50% of the company's yarn revenue comes from high value-added products, breaking free from the homogenized competition of ordinary cotton yarn. The company is deeply connected with top global fiber suppliers Invista and Toray, with strong customer stickiness. Cotton prices bottoming out combined with operational optimization, profit recovery has a solid foundation The company's gross profit margin is highly correlated with cotton price trends. With current external cotton prices hitting bottom and internal cotton prices gradually rising, the high difference between internal and external cotton prices has been maintained for nearly a decade. The company's low-cost external cotton procurement advantages from overseas production capacity continue to be prominent. In recent years, the company has focused on its high value-added yarn main business, gradually improving production capacity utilization rates to support the recovery of gross profit margins. Meanwhile, the company has completed the divestiture of non-core loss-making businesses and is gradually reducing financial leverage, which is expected to safeguard profit recovery. Potential catalysts: gradual rise in cotton prices; high difference between internal and external cotton prices amplifies advantages of low-cost overseas production capacity; regionalization of the European and American supply chains drives overseas orders and production capacity utilization; continued deleveraging leads to a decrease in financial expenses. Risk factors: significant fluctuations in cotton prices, geopolitical and trade policy changes, soft overseas end consumer demand, significant currency fluctuations, intensified competition in the cotton spinning industry.