Guosen Textile and Apparel Industry Strategy: Hold on to the Brand Prosperity Direction and Pay Attention to Manufacturing Reversal Signals

Guosen released a research report stating that the textile and apparel index has outperformed the market since the third quarter, with textile manufacturing performing better than branded clothing. In the first half of 2026, brands are expected to perform better than manufacturing, as the industry continues to show a moderate recovery in domestic demand, pressure on external demand, and strong differentiation. The sports and outdoor sector exhibits a "mass sports stock competition with high prosperity in specialized segments." The home textile sector is entering the peak season for autumn and winter, and with the iteration and launch of major products in the second half of the year, continued growth can be expected. With clearer tariff policies, stable raw material prices, and downstream inventory replenishment recovery, a month-on-month improvement is anticipated, with the revenue side likely to recover first. The differences in customer structure are at the core of performance differentiation, with leading companies valued at historical lows, expected to see both fundamental and valuation rebounds. Guosen's main points are as follows: The textile and apparel index opened high but fell, with brand fundamentals performing better than manufacturing. 1) Market review: Since the third quarter, the textile and apparel index has outperformed the market, with textile manufacturing outpacing branded clothing. Market sentiment shifted in July, as funds flowed from previous main sectors like chips into consumer sector targets that have low valuations and strong fundamental certainty, leading to a broad rise in textile and apparel stock prices. August's market was driven by interim report performances, as fund allocation gradually focused on high-quality targets with strong fundamental certainty, pulling back from the broad market rally. 2) Industry data: From January to July, cumulative year-on-year retail sales of clothing increased by 5.8%. Except for July, which saw negative growth for the first time, all other months outperformed the overall retail sales; Chinese and Vietnamese apparel exports were volatile under tariff and geopolitical conflict disruptions, but China's apparel export trend improved in July, with tariffs gradually stabilizing, and raw material prices rebounding after a decline. Interim report summary: Brand resilience is stronger than manufacturing, with manufacturing showing month-on-month improvement in the second quarter. In the first half of 2026, brands are expected to outperform manufacturing as the industry continues its moderate recovery in domestic demand while facing pressure from external demand and strong differentiation. The sports and outdoor sector shows a pattern of "competition in mass sports stock and high prosperity in professional sub-segments," with multi-brand and outdoor driven leaders leading the way, while professional niche brands see high growth; ANTA SPORTS and Beijing Sanfo Outdoor Products show excellent performance; the casual apparel sector is notably differentiated, with high-end and differentiated brands standing out, Biem.L.Fdlkk Garment continues to see high growth, while BXN Holding Co., Ltd. and Zhejiang Semir Garment release performance elasticity; home textiles are stable in volume with rising profits, with a concentration of top brands. The sleep economy and functional leading products are core engines, with Luolai leading the industry in income and profitability, while also offering high dividend attributes; original equipment manufacturing is generally under pressure due to brand order caution, exchange rates, tariffs, and new factory ramp-ups, but there is a clear month-on-month improvement trend in the second quarter; textile materials see profit differentiation under price transmission and order prosperity, with high-quality targets experiencing significant growth. Outlook for the second half of the year: Brands stabilize, manufacturing is nearing a turning point. The overall trend for brands is stabilizing, although clothing consumption was weak in July, signs of recovery were seen in August; internal differentiation persists with resilience in high-end consumption; the home textile sector is entering the autumn and winter peak season, and coupled with new major product launches in the second half of the year, continued growth is expected. The manufacturing sector is likely to show month-on-month improvement under clearer tariff policies, stable raw material prices, and downstream inventory replenishment, with the revenue side expected to recover first. The differences in customer structure are at the core of performance differentiation, with leading companies valued at historical lows, likely to experience simultaneous fundamental and valuation increases. Main theme onestrong resilience in high-end apparel consumption and high prosperity. High-end consumption has fully recovered and continues to accelerate since the second half of 2025. On the barometer front, retail sales of tenants in Hang Lung's mainland malls rose from a low of -18% in Q3 2024 to +24% in Q1 2026, maintaining +9% in Q2 2026. CHINA RES MIXC reported a year-on-year retail sales growth of +23.7% in 2025, with same-store growth for luxury goods increasing from +1.8% to +15.3%. In the first half of 2026, same-store luxury growth continued to lead at +11.0%; in luxury goods, Q3 of 2025 marked a turning point for the global industry, with accelerated confirmation of recovery in the first half of 2026. The Greater China region has shifted from a drag to a core growth engine, with LVMH and Hermes maintaining positive growth in the Asia-Pacific region, while Kering saw a significant narrowing in its decline. Mid-range and accessible luxury brands like Anker, Yamafun, and Ralph Lauren are leading the growth. The sports and outdoor apparel sector demonstrates a pattern of "the more expensive, the more purchased," with an average price increase of 19.5% in sports and outdoor apparel in the first half of 2026 (primarily driven by increased shares of high-priced brands), and leading brands experiencing growth in both volume and price, demonstrating strengthened premium capabilities; while most brands of sports shoes decreased prices, high-priced brands achieved high growth. Brands with mid-to-high pricing, strong scene segmentation, and innovative differentiation capabilities are expected to stand out. Main theme twothe sleep economy drives the upgrade of home textile consumption, with leaders in home textiles possessing both growth potential and high dividends. Since 2024, the growth logic of the home textile industry has undergone transformation, starting with the Yadu deep sleep pillow, where major products have become the core growth engine of brands, relying on demand for sleep health and targeted marketing to create industry explosive products. Among the three major e-commerce platforms in bedding market share, Yadu rapidly increased its share from 0.1% in 2021 to 5.7% in 2025, and in the first half of 2026, it reached 10.1% with growth significantly outperforming the overall market; Mercury and Luolai ranked second and third in e-commerce market share, respectively, introducing major products such as pillows, mattress covers, and quilts, validating the effectiveness of the major product logic, with leading brands continuously increasing average prices. Leaders in home textiles show stable performance, strong profitability, and abundant cash flow, with Luolai and Shenzhen Fuanna Bedding and Furnishing having payout ratios of 99% and 95% in 2025, respectively, with dividend yields around 5%-8%, combining both growth potential and high dividend defensive attributes. Main theme threestabilizing tariffs, a rebound in raw material prices after a correction, selecting manufacturers with upward shares and efficiency. Overall demand from global brand clients remains robust, and inventory pressures are easing. In the latest quarter, most brands in North America experienced positive growth, and many brands in Greater China also maintained rapid growth. In Q2 2026, major overseas brands saw a year-on-year improvement in inventory turnover, with inventories at low levels. Signs of stabilization in tariffs are emerging, with reductions expected this year, and some brands have already received tariff refunds; raw material prices began to correct after initial increases earlier this year but have recently shown an upward trend again, posing challenges to the profitability stability of OEM companies. Taiwanese manufacturing firms improved their growth rates in Q2 compared to Q1, but performance in July varied. With brand inventory replenishment and new product launches driving trends, most companies anticipate that overall revenue in the second half of the year will surpass that of the first half. Risk Warning: Weak macroeconomic conditions and consumer demand; risks from international political economy; significant fluctuations in exchange rates and raw material prices; worsening brand competition landscape.