Texhong Textile Group Ltd, Hongkong listed yarn manufacturer engaged in the production and distribution of quality yarn, grey fabrics and garment fabrics, especially of high value-added core-spun yarn and fashion cotton textiles has posted a plunge in profits for the first half of this year.

The plunge in profit was mainly due to weak yarn sales prices in the mainland China market and the depreciation of the yuan against the US dollar, the company noted in its interim results filed with the Hong Kong Stock Exchange yesterday.

Texhong Textile registered the profit attributable to shareholders that declined by 72 percent year-on-year to 125 million yuan (US$20 million) for the six months ended June 30 this year.

The company’s gross profit margin has dropped by 8.2 percentage points to 13.2 percent, while its net profit margin is also down 9.7 percentage points to 2.7 percent.

Remarking on the decline in gross profit margin, Texhong Textile said that the yarn selling price in the Chinese market had been sluggish this year due to uncertainties in the policy reform in cotton purchase and subsidy by the Chinese Government.

In particular, following the Chinese Government cutting the auction price of the national cotton reserve in April this year, the yarn market prices in China had further declined. But the company expected that the domestic cotton price trend would become clearer upon a more detailed regulation of direct subsidy policy to be introduced by the Chinese Government.

Texhong Textile would be gradually increasing the proportion of synthetic fibre yarn sales and reduce the impact of fluctuation in the cotton price on the group’s financial performance.

The company’s revenue from external customers rose by 26.5 percent to nearly 4.57 billion yuan, due to higher yarn sales volume in the first half of this year; mainland China was the major source of the company’s revenue, which accounted for 3.09 billion yuan, followed by Macau at 1.02 billion yuan.

Texhong Textile headquartered in Shanghai, the Group is operating 11 efficient manufacturing plants in China (within the Yangze River Delta) and has a production base in Vietnam with total production capacity of over 800,000 spindles and 900 air-jet looms.

But, Texhong Textile has cited the depreciation of the yuan against US dollars as an unfavourable factor would continue to affect its business, as a ‘significant amount’ of the company’s sales revenue is denominated in yuan, while ‘certain costs and liabilities’ are denominated in US dollars.