Fiercer competition looms as the influx of Chinese goods may depress prices.
Textile companies in Indonesia might be hit by depression in prices as Chinese companies redirect their textile products to Southeast Asia in light of heightened tensions with the US, Moody’s Investors Services reported.
The US hiked tariffs on China to 25% from 10% in May, which could prompt Chinese companies to dump goods in Southeast Asia. Indonesia is considered a more favorable destination for Chinese textile products given its tariffs of 10-15%.
Homegrown textile firms Sri Rejeki Isman Tbk (Sritex) and Pan Brothers Tbk may need to brace for fiercer competition from cheaper Chinese goods, although the two are expected to maintain stable credit profiles within the next year as they rely more heavily on exports than on domestic sales and have longstanding relationships with their customers and value-added products that cannot be easily replaced by imported manufactures.
The two players export around 60% of its products, and have other business divisions catering to the fashion as well as military and corporate uniform businesses on a made-to-order basis. It has also been supplying uniforms to the military and police since 1990.
Sritex’ domestic spinning sales, which contributed around 20% to total revenue, could be most exposed to competition as it can most easily replaced by Chinese goods and its sales to textile manufacturers, wholesalers and traders are not bound by long-term contracts.
Meanwhile, Pan Brothers gets 96% of revenue solely from exports. For the 12 months ended 30 June 2019, 57% of the company's sales were distributed to its customers' retail locations within Asia, 26% to the US and 15% to Europe.
Pan Brothers’ top five customers account for 46% of total sales, with its largest customer Uniqlo making up around 28% of total sales.
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