New Billionaire Makes Money From Vietnam-China Cotton Gap

A textile maker’s cost-cutting move to shift cotton production to Vietnam has ignited a yearlong rally in its stock, minting a new billionaire in China.

Shares of Shanghai-based Texhong Textile Group Ltd. have soared 445 percent in the past 12 months, boosting the wealth of its co-founder and largest shareholder Hong Tianzhu to $1 billion, according to the Bloomberg Billionaires Index. Hong, 45, hasn’t appeared on any wealth ranking. He owns almost 62 percent of Texhong, which is traded in Hong Kong.

Textile makers in China, the world’s largest cotton user and importer, have been “gravely hurt” by the government’s policy to purchase domestic cotton to shield local farmers from slumping prices caused by a global oversupply, according to the China National Textile & Apparel Council. The policy led to a two-tier market where China’s cotton prices are about 75 percent higher than in Vietnam.

“Texhong is very early in expanding capacity overseas, most notably in Vietnam, which allows it to capture the price difference by procuring cotton in global markets from Vietnam and selling products back in China,” Dennis Lam, an analyst at DBS Vickers Hong Kong Ltd., said in a phone interview.

Founded in 1997, Texhong operates 11 plants in China and four in Vietnam. It specializes in spandex, used in sports apparel and underwear, and benefits from lower labor costs in Southeast Asia, according to Lam of DBS. Vietnam accounts for half of the company’s manufacturing capacity, said Lam, who rates the stock a buy.

’Bold Steps’

“In relation to the purchase of the principal raw materials, especially cotton, we stood out from our industry peers in terms of operating results by taking bold steps and measures to leverage on the difference in prices of domestic and overseas cotton in 2012 and rapidly increasing the consumption of overseas cotton,” Texhong said in its 2012 annual report.

Texhong’s profit tripled to $73 million in the first half of 2013, according to a filing to Hong Kong Stock Exchange on Aug. 12. Revenue rose 8.5 percent to $588.2 million. The company has more than 1,600 customers and gets about 83 percent of revenue from China. With the exception of Toray Industries Inc. of Japan, all of its top 10 customers are Chinese manufacturers in Zhejiang, Jiangsu and Guangdong, the country’s manufacturing hubs, its annual report shows.

The company plans to build plants in Turkey and Uruguay in 2014 to reduce raw material costs and bypass tariffs and other trade barriers, Hong said in a speech in Beijing in June.

Hong wasn’t available for comment. Leonna Or, Texhong’s deputy general manager, declined to comment.

The Bloomberg Billionaires Index is a dynamic measure of the world’s wealthy based on changes in markets, the economy and Bloomberg reporting. Each net worth figure is updated every business day at 5:30 p.m. in New York. Stakes in publicly traded companies are valued using the share’s most recent closing price. Valuations are converted to U.S. dollars at current exchange rates.

— With assistance by Michael Wei, and Feiwen Rong

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