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Sritex opportunities in the textile export market

KONTAN.CO.ID – Competition in the textile market in the Asia Pacific region is getting hotter. Because the growth in salaries of textile industry workers in China and Bangladesh, which has been considered cheap, has begun to rise.

This can benefit PT Sri Rejeki Isman Tbk (SRIL). This textile issuer can take advantage of these conditions to enlarge its export market. Wage increases in China and Bangladesh will make the prices of SRIL textile products more competitive.
Just for information, so far SRIL exports to countries in Asia reached 53%. Then exports to Europe by 19% and the United States (US) and South America by 18%.

In addition to the labor salary factor, international trade agreements can also support SRIL exports. Reliance Sekuritas Indonesia analyst Rio Adrianus gave an example, if Indonesia entered into a Comprehensive Economic Partnership Agreement (CEPA), then Indonesian textile exports to Europe could surge up to 19.16%.

However, now Indonesian textile products are still facing obstacles. Because, Europe still imposes import duties of 11% -30%.
In addition, SRIL also has the opportunity to expand the market in the US. This opportunity arises after the US withdrawal from the Trans Pacific Partenership (TPP) agreement. Just so you know, so far, Indonesia has always been unable to compete with Vietnam, which is a TPP member.

Pangkas impor

SRIL’s ambition to dominate the Asian market has actually been seen since the company has the largest integrated textile manufacturing plant in Southeast Asia. “Sritex has completed expansion in its four sector divisions,” explained Citigroup Securities Indonesia analyst Edi Chandren.
These four sectors are spinning, weaving, finishing and garment. The sector with the biggest contribution to revenue was spinning, which reached 38% -40%.

Income from the business spinning aka yarn production is fairly defensive. The reason is, unlike ready-made clothing, yarn does not recognize trends. Michael Wilson Setjoadi, Analyst of Bahana Sekuritas, sees that from the export side, spinning contributes up to 55%.
In contrast to the production of finished fabric which is mostly absorbed for further processing. “The smallest weaving sector is because the fabric production is mostly used internally,” Michael explained, Thursday (8/24).

SRIL’s garment business is also interesting. SRIL supplies army uniforms to various countries, including the United Arab Emirates, a number of countries in the European Union and NATO.

The success of SRIL guarantees the quality of yarns, fabrics and finished products and meets global military clothing standards deserves thumbs up. The contribution of the military garment sector alone reaches around 15% of the textile giant’s income.
In terms of raw materials, SRIL’s biggest expenditure lies in procurement of goods. It’s known, about 60% of the raw material SRIL is imported, including cotton, rayon fiber and polyester.

This issuer has poured up to US $ 250 million to build a rayon fiber factory that can produce 80,000100,000 tons of rayon fiber per year. SRIL does require large amounts of rayon fiber. The factory, which will be fully operational next year, will be able to reduce rayon fiber imports by up to 30%.

Therefore, Edi suggested buying SRIL with a target price of Rp 580 per share. Similarly, Rio recommends buying with a target of Rp. 580 per share. MNC Sekuritas analyst Victori Venny also suggested buying SRIL with a target price of 468 per share.