Texhong co-founder weaves way to wealth

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

Shares of Shanghai-based Texhong Textile have soared 438 per cent in the past 12 months, boosting the wealth of its co-founder and largest shareholder, Hong Tianzhu, to US$1 billion, according to the Bloomberg Billionaires Index. Hong, 45, has not appeared on any wealth ranking. He owns almost 62 per cent 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 buy 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 the country's cotton prices are about 75 per cent 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," said Dennis Lam, an analyst at DBS Vickers Hong Kong.

Founded in 1997, Texhong operates 11 plants in China and four in Vietnam. It specialises in spandex, used in sportswear and underwear, and benefits from lower labour costs in Southeast Asia. Vietnam accounted for half of the company's manufacturing capacity, said Lam.

"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.