Hanoi (VNS/VNA) - Textile stocks have been on a temporary upswing thanks to therecent ratification of the EU-Vietnam Free Trade Agreement (EVFTA) but textileenterprises still face difficulties due to heavy dependence on imported rawmaterials and machinery as well as reduced demand worldwide.

In the latest trading sessions, from February 5 to February 14, shares of DucQuan Investment and Development JSC (FTM) continuously increased with sixsessions witnessing ceiling prices.

FTM soared by 38.01 percent. During the same period, Song Hong Garment JointStock Company (MSH) also increased by 9.5 percent, the Vietnam National textileand Garment Group (VGT) rose 21.2 percent.

According to Tran Xuan Bach, a stock analyst at Bao Viet Securities Co (BVSC),the ratification of EVFTA has boosted textile stock prices as the agreement isbelieved to offer a huge advantage to the industry.

“But this is only a short-term impact, textile firm can enjoy the benefits theagreement brings if they can meet market demand and expand production scale,” Bachwrote in a daily report.

“Under the tariff reduction plan, tariffs on most yarn and fabric products willbe immediately exempted while tariffs on garments will gradually decrease to 0percent in 6-8 years,” said Ngo Tri Vinh, a stock analyst at BVSC.

“Subsequently, Vietnam’s garment products will gradually decrease the price gapin line with Bangladesh (currently at 0 percent tax) and gain advantages overChina (12 percent tax) while the preferential tax for Cambodia (0 percent) iscurrently discontinued due to recent labour rights violations,” Vinh wrote in adaily report.

However, EVFTA’s impact in the short term will be marginal due to limitedcapability of material autonomy while EVFTA includes “fabric-forward” rule oforigin, which means to enjoy preferential tariffs, the products must be madefrom fabrics of Vietnamese origin, he noted.

“EVFTA only opens opportunities for businesses with material autonomy as wellas those with large EU groups of customers, such as TNG Investment and TradingJSC (TNG) and Thanh Cong Textile Garment-Investment-Trading Joint Stock Company(TCM)."

"The EU is the largest market of TNG, accounting for 54 percent of sales.For TCM, EU currently contributes only about 5 percent of sewingrevenue, however, with 60-70 percent material autonomy, TCM is expected tomeet EVFTA rules of origin,” Vinh noted.

According to SSI Securities Joint Stock Company (SSI), Vietnam’s textile andgarment industry is heavily dependent on importing of machinery and rawmaterials (60 percent).

“Free trade agreements, on the other hand, impose strict requirements on theorigin of products, demanding capability of material autonomy. Since few ofVietnamese business can produce raw materials, they cannot fullyexploit the benefits brought in by the FTAs”, SSI said.

The textile and garment industry will also face challenges caused by the novelcoronavirus (COVID-19), the company said, adding that business activities ofVietnamese textile enterprises will be negatively affected as many China-basedtextile factories have been shut down since January. Currently, China is thelargest raw materials supplier of Vietnam.

According to SSI, textile stocks dropped sharply last year as businesses didnot perform pretty well.
The Vietnam NationalTextile and Garment Group (VGT) decreased by 10.9 percent in 2019 due to poorbusiness results.

VGT's net revenue reached 18.4 trillion VND (792 million USD), down 3.4 percentcompared to the same period last year. Pre-tax profit reached 671 billion VND,fulfilling 75 percent of the yearly plan.

Post-tax profit touched 628 billion VND, down 10.6 percent compared to 2018.

Duc Quan Investment and Development JSC (FTM) witnessed shares plunged 88 percentlast year.

FTM net revenue recorded a decrease of 13 percent compared to 2018, reachingnearly 1 trillion VND. The company also recorded a net loss of nearly 95billion VND in 2019. Therefore, FTM only fulfilled 66 percent of its revenueplan./.