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Fabric Manufacturer China Linen Sews Up Profits

Linen, one of the oldest fabrics known to civilization, has a long and storied association with wealth. The luxurious fabric was sometimes used as a currency in ancient Egypt, and Russian princes collected linen as tribute in the 10th and 11th centuries. Today, paper money in the U.S. is composed of 25% linen.

Nowhere today is the correlation between linen and wealth more apparent than in China. China is the world’s largest linen textile producer, controlling over 70% of the global market. Demand for linen fabric is growing at a rapid rate of 15 to 20% per year, with a potential worldwide market demand of over $20 billion dollars over the next 5 to 10 years. The Chinese government has shown its support for the nation’s textile industry with a $588 billion stimulus plan that, among other provisions, issues tax incentives for exported textiles.

This is good news for China Linen Textile Industry Ltd. (OTCBB: CTXIF), one of the top five players in China’s linen market. The Company enjoys a 5% market share of the country’s total linen industry and is positioned to benefit from the increased worldwide demand for linen. China Linen’s plants are currently operating at peak utilization and require outsourced production to meet demand. The Company plans to double productivity in the next five years.

China Linen produces 50 different kinds of yarn and 110 types of linen fabrics. More than half of the company’s output is exported to Europe, North America, the Middle East and South America, with the remainder sold in China. The Company has a loyal long-term customer base that comprises more than 70% of total sales. Some of China Linen’s high-profile customers include Zara, H&M, Orion, Marks & Spencer, Hugo Boss, Max Mara, Perego, Merc Aorel and Max & Co.

China Linen is distinguished by its dedication to technological superiority. The Company operates a technology center that engages in research and development projects related to linen manufacturing. In addition, the Company was recently approved to open China’s first and only linen R&D center. China Linen has a production cost that is 15% lower than its competitors, which we attribute to the Company’s use of proprietary technologies for its high-count yarn spinning and the utilization of low-cost raw materials for its flax fibers used in its yarns and linens.

As the worldwide linen industry has shown promising growth, so has China Linen. In the past five years, the Company has achieved a compound annual growth rate of 39% in revenue, 45% in gross profit and 42% in net income. The Company expects to maintain double-digit growth in 2010. Investors searching for a stock with strong growth potential might want to check out China Linen.

 



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