(Yicai) Aug. 8 -- Texhong International Group, one of the world’s largest cotton fabric makers, is selling its loss-making textile subsidiary in Vietnam to Hong Kong garment group Texwinca Holdings for USD78 million to prevent further losses amid a complex and uncertain macro business environment.

The sale will allow Texhong to concentrate its resources and manpower on more profitable businesses with better potential, the Hong Kong-based company said. Texhong, which bought the facility in 2019 for CNY106 million (USD14.7 million), still retains a presence in Vietnam.

The acquisition will allow Texwinca, which owns apparel brand Baleno, to expand its production base, reduce geopolitical risks and establish a more flexible and diversified business environment, Texwinca said.

Weak overseas demand for fabric has resulted in lower prices and fewer sales, all of which have affected Texhong’s gross profit margin and unit production cost, it said. The company expects to rack up losses of CNY800 million (USD111 million) in the first six months, compared with net profit of CNY 1 billion (USD138.7 million) the same time last year.

And last year Texhong’s net profit plummeted 90 percent from the year before to CNY201.2 million (USD27.9 million), while revenue plunged 10 percent to CNY23.8 billion (USD3.3 billion).

But the situation has begun to improve as cotton prices stabilize, so the company’s profitability is expected to pick up, it added. The firm will gradually adjust its industrial layout and organizational structure to adapt to changes in the macro environment.

Global consumer confidence is recovering as the pandemic ends, Texwinca said. In order to reduce the impact of higher production costs on its gross margin, the company believes that it is important to expand production capacity and improve operational efficiency.

Vietnam has been a popular destination for Chinese investment in recent years thanks to its free trade agreements with the EU, South Korea and the Eurasian Economic Union. Many other fabric companies such as Bros Eastern, Shenzhou International and Youngor have set up factories in Vietnam over the past decade to expand their overseas footprint.

Texhong’s share price [HKG:2678] was trading down 1.1 percent at HKD5.24 (USD0.67) as of 1 p.m. China time today.

Editor: Kim Taylor