Fengzhu Textile's H1 Net Profit Plunges 83%: The Squeeze from Weak Demand and Capacity Expansion

The profit squeeze in China's textile industry became more pronounced in the first half of 2026. Fengzhu Textile, a listed textile company, disclosed on July 10 that its net profit attributable to shareholders for H1 2026 was only 1.33 million yuan, a sharp drop of 83.26% year-on-year. More alarmingly, after deducting non-recurring gains and losses, the company recorded a loss of 1.85 million yuan. This is not an isolated incident but a microcosm of the structural contradiction between weak terminal demand and the concentrated release of capacity expansion costs.

Three Direct Drivers of the Profit Collapse

Fengzhu Textile attributed the profit plunge to three core factors: declining product gross margins due to weak downstream demand, underutilized production capacity, and significantly increased fixed asset depreciation from new factory buildings. From an industry perspective, these three factors form a strong chain reaction. Demand contraction compresses product pricing power, low capacity utilization dilutes the absorption of fixed costs per unit, and new depreciation becomes the final straw that breaks the profit camel's back.

Notably, Fengzhu Textile's full-year net profit in 2025 had already fallen 70.45% year-on-year, and in Q1 2026, it directly recorded a net loss of 6.75 million yuan. This means the company's profitability has been accelerating deterioration over the past 18 months, not a short-term fluctuation. For enterprises along the textile chain, this sustained profit erosion signals that the traditional 'volume-for-price' strategy is no longer viable, forcing companies to re-evaluate their cost structures and market positioning.

The Double-Edged Sword of Capacity Expansion

Fengzhu Textile's predicament provides a typical case for the textile industry. When companies invest heavily in factory expansion and capacity upgrades during relatively good times, once the end market turns cold, the depreciation of these new fixed assets becomes a rigid cost that directly eats into profits. According to public information, Fengzhu Textile still has seven products on Fujian Province's list of new textile and footwear products, indicating the company has not abandoned product innovation. However, the added value generated by innovation is far from covering the rising fixed costs.

For textile enterprises, capacity expansion decisions need to be deeply integrated with market demand forecasts. In the current context of increased foreign trade uncertainty and upgrading domestic consumption structure, the risks of heavy-asset expansion models are being amplified. For companies with low product differentiation that rely mainly on economies of scale, once capacity utilization falls below the breakeven point, profits quickly turn into losses. Fengzhu Textile's semi-annual report preview precisely confirms this logic: the simultaneous decline in gross margins and increase in depreciation directly pushed recurring profits into negative territory.

Industry Transmission and Procurement Insights

Fengzhu Textile's performance deterioration is not an isolated case. From full-year 2025 data to the first half of 2026, the overall demand contraction pressure on the textile industry continues. National Bureau of Statistics public data shows that from January to May 2026, the total profit of textile industry enterprises above designated size still declined by double digits year-on-year, with all three sub-sectors—chemical fibers, fabrics, and garments—unable to escape. This means that raw material procurement upstream and brand orders downstream are both shrinking, and the profit pool of the entire ecosystem is getting shallower.

For buyers, this trend means that supplier financial health needs to be included in a more rigorous evaluation system. Suppliers burdened with large capacity expansion debts and highly homogeneous products may offer more aggressive price concessions, but they also face the risk of unstable delivery. Buyers should prioritize suppliers with reasonable asset-liability ratios and flexible capacity utilization, avoiding tying supply chain lifelines to financially fragile companies.

Practical Recommendations

For Buyers - Add 'depreciation as a percentage of total cost' and 'capacity utilization flexibility' as key indicators in supplier evaluations, prioritizing suppliers with fixed costs below 30% and adjustable capacity. - For suppliers like Fengzhu Textile with significant new factory depreciation pressure, request their capacity utilization data for the past 12 months to avoid delivery delays due to underutilization. - Include a 'price adjustment mechanism' in contracts, stipulating that when raw material prices or exchange rates fluctuate beyond a certain range, both parties can renegotiate based on industry public data to share risks.

For Foreign Trade Companies - When quoting export orders, incorporate the rising depreciation costs faced by domestic textile suppliers into cost calculations to avoid underestimating supplier cost floors, which could lead to subsequent price increases or supply disruptions. - Monitor end-market consumption data in target markets; if retail inventory remains high in Europe and the US, proactively lower order expectations from domestic suppliers to prevent inventory buildup due to demand gaps. - Establish quarterly financial statement sharing mechanisms with core suppliers to keep abreast of their profitability and cash flow conditions, providing early warning of financial risks.