Regina Miracle (2199 HK, non-rated) reported FY17 (YE: March) results on
28 June.

    Net profit was down 78% on the back of 8% decline in revenue. Full
year dividend ofHKD2.5cents represents a payout of c31%. After a tough
1H FY17e where earningswere down 89% on the back of a 14% decrease in
revenue, Regina Miracle saw arebound in both orders and margins during
2H FY17. On a h-o-h basis, 2H FY17revenue was up 18%, GPM was up 1.6ppt
and net margin up 1.8ppt.

    Positive for Pacific Textiles and Shenzhou. Regina Miracle
management areconfident about the company’s prospects as they have
strong research anddevelopment capabilities to benefit from the raising
trend of seamless intimate wear,sports apparel and bras. They have added
three international clients over the pastnine months. On existing
customers, they commented positively on order growth fromL Brands (LB
US, non-rated) after inventory clearance and a change in strategystarted
to bear fruit at Victoria’s Secret. We believe that reads positively for
PacificTextiles, which is an upstream supplier to L Brands with c10% of
sales exposure.

    Separately, Best Pacific (2111 HK, non-rated) is another HK-listed
sports fabricproducer for L Brands with c20% sales exposure. Regina
Miracle also saw anencouraging trend from Puma (PUM GR, EUR339.95, Hold,
TP EUR360, covered byAnne-Laure Bismuth), which benefits from strong
product offering and better brandreception. In our view, that reads
positively for Shenzhou, which is another sportsapparel supplier to
Puma.

    We prefer Shenzhou (2313 HK, Buy, CMP HKD50.70, TP HKD56.80) for its
stronggrowth outlook thanks to its strong customer profile and margin
expansion, drivencollectively by enhancing product mix, further ramp-up
of Vietnam production andfavourable FX conditions. We expect earnings to
grow at a 20% CAGR during FY17-18e, twice the peer group average of 10%.
We have Hold ratings on Yue Yuen (551HK, CMP HKD32.05, TP HKD32.60) and
Pacific Textiles (1382 HK, CMP HKD8.71,TP HKD9.20). We rate Stella (1836
HK, CMP HKD13.80, TP HKD10.00) Reduce aswe see a slower-than-expected
margin recovery in 2017 on a lower ASP and newfactorymargin dilution.

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