标题: [20081110]Textile and Apparel Monthly - "Comments on 3Q08 Results" [打印本页] 作者: yangruoxin 时间: 2008-11-13 15:43 标题: [20081110]Textile and Apparel Monthly - "Comments on 3Q08 Results"
Key points: ¨ Mid/upper-stream players have seen a decline in revenue growth and gross margin, due to slowing export growth and a shift to domestic sales. Earnings remain decent for branded apparel companies, but growth expectations have declined. September apparel retail sales grew 30.1% in real terms. Excluding distortion from the National Day holiday (which started on September 29 this year), growth would be lower than 30.1%, but still above growth of total retail sales and food retail sales, showing the defensiveness of the apparel sector. Meanwhile, exports of US$-denominated textile apparel grew 8% YoY over January~September (or a fall of 1.7% if the change in the exchange rate is stripped out). ¨ Recent growth of ex-factory apparel prices has been slightly lower than increases in input prices, and this, combined with a significant increase in labor costs has eroded the profit margins of textile and apparel processing companies. At present, China has a limited apparel stockpile for domestic sale, but rapidly declining growth in apparel exports could lead to price wars in the event of significant export inventory being redirected to domestic sales. ¨ 3Q08 results: A sharp YoY earnings decline was seen by most companies engaged in cotton textile, wool textile, silk, chemical fiber, apparel processing and exports, and dyeing. The exceptions are Luthai (recurring net profit climbed 14% YoY) and Weixing (+22%), both of which reported stable earnings growth. Nevertheless, the two companies still face downside risk due to their position in the industry chain. Meanwhile, branded apparel companies, such as Septwolves (+51%), Metersbonwe (+99.2%, partly due to a low base effect), Youngor (recurring net profit growth at 51%), and Baoxiniao (+221%, thanks to a low base effect) saw fast growth. In addition, we believe HK-listed branded sports apparel companies should also be able to manage fast earnings growth (despite not disclosing 3Q results), as consumption of sports apparel is growing faster than that of casual apparel and the leading brands have a clear competitive edge. ¨ Overall, investors are advised to steer clear of upstream players and exporters, and look to branded sports and casual apparel listcos. 1) A-share stocks: 1) Youngor’s 2008 P/E is just 6x and its asset replacement value is 70% above the stock’s current capitalization, with dividend yield at over 6.5%. The stock is a top pick for value investment. 2) Septwolves’ 2008 P/E has declined to 16.7x. Investors may seek opportunities to buy when the price declines further, though it should be noted that the company’s 1H09 earnings growth could fail to meet our forecast, due to a high base in 1H08. 3) Metersbonwe and Baoxiniao have solid fundamentals, but buying opportunities have yet to be seen, due to a number of factors: 2008 P/Es are as high as 25.9x and 18.4x, respectively; the companies have a short history since flotation; systemic risk and the risk of share unlocking triggering sales have not been fully priced in. 2) H-share stocks: 1) Li Ning and China Dongxiang have seen their 2008 P/Es decline to low double-digit levels (13.4x and 13.1x, respectively). Li Ning is the best branded apparel listco among A-share and H-share market peers, while China Dongxiang has established an unparalleled position in the fashion and sports apparel markets. 2) Belle (2008 P/E 11.8x) has risen faster than other consumption stocks in recent trading sessions. We still believe in its excellent brand and superior retail management, but 2009 earnings growth could be as low as c. 20% (suggesting 11% downside potential to our earnings forecast), due to slowing consumption and limited growth potential for the women’s shoes market. Profit-taking should be considered by investors who expect a decline following the current H-share market recovery. 3) Consumer confidence indexes in the US and Europe have declined further, increasing our concern about Esprit’s bottom line growth. We intend to revise our earning forecast for the company. [attach]9157[/attach]
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