Luen Thai bullish despite profit dive

PUBLISHED : Friday, 21 April, 2006, 12:00am
UPDATED : Friday, 21 April, 2006, 12:00am

Firm eyes sales rise after adding Nike, Armani and Gap to list of customers

Garment maker Luen Thai Holdings expects to increase sales substantially with huge orders from major international brands over the next few years, despite posting a 56.39 per cent drop in net profit for last year.

The company won Nike, Gap and Armani as new customers this year. Chief executive Henry Tan yesterday said: 'Nike told me it wants to increase the annual business to US$100 million quickly, in three years.'

Last year, Luen Thai won British retailer Marks & Spencer and the largest German retailer, Metro, as new clients.

Although Luen Thai is the largest Hong Kong-listed garment producer by sales, it could not cope with such an increase in orders through organic growth alone and would have to outsource production, Mr Tan said.

About 5 per cent of the company's production was now outsourced but this proportion would rise to 30 per cent in two years, he said.

The company was also negotiating for possible acquisitions and joint ventures but so far there were no imminent deals, he added.

Despite labour shortages faced by other mainland factories, Luen Thai planned to add 5,000 workers to its 9,000-strong workforce in plants in Dongguan over the next 18 months, Mr Tan said.

The company has planned a capital expenditure of US$22 million this year.

Luen Thai's turnover rose 6.58 per cent to US$590.23 million last year while net profit fell 56.39 per cent to US$13.24 million. Basic earnings per share plunged 66.7 per cent to 1.3 US cents, below the mean estimate of 17.5 cents by six analysts.

'[Last year], China's trade disputes with the US and the European Union were a challenge to Luen Thai and affected the company's profit,' Mr Tan said.

Global textile trade saw much volatility last year.

In the first few months after global textile quotas ended, the US and EU experienced a massive rise in Chinese textile imports.

This led them to impose fresh quotas on Chinese textiles from the middle of last year and as the quotas were filled rapidly, millions of Chinese garments ened being held up at European and US ports.

Luen Thai incurred heavy airfreight costs in its efforts to deliver goods on time. '2005 was a chaotic year,' said chief financial officer Sunny Tan. 'But from [this year] onwards, we're seeing brighter years.'

Analysts expect international textile trade to be more orderly after the US and EU signed treaties with China in the second half of last year that placed quotas on a range of mainland textile products for the next two to three years.

Sunny Tan expressed hope that Luen Thai's profits would return to 2004 levels, when they were US$30.36 million.

KGI Securities forecasts that Luen Thai's net profit would rise to US$29 million this year.