Discounts dent Texwinca profits

PUBLISHED : Tuesday, 18 July, 2006, 12:00am
UPDATED : Tuesday, 18 July, 2006, 12:00am

Fabric maker blames competitive market for slower earnings growth

Texwinca Holdings, a maker of knitted fabric and yarn, reported a smaller than expected 4 per cent annual net profit increase after it cut product prices in a competitive market.

The company's net profit rose to $480.25 million for the year to March from $461.79 million a year earlier, well below the estimate of $540 million in a Bloomberg survey of 18 brokers.

Texwinca blamed the slow earnings growth on lower selling prices of its products between October last year and March this year despite the price of cotton, a major raw material, falling 8 per cent to 9 per cent.

The company yesterday said it was forced to cut selling prices because of keen competition.

'Competition in the fabric sector is so keen that it prevents fabric manufacturers from raising prices, though Texwinca's gross profit margin remained stable at about 18 per cent for fabric products and 46.5 per cent for retail business,' said one analyst.

Production of knitted fabric and yarn accounted for about 60 per cent of Texwinca's turnover and sales of casual apparel 40 per cent.

The company was optimistic about its earnings outlook for this fiscal year as it expected cotton prices to stabilise and had already raised the selling prices of its products.

The company has proposed a final dividend of 11 cents a share, the same as a year ago.

Texwinca supplies products to clients such as American giant Gap and Japan's Fast Retailing.

The company also operates a retail clothing chain in Hong Kong under its flagship Baleno brand.

Shares of Texwinca dropped 3.67 per cent to close at $5.25 yesterday.

The stock has lost 6.25 per cent this year.