Li & Fung

Li & Fung is a Hong Kong-based global trading group, that supplies high-volume, time-sensitive consumer goods, and is a major customer of global retail giant, Wal-Mart. Garments make up around two-thirds of the Li & Fung business which also covers the sourcing of hard goods such as fashion accessories, furnishings, gifts, handicrafts, home products, promotional merchandise, toys, sporting goods and travel goods. Key officials are William Fung, executive chairman, and Bruce Rockowitz, president and chief executive.

Market Calls

PUBLISHED : Monday, 27 June, 2011, 12:00am
UPDATED : Monday, 27 June, 2011, 12:00am

Li & Fung (494) responded on June 22 to recent selling pressures and market questions about its growth by hosting a four-hour analyst meeting. Its share price rose 8 per cent in the following two days. Analysts react to the meeting.

Aaron Fischer (CLSA) maintains an outperform call on the stock.

'I was very impressed with the presentation,' says Fischer. It has been difficult to forecast earnings given all the acquisitions the firm has been making. But they provided information about revenues, and it all came from top management.'

Li & Fung is a Hong Kong-based importer/exporter. A long-time investor darling, it fell out of favour recently, mostly because investors are uneasy about its aggressive acquisitions-fuelled expansion. A 30-page report from UBS on May 25, rating the firm a sell, questioned the company's use of acquisitions to increase earnings per share. Li & Fung actually used the meeting to announce five more acquisitions.

Fischer agrees that Li & Fung's recent string of acquisitions will increase its cost base, but also sees it as a near-term drag on earnings.

Gary Pinge (Macquarie) has an underperform rating on Li & Fung. He says management presented well and showed their strength. However, he says: 'Li & Fung has a strong management team, but I think the market is mispricing the company. The current valuation multiples cannot be justified by the historic levels of growth.'

Matt Marsden (Samsung Securities) changed his rating on the firm from sell to buy after the presentation.

'Li & Fung has recently been criticised for a lack of transparency. They have heard the market and responded,' Marsden says. 'Management have a good pedigree and focus on generating shareholder returns with an 80 per cent dividend payout ratio.'

Marsden says management addressed concerns about the company, such as concerns about its acquisitions-based growth. He says the company showed foresight to buy strategically well-positioned firms during the financial crisis, when they were cheap.

The views stated here belong to analysts, and are not stock calls by the South China Morning Post


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