Li & Fung has work to do to convince sceptics
Aside from trading, analysts have concerns over the nascent branding and distribution business
Global trader Li & Fung has yet to deliver the strong turnaround that its management pledged this year, but the group's senior executives said core profit in the second half could jump as much as three times that of the first half.
The company's underlying profit remained flat at US$223 million in the first six months of this year and made up less than a quarter of its target of US$882 million for the whole year.
But group chairman William Fung Kwok-lun said the company's core earnings will be increasingly skewed towards the second half of the year owing to orders that tend to be placed closer to the Christmas shopping season and a growing portion of the distribution business, which derives the bulk of its earnings in the fourth quarter.
While analysts agreed that the group has bottomed out, they remained sceptical of its budding branding and distribution business, which they said contain no major and eye-catching brands.
Fung said yesterday that the double-digit growth in the value of orders placed by the group's major clients in the first quarter of this year has receded to high single-digit growth because of worse-than-expected retail sentiment in the United States.
"Sales in the US were not too good in the first half due to bad weather and GDP growth being revised downward. But it has improved since June and if the back-to-school shopping sentiment is good we can expect more orders to be placed next spring," he said.
While trading made up the bulk of the company's business, at 70 per cent, the group expected its distribution and logistics sector to lead growth in the future. Analysts have mixed views.
"I think a lot of the uncertainties are already priced in to its shares," asset management broker Alex Wong Kwok-ying said. "The revival of the US economy, despite being slow, should help the company to turn around."
But Michael Wong man-sek, a broker at Convoy Investment Services, said the success of its distribution business would be the key to drive the company's growth in the future.
Group president and chief executive Bruce Rockowitz said the company would focus on developing accessory and proprietary brands like pop idol Jennifer Lopez, adding the company would continue to look to acquire new brands. Li & Fung had cash and cash equivalent of US$419 million as of June 30.