Top Form Recommendation: Sell Brokerage: Smith New Court THE women's underwear maker reported disappointing interim results for 1995 with net profit plummeting 72 per cent. With retail operations worsening, results were hit by a $6 million provision against restructuring the retail division. The performance of the retail operation remains the major hindrance to group earnings growth over 1995-96, although this will be partly offset by rental income from the firm's Shanghai property starting in 1996. Tsingtao Brewery Recommendation: Sell Brokerage: Salomon Brothers THE brewing industry in China has seen average growth of over 20 per cent in the last decade and attracted substantial foreign investment. With more than 800 brewers in China, the brokerage believes a major shake-up in the industry is imminent. Given the company's small capital base, a fund-raising exercise is likely. Short term, Tsingtao Brewery faces increasing production costs, eroding profit margins, increasing competition and shrinking national market share. Mandarin Oriental Recommendation: Buy on weakness Brokerage: Smith New Court EARNINGS last year were above market expectations. Room yields continue to grow in Hong Kong while remaining disappointing at Mandarin Oriental Manila. However, improvements in Bangkok and Singapore boosted profit from associates. It is difficult to get too excited about the group's performance outside Hong Kong as minor equity participation in a series of acquisitions is unlikely to have a material impact until 1996-97. Chengdu Telecom Recommendation: Sell Brokerage: Salomon Brothers THE company expects to pay an average of 28,000 yuan (about HK$25,600) to 30,000 yuan per tonne for copper this year, compared with an average 24,500 yuan in 1994. It is unrealistic to assume the commodity producer will be able to pass on the entire price increase to its customers. Even when import tariffs have been added, prices of imported copper cables are still lower than prices of domestic cables. This is solid evidence of the inefficiency of domestic producers, despite management's claims that imported cables are of lower quality and that foreign governments subsidise their manufacturers. HAECO Recommendation: Hold Brokerage: Vickers Ballas HAECO provides aircraft maintenance services at Kai Tak airport. Competition in the industry will remain keen, while Hong Kong's high inflation rate will put further pressure on operating margins, making earnings growth flat in the next two to three years. The company's 41 per cent-owned maintenance operation on the mainland, which will open in 1996, is a low-cost facility that will provide high-quality services to a broad base of customers. Thus, HAECO will have added flexibility to manage costs better, with the associate expected to make a positive contribution in 1997 at the earliest.
