Back in May, some analysts were warning that Fountain Set (Holdings) was looking a little bit toppy. A general rally among Hong Kong's second and third line industrial stocks was in full swing and the wool garments manufacturer's share price was pushing HK$3. Since then, the stock has gained another 20.86 per cent - against a 17.5 per cent drop in the Hang Seng Index - to $4.20 where it closed yesterday. Since the beginning of January last year the stock has gained 636 per cent. Fountain Set shares rounded out the week with a 5 per cent boost thanks to its full-year earnings release which showed a 35 per cent year-on-year improvement in net income - well past analysts' predictions. JP Morgan, CLSA and Morgan Stanley were among brokers to upgrade Fountain Set on the basis of its full-year numbers with analysts saying it is not too late for investors to take the plunge. IPO Investment Management director Ryan Fong Yen-hwung said: 'It'll keep going higher and higher as long as the earnings sustain and growth keeps going forward. 'I wouldn't say that the sky's the limit but just so long as there is growth and fund managers are interested in getting involved, this thing will move higher and higher.' There was a time when small industrial plays such as Fountain Set could not garner interest. During the dotcom boom, a knitted fabric producer trading on single-digit earnings would have raised guffaws in most of the city's trading rooms. However, one burst asset bubble later, coupled with a liberalising trade regime for textiles under the World Trade Organisation's accession terms, and Fountain Set is one of the more exciting stories in an unexciting market. Some analysts are recommending investors switch out of sector leader Texwinca in favour of Fountain Set. Texwinca's interim numbers are due on Wednesday and single-digit bottom-line growth is expected, even though the stock is trading at 11 times forward earnings. By contrast, Fountain Set - with a market capitalisation half that of Texwinca's $6.62 billion - trades at only eight times forward earnings. Perhaps it is not surprising that CLSA analyst Patricia Wong advised switching into Fountain Set. 'We prefer Fountain Set to Texwinca for its attractive valuation . . . more pro-active strategy and positives from new orders.' Some of those new orders have been coming from discount retailing giant Wal-Mart, which this year became Fountain Set's biggest client. But Wal-Mart is notorious for the pricing pressure that it exerts on its suppliers - which also include Texwinca. This is one of the reasons that GK Goh analyst Alan Wong is cautious. 'That's the nature of the business. Garment manufacturers are always under pressure. They're price takers, not price makers and so if they want more orders they're going to have to sacrifice some of the margins.' He was more comfortable with Texwinca - and believed it deserved to trade at a premium to its smaller rival - because its successful mainland retail arm 'gives it another earnings dimension'. 'It allows you to generate higher margins whereas a pure manufacturer is at the bottom of the food chain.' KGI Securities director Ben Kwong Man-bun is a dissenter with a different worry. As Fountain Set adds clients and capacity and grows the business, so it will become more and more of a struggle to dazzle the market with high gains. 'They still have a story to tell and they can deliver the results, but because the earnings base is getting larger, it's difficult to meet the same growth rates as in the past. It's just a question of timing when [the stock] comes down,' he said. But for the medium-term at least, Fountain Set's future seems assured. And while the Hong Kong market treads water amid a dearth of broader trading themes, it is companies such as Fountain Set which prove that there are still exciting stories out there.