The world's largest eyewear maker, Hong Kong's Moulin International Holdings, believes its aggressive expansion of the past decade will start paying off this year. Moulin and rival listed eyewear manufacturers Arts Optical International Holdings, Sun Hing Vision Group Holdings and Elegance International Holdings are facing a growing threat from Taiwan and South Korea, which are improving the quality of their products. To meet the challenge the companies, except Elegance, have expanded into the distribution sector. Elegance is content to remain solely a manufacturer, backed by shareholder and anchor client, Safilo, one of the world's leading eyewear companies. Moulin believes investors will soon realise the aggressive approach it adopted in the early 1990s is a wise one. Its acquisition spree has come to an end and it is consolidating. Managing director Cary Ma said it would start to see a strong profit rebound this year on the back of increased turnover and high profit margins. Set up in 1960, Moulin began by designing and manufacturing to order. It now also manufactures and distributes its own brands. It developed a global distribution network by acquiring Liberty of the United States, Metzler of Germany and Italy's Filos. Moulin makes more than 30 brand names. Its own brands include Infinite and Blue Eagle, while its licensed brands include Aigner, S.T. Dupont and Playboy. More than 60 per cent of Moulin's revenue comes from its distribution business and 30 per cent from manufacturing. Mr Ma said taking over distribution and cutting out the middleman meant higher profits and better control of the supply chain. Moulin's net earnings fell 19 per cent to HK$70.11 million in the six months to September last year, while net profit margin declined to about 11 to 12 per cent from 18 per cent two years ago. 'Shareholders will see an improvement in the company's performance this year. There will be a significant bounce-back in 2004,' Mr Ma said. ABN Amro analyst Eddie Lau said in a research report that Moulin expected revenue growth of about HK$1.4 billion this financial year, the end of which has been changed from March to December. Net profit was expected to recover to between 13 and 14 per cent, due to synergies from the consolidation of the firm's distribution operations and the absence of restructuring cost. Analysts said Moulin had become a direct competitor to some of its customers and it had lost clients to Sun Hing and Arts Optical. Unlike Moulin, Sun Hing had expanded at a slower pace and was keeping its working capital requirements to a minimum. Cazenove analyst John McCartney said in a research report that Sun Hing was expected to boost net profit by nearly 30 per cent to HK$97.8 million on turnover of HK$470 million. Mr Lau said Arts Optical was expanding its distribution business in Asia, so it would not compete with its US and European customers. It has 70 outlets in China and is eyeing further expansion. He said it also planned to develop its own brand. Manufacturing revenue still accounted for 88 per cent of Arts Optical's turnover. Elegance has a steady flow of orders and profit margin despite the volatility of the eyewear market. Its second-largest shareholder, Safilo, contributes more than a third of sales. However, analysts said Elegance was lacking new earnings drivers, as it was slower than its peers in diversifying into distribution and retail business. They said that might be a cause for concern in the face of competition from other Asian players.