Fund managers expect strong results from exporters to trigger a rally in their shares Liquidity-rich and performance-hungry fund managers are expecting another rally for some export-orientated industrial companies when their reporting season kicks off next month. SBI E2-Capital's research head Raymond Jook said the results announcements would present another catalyst to the share prices. 'We are confident most of the export plays will deliver robust annual results for the year ended March 31,' Mr Jook said. Investors are looking for a copycat of Yue Yuen Industrial (Holdings), the world's largest maker of branded shoes. Shares in Yue Yuen rose to a record $22.55 after reporting a 37 per cent rise in first-half profit and proposing a dividend of 60 cents per share. This represented a gain of 81.85 per cent against the share price of $12.40 six months ago. The counter fell to $20.05 last Friday. In light of the potential lucrative returns, fund managers have been buying the industrial counters on the recent weakness. Most of the industrial stocks succumbed to profit taking over the past two weeks but rose recently. Textile producer Texwinca Holdings tumbled 6.97 per cent to $6 on Tuesday since it hit $6.45 on June 17. The shares then rose to close $6.25 last Friday. Rival Victory City International Holdings was off 6.19 per cent at $2.65 last Monday after touching a record high of $2.825 on June 12. The stock closed at $2.70 last Friday. 'The recent correction has made the industrial stocks look appealing to investors who are looking for value and quality fundamental,' said Steven Leung Wai-yuen, a director of UOB-Kay Hian Hong Kong. 'With the US rate cut and depressing Hong Kong economy, I believe the exporters will continue to perform well.' Victory City - which will announce full-year results on July 8 - is the first fabric exporter to report. GK Goh research analyst Alan Wong projects Victory City will report a 144.8 per cent rise in earnings to 20.5 cents a share for the year to March. He has a 'buy' recommendation on the stock with a target of $3.40, representing 25.92 per cent upside potential against the closing price of $2.70 on Friday. Most of all, Victory City had the 'cheapest rating in the sector', said Mr Wong, noting the counter was trading at 8.8 times forward earnings next year. Valuations aside, promising growth prospects for the company are another consideration. 'We project sharply higher contributions from garment manufacturing and trading in the next few years as Victory City is taking market share from competitors due to its ability to handle last-minute orders ... longer-term, garment exports will also benefit from the lifting of trade barriers in 2005 [as required by WTO].' Texwinca, a favourite of fund managers, will announce results on July 23, but analysts believe investors' interest in the stock may be fading. 'The [estimated] 14 per cent increase in net profit for the year to March is not enough to ignite new interest in Texwinca shares,' said Ada Poon of UBS. Ms Poon estimates the company will post a rise of 14 per cent in full-year net profit to $604.9 million. 'Market interest has begun to rotate into newer names like [rival] Victory City and [textile supply chains] Fong's Industries, Huafeng Environment Protection and Jiangwei Textile Machinery.' Some analysts caution investors not to get too excited on a good earnings report as the positive news may have been priced in already. Mr Jook suggested investors look for the 'undercovered' stocks. He said small-cap footwear manufacturer KTP Holdings, fabric producer Kwong Hing International Holdings (Bermuda) and electronic manufacturing system maker Karrie International Holdings as good picks. Sun Hung Kai Financial Group head of research Joseph Tang said: 'We are expecting the industrial stocks to continue their rally in the second half ... but certainly this will not be a repetition [as in the first half]. The key is stock-picking.' He recommends investors overweight on ASM Pacific Technology, Techtronic Industries, Johnson Electronic Holdings, Oriental Press Group, Elegance International Holdings, TPV Technology and Hung Hing Printing Group.
