Textile manufacturer Kwong Hing is due to benefit from the acquisition of a clothes trading business on the mainland through new orders and efficiency, Oriental Patron says in a research report. It has set a 12-month share-price target of HK$2.07 on Kwong Hing.
The company is mainly engaged in making and selling knitted fabric and dyed yarn as well as garment trading. It designs, manufactures, dyes, bleaches and sets the fabric, which is then sold to manufacturers of United States designer labels such as Gap, Liz Claiborne, Learner AMC and Lane Bryant. It has production facilities at Nanhai in Guangdong.
In October last year it acquired South Season Industrial, which supplies department stores, for $24.5 million, and five months of the company's trading will be included in Kwong Hing's 2004 results. It expects South Season will provide additional fabric orders of up to $130 million a year,
Oriental has increased its turnover forecast to $594 million and net profit forecast to $53 million, and maintained its buy recommendation on the stock. The revision is mainly due to the acquisition of South Season, slightly higher gross margins and faster-than-expected capacity expansion.
Kwong Hing is well placed to benefit from a change in US purchasing patterns in which orders are smaller but of increased frequency.
As the economy recovers, especially in the US, the price of knitted fabrics should halt its decline and then begin to rise.