About a year ago Oriental Patron said in a research report that textile manufacturer Kwong Hing was due to benefit from the acquisition of a clothes trading business on the mainland through new orders and efficiency. It set a 12-month share-price target of $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 2003 it acquired South Season Industrial, which supplied department stores, for $24.5 million, and five months of the company's trading would be included in Kwong Hing's 2004 results. It expected South Season to provide additional fabric orders of up to $130 million a year,
Oriental increased its turnover forecast to $594 million and net profit forecast to $53 million, and maintained its buy recommendation on the stock. The revision was mainly due to the acquisition of South Season, slightly higher gross margins and faster-than-expected capacity expansion.
Kwong Hing was well placed to benefit from a change in US purchasing patterns in which orders were smaller but of increased frequency. As the economy recovered, especially in the US, the price of knitted fabrics should halt its decline and then begin to rise.
The counter was trading at $1.63 a year ago. On February 27 last year the stock exchange suspended trading in the shares when the Independent Commission Against Corruption raided the firm. The shares last traded at $1.61. They resumed trading on October 30, losing almost two-thirds of their value in the sell-off.