The world's largest shoemaker is forecasting double-digit sales growth this year, but analysts say the key challenge facing Hong Kong-listed Yue Yuen Industrial (Holdings) is raising profit margins.
Yue Yuen's sales would rise 15 per cent year on year to US$750 million in the first quarter of this year and maintain double-digit growth for the rest of the fiscal year, managing director David Tsai said at the firm's annual general meeting yesterday.
However, Patricia Yeung, an analyst with SBI E2-Capital, is focused on a different figure.
'What we need to watch for is profit margins,' Ms Yeung said. 'Going by Yue Yuen's previous results, margin erosion is the killer.'
For the past financial year to September, Yue Yuen's net profit fell 1.59 per cent to US$303.33 million while turnover rose 8.4 per cent to US$2.72 billion.
Yue Yuen's profit margins are under continuing pressure from surging raw material costs. Prices for crude oil - from which about 40 per cent of its raw materials are derived - have again risen above US$50 per barrel.
Raw material costs account for almost 50 per cent of the price of the firm's shoes.