Li & Fung surges 20pc after reporting 40pc first-half profit jump
Li & Fung, one of the world’s biggest merchandise sourcing agents and supply chain managers, surged by the most in three years after reporting a stronger-than-expected interim profit although market players were wary of further sharp upside gains in the stock price.
After the markets close on Wednesday, Spencer Fung, group chief executive and a great grandson of the company’s founder, said the company’s net profit rose 39.6 per cent to US$101 million in the first six months of the year, beating a US$60 million estimate expected in a Bloomberg survey and reflecting its early success in creating a new supply chain model.
In mid morning trade on Friday, shares in the company rose as much as 19.9 per cent and were recently quoted 13.6 per cent higher at HK$3.26, the biggest gain since March 2014. The benchmark Hang Seng Index is heading for a second weekly gain, with major companies posting earnings that exceed estimates.
In March, Li & Fung said that it would spend US$150 million between 2017 and 2019 to digitalise its operations, setting a new three-year target to increase its revenue and core operating profit by “low double digit” percentages between 2016 and 2019. It had missed profit goals from 2014 to 2016.
The company, founded in 1906, said it aimed to reorganise its traditional business as the global middleman for manufacturers to meet the digital age, seeking to remain competitive and relevant while the large retailers that make up its core customers increasingly sell directly to buyers online.
By adopting technologies to produce virtual product samples and make use of its vast amount of supply chain data, the company aims to cut the retail industry’s average supply chain cycle to 21 weeks from 40 weeks currently, including design, factory selection, production and delivery, Li & Fung said.
“Yesterday’s results were pretty good but I would be cautious on expecting further upside to the stock,” Kingston Lin King-ham, director of securities brokerage AMTD said. “It still needs to be seen whether the same management can really turn around the company in the future.”