Best Pacific’s management met ~20 investors at MBKE’s corporate day. Company reiterated its sales target for its core lingerie business and its fast-growing sportswear & lace businesses.
Investors were mostly excited about its strong clientele and innovation capability. New contracts on lace products and low trading liquidity are the key concerns.
Maintain BUY. The stock only trades at 13x/11x 2015/16 PERrespectively , implying 15-20% discount to its close peer.
Strong clientele and innovation capability
Management reiterated its sales growth target of 7-8% for core lingerie products and 80-100% for lace and sportswear fabric. Company also expects a stable gross margin this year amid fast growth in the sportswear segment which offers 3-5ppt lower margins.
Investors were very interested in its relationship with its largest customer, Victoria’s Secret, and the fast-growing new client, Under Amour. Best Pacific illustrated its heavy involvement in clients’product development process (i.e. bra and sportswear).
Management also highlighted the successful development of Under Amour’s athletic shoe, SpeedForm, as a demonstration of its innovative capability . It also shared its potential expansion plan inASEAN to secure future growth.
Key concerns include the delay of lace orders from Victoria’sSecret. Low trading liquidity is a major pushback.
Remain BUY
The stock trades at just 13x/11x 2015/16 PER respectively,implying 15-20% discount to its close peer Pacific Textiles (1382 HK, NR). We expect core earnings to grow 12% this year driven by strong lace and sportswear sales. Any new orders from Victoria’s Secret will be a positive catalyst for the stock.