Highlights
1H results in line though core lingerie business was downBest Pacific (BP)’s 1H15 net profit grew 44% y-o-y on salesgrowth of 8%. Excluding one off listing expenses in 1H14,net profit grew c.15% y-o-y. Turnover growth was driven bythe sports and lace categories, which rose 108% and 87%respectively and made up c.13% and c.4% of revenuerespectively. This implies that revenue from the core lingeriefabric business declined c.2% y-o-y, as the challengingEuropean and domestic markets, offsetting the strength seenin the US market. Gross margins improved to 31.2%, whichwas a pleasant surprise despite a higher mix of supposedlylower margin sportswear products. A benign raw materialenvironment helped offset the c.30% increase in labourcosts. Higher interest income and lower finance expenseshelped to push net margins to c.15%. Working capital dayswere stable at c.85 days and net cash is HK$229m as at end-June-15. The company declared an interim DPS of 5.3 HKcents, representing a payout of c.39%.
Outlook
We expect BP’s outlook in the 2H to be similar to 1H, whererobust US demand will be offset by weaker demand fromEurope, and the strength in the sports and lace business tobe offset by a relatively stagnant performance from thetraditional lingerie fabric segment. We have nudged upmargins to reflect the latest results but take a moreconservative view on FY16F growth rate in view of thestagnant Europe market.
In the announcement, BP announced its clear intention tobuild manufacturing capacity in Vietnam, which will help thecompany in garnering orders for this increasingly importantmarket, as well as to take advantage of lower costs and dutybenefits from various free trade agreements.