A defensive play. As opposed to its peers with major exposure to a singleclient, BP's client base is less concentrated due to its product specialty.
　　Its major lingerie clients include Victoria's Secret under L Brands （LB US），Wacoal, Triumph, Marks & Spencer, Aimer, Chantelle and Calvin Klein. Itssportswear customers are made up of Under Armour, Adidas, Puma,Champion and 2xU. In 1H16, Victoria's Secret contributed 16% of its totallingerie revenue and 12% of its sportswear revenue. Given thatsportswear accounted for 19.8% of 1H16's total revenue, we estimatec.18% of BP's overall revenue has been derived from Victoria's Secretalone for the interim. Besides, its product is an integral part of a bra,hence less vulnerable to order slowdown. Hence, the adverse impactfrom the slowing orders from L Brands on BP's earnings is limited.
　　Major challenges in 2017. So as with other OEMs, BP is alsoencountering the problem of a shortened order visibility as a result ofthe intensifying competition faced by its customers （brand owners）。 Thiswill call for more efficient SCM from the brand owners, whereby weexpect “product responsiveness” and “lean inventory management” tobe the key to success in the future. Hence, it will eventually filter throughinto the supplier's level, with growing pressure on their working capitalrequirement. Moreover, we expect to see GPM challenges in 2017 fromthe launch of the new factory in Vietnam in 2H17 （usually takes 9-10months to ramp up） and a more noticeable pick-up of synthetic yarnprices in Nov-16 on rebounding crude oil prices.
　　Valuation. We adjusted our net profit forecasts for FY16/17E upwards by6.4%/4.7%, after having revised up our GPM forecasts by 1.3/1.1ppt to35.1%/35.4% respectively ， as our prior estimates look tooconservative. Accordingly, our PT is raised to HKD7.7 （prev. HKD7.2）， stillbased on 1.0x PEG, under a core net profit 3-yr CAGR estimate of 18.7%for 2015-18E. It currently trades at 16.7/14.6x PER for FY16/17E.