Highlights
In 2018, the company's operating income was approximately US$2.5b, YoY+15%. The companyhas five major product categories: casual wear, denim, underwear, sweaters, sports andoutdoor wear, with revenues of $950m, $630m, $410m, $250m, and $240m respectively,accounting for 39%, 25%, 16.5%, 10%, 9.6% of the revenue. Core products category: casualwear, denim, and underwear growth rate were basically the same as last year and 1H18, andthe income of company's non-core products category sweaters in 2018 has contributed moreand the core category has remained stable.
Diversified market layout strategy helps revenue growth. The company has been adhering to adiversified and balanced market layout strategy covering the United States, Asia Pacific, Europeand other countries and regions, which helps the company to expand its customers. In 2018,due to the stable demand and common business model in Asia Pacific and the United States,the two regions together boosted company revenue by a total of +34%.
Gross/net profit margin decreased slightly year-on-year. The cash cycle was unchanged from thesame period last year for 60 days. Mainly due to the increase in capital expenditure due to theconstruction of the company's Vietnam plant. The inventory turnover days were unchangedfrom the same period last year for 48 days. It was basically the same as last year and theinventory control ability was good.
Maintain the company's earnings and target price of HK$5.60 and maintain outperform rating. In2019-2021, the company continued to increase its production strategy for manufacturing atlow-cost production bases and expand production capacity in Vietnam and Bangladesh. TheVietnam cloth factory is expected to start production at the end of 2019. We judge that thecompany's revenue will be basically the same as 2018 in 2019, the possibility of increasing costcontrol capacity will gradually increase, and the gross profit margin will remain stable. As thecompany's R&D investment and sales and management expenses increase and decrease, thenet profit margin will remain stable. We estimate revenue of US$2.7 billion in 2019, with agross/net margin of 18.4%/5.5% and a target price of 12.4x for PE, maintaining a “outperform”
rating.
Potential risks: Failure to maintain partnerships with core customers, labor shortages and rising costs,changes in raw material prices, and risks of changes in global trade policiesThis English translation of the original Chinese version < 2H18 营收及利润较1H18 基本持平 >issued by Industrial Securities on 2019.3.31 is for information purpose only. In case of a discrepancy,the Chinese original will prevail.