Based on the post-results NDR that we organised for Nameson （NS），we expect to see stronger YoY order growth in 2H17E due to havingreceived more fast orders in3Q.
　　Besides, sales from the US market have started to stabilise in 2H17as compared with a 27% YoY drop in 1H.
　　Given c.50% of the capacity from its VN II factory will be dedicatedfor its Japanese client, we believe it will continue to support NS’scapacity-driven growth in FY18E. Hence, we reiterate our BUY ratingand PT of HKD2.1, still based on 9.8x PER 2018E.
　　More fast orders in 3Q17. NS has received more fast orders for the Oct-Dec period versus 1H17. Thus, since a fast order means an averageturnaround time of 21 days from order to product delivery, compared to30-45 days for a normal order, we expect sales order growth in terms ofvolume sold would improve to 18% YoY in 2H17 from a 3.7% YoY gain in1H17。 In terms of revenue breakdown, 2H17E shouldaccount for 40% of its full year in FY17E, compared with 37% in 2H16. Forthe full year in 2017, we are targeting a c.9% YoY sales volume growth.
　　US market stabilised in 2H17. Sales to the US market showed no furtherdecline in 2H17, versus a 27.6% YoY drop in 1H17. Meanwhile, new clientsfrom the US, including Gap, Calvin Klein and Brooks Brothers, and H&Mfrom Europe, had more than offset the decline in contributions fromTommy Hilfiger, Ann Taylor and Lands’ End.
　　Capacity-driven growth to continue in FY18E. NS’s VN phase II factory,with an annual production capacity of 17mn units of knitwear, will belaunched in 2H17。 At least 50% of the new capacity will bededicated to Uniqlo’ s orders, which suggests that c.8.5mn units of theproduction capacity commands a high visibility, as given the FTA signedbetween Japan and Vietnam, Uniqlo is keen to place orders in VN. If weinclude Uniqlo’s orders, this already suggests a c.25% YoY growth inproduction volume for FY18E.
　　Further GPM upside. At present, the average monthly wage for NS’sworkers in the PRC is c.USD350-800, whereas it is c.60-55% lower for theworkers in its VN factory. Even if we are to apply a 20% discount to theworking efficiency of the workers in VN, NS would still be able to derivec.40-50% labour cost savings in its VN plant. Moreover, we expect NS willbe capable of achieving cost synergies over at least the next three years,despite a double-digit increase in the average annual wage rate in VN.
　　Besides, a 1% depreciation of RMB against USD would raise NS’s net profitby c.HKD6-8mn, given that c.90% of its revenues are denominated in USDand majority of its costs are denominated in RMB with the rest in VietnamDong.
　　Valuation and rating. We reiterate our BUY rating and PT of HKD2.1. OurPT is based on 9.8x PER, c.10% discount to the average of its mid-streampeers for 2018E. NS currently trades at 8.4x PER for FY18E. Our PTrepresents 19% upside from the current levels. The stock has returned47% since our initiation coverage on July 21, 2016.