Newly acquired business to partially contribute in FY18E
The acquisition of V. Success Group （knitted upper for footwear and knittedupper shoes business）， has been approved by shareholders in December. Inaccordance to the circular released on Nov 24, 2017 and by assuming a 3-monthcontribution, which would be earnings accretive to Nameson （would increaseFY18E net profit by ~5.4%, expect 3-month contribution given the profitguarantee is fulfilled）。 The dea would be settled by issuing new shares （62% oftota consideration） and cash （remaining 38%）。 Current clients include renownedsports brands such as Puma （~50% of sales）， Under Armour （~10%） andSketchers （~10%） etc. Company targets to expand current clientele.
1H18 result slight beats on strong sales from Uniqlo and operatingleverage; Higher ASP cashmere order to drive topline
Nameson delivered a strong 1H18 result, with revenue and adjusted net profit（excl. listing expenses） up 19%/28.8% Yoy to HK$2,114mn/HK$292mn（accounted for 65%/76% of our estimates, with the latter ahead of 2 year averageat ~69%）， thanks to strong sales from major client Uniqlo, including cashmereorders, while stringent cost contro （SG&A ratio down 100 bps Yoy to 7.8% ）continue to contribute to the bottom line.
Nameson’s GM came in at 22.9% （-70bps Yoy） on having received cashmereorder （ASP >50% higher but with lower GM） and strong RMB in 1H18, eachconstitute ~35 bps impact on the GM. Management expects sales growthmomentum in 2H18E driven by clients’ uick response orders （~25-30% ofsales）。 We expect sales would pick up in North America in FY18E （vs. 17.1% inFY17 and -27.6% Yoy in 1H17）， while sales to Japan would see a moderategrowth driven by ramping up of Adastria Co.' （2685 JT, owning brands likeLowrys Farm and Globa Work） which has also become Nameson’s new client in1H17, we expect these new clients’ order would continue to ramp up in FY18E.
Take note that Nameson also gain Brooks Brothers.
Nameson received ~2mn pieces of new cashmere wear order for FY18E fromUniqlo. Though the volume would be ~6% of tota capacity in FY17, the ASP>50% higher than company average （USD11-12/piece）， which we believe wouldhelp drive revenue growth in FY18E/FY19E.
Undemanding valuation at FY19E 11.6x PE, re-rating continues ondiversifying client mix, with new business driving earnings growthahead
We expect Nameson’s EPS growth to accelerate to 27.2% CAGR inFY17-FY19E （vs. 17.2% in our last update）， by better reflecting new businesscontribution （both revenue and GM）， market share gains from current business（esp. cashmere orders from Uniqlo）， order ramp up from new clients, whileaccompanied by margin expansion （both GM & NM）。
Nameson is trading at FY19E 11.6x PE （~40% discount to peers’ avg.） with 3.0%dividend yield, current valuation stil looks undemanding and continue to deservea re-rating. We raise Nameson’s TP from HK$2.82 to HK$3.60 based on 13.8xweighted average FY19E PE （apply 10% discount to current business, 20%discount to newly acquired shoe upper manufacturing business）。 We reckon therecent price setback provides good entry point as we identify the followingupside catalysts for Nameson: i） Earnings upgrade driven by factoring inhigher margin shoe-upper business, ii） Successfu ramp up of VietnamPhase 2 plant and iii） Potentia inclusion in Hang Seng smal cap index.