There is an article titled "Xingquan bullish about future demand" published in Starbizweek dated 31/7/2010 which may act as catalyst to improve price performance of Xingquan.
The article says that China listings on Bursa Malaysia namely Xingquan International Sports Holdings Ltd (Xingquan), Multi Sports Holdings Ltd and XiDeLang Holdings Ltd have disappointed a lot of investors with their weak performance - all these 3 companies are currently, trading at prices below their issue prices. According to the article, analysts have pointed out that this is due to the low awareness among investors about their fundamentals.
It says that a field trip was arranged by Xingquan recently to its office and factories in China to improve awareness among Malaysian investors. They are based in Jinjiang in the province of Fujian.
The article states that Xingquan is in the midst of constructing a new factory in Hui'an, near Ji njiang. Incidentially, Jinjiang is China's largest manufacturing base for walking and sport shoes. Their new plant in Hui'an which will have total production floor area of ~ 55,000 sq m, is expected to be completed in the 4th quarter of this year. The construction cost of the new plant is over 200 million renminbi, of which 100 million renminbi will be financed from the proceeds of the initial public offering (IPO) while the balance will be financed through internally generated funds.
Production is expected to start in the first quarter of 2011. The new factory may (1) increase their production lines to 10 next year from 6, currently ; (2) increase their production capacity to (a) 10 million pairs of shoes annually from 6 million pairs currently and (b) 28 million pairs of shoe soles from 18 million pairs, currently. They plan to increase their production capacity by about 35% annually to reach maximum level of 10 million pairs and 28 million pairs for shoes and shoe soles, respectively.
According to Xingquan's executive chairman and CEO Wu Qingquan, Xingquan expects to achieve double-digit growth for its net profit and revenue in FYE 30/6/2011 (FY11) driven by improving production capacity and China's large consumer base.
Wu says that they currently have over 2,000 point of sales in China covering 25 provinces but they aim to increase it to 3,000 in 3 years. They recently started their expansion into 5 new provinces namely Shaanxi, Gansu, Qinghai, Guizhou and Ningxia.
The article also mentions CIMB Research's trip to China which gave them an impression that shoe companies are expanding their capacity to cater to strong demand but are grappling with rising wages arising from tight labour supply. Nevertheless, it says Xingquan is an OUTPERFORMER with a target price of RM3.12 based on a 60% discount to the listed peers under its regional coverage. Based on the last trading price of RM1.63, there is a potential capital gain of 91% if the target price is achieved.
Xingquan has a dividend payout policy of 10% to 20% of its profit after tax. It paid an interim dividend of 2.5% in April 2010, which represented 16.2% of its 6 months profit after tax.
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