20181207-信达国际控股-南旋控股-01982.HK-Bumpy_Road_Ahead_9页_1mb

Nameson Holdings (1982.HK) Summary

Core Content

Nameson Holdings is a leading knitwear manufacturer in China, offering one-stop services including raw material development, product design, and production. The company's performance in the first half of FY19 (1HFY19) showed mixed results, with revenue increasing by 36.3% to HK$2,881.5 million, but net profit declining by 19.2% to HK$236 million. The revenue growth was attributed to increased sales to Uniqlo, particularly in cashmere and whole garment orders, while the net profit drop was due to a 560 bps decrease in gross margin (GM) from rising raw material costs.

Main Points

• Revenue Growth:

  • 1HFY19: HK$2,881.5 million (+36.3% YoY)
  • Cashmere sales: ~HK$1,843 million (+42% YoY)
  • Whole garment sales: ~HK$1,843 million (contribution to garment segment revenue in 1H19: ~7%)

• Gross Margin:

  • 1H19: 17.3% (vs. CIRL estimates of 22.0% for FY19E)
  • The decline in GM was mainly due to increased costs for raw materials like cashmere, cotton, and wool.

• Knitted Shoe Upper Business:

  • Revenue: HK$100 million (only 29% of FY19E estimates)
  • Faces intense competition, especially from smaller players offering lower ASP mid-low end products
  • ASP is expected to drop by another 20-25% to US$3.9/pair
  • Company has halted capacity expansion and is targeting improved utilization by accepting lower ASP and GM orders from Chinese sportswear clients

• New Growth Engine:

  • Whole garments are expected to contribute >10% of revenue in FY20E/FY21E
  • Benefits include higher ASP (~USD16) and GM (~25% vs. 23% average for FY13-FY18)
  • Offers production advantages such as reduced lead time (>50%), labor reduction, and material wastage reduction

• Earnings Forecasts:

  • FY19E/20E EPS cut by 42.4% / 38.0%
  • Revenue growth: 5.4% CAGR for FY18-FY20E
  • Net profit is expected to gradually recover, with GM and NM margin improvements

• Valuation:

  • Current price: HK$0.71
  • Target price (TP): HK$0.77
  • Initiation at Neutral rating with a TP based on 7.0x weighted average FY19E PE (vs. 9.5x in previous update)
  • Trading near trough valuation with FY19E 6.5x PE (~65% discount to peers' average)

Key Information

• Company Overview:

  • Established in 1990 and listed on HKEx in April 2016
  • Supplies knitwear to international brands, with Uniqlo accounting for 64% of total sales

• Financial Highlights:

  • Revenue: FY17A: HK$2,797M; FY18A: HK$3,446M; FY19E: HK$4,185M; FY20E: HK$4,730M; FY21E: HK$5,416M
  • Net profit: FY17A: HK$328M; FY18A: HK$327M; FY19E: HK$249M; FY20E: HK$319M; FY21E: HK$408M
  • EBITDA: FY17A: HK$549M; FY18A: HK$560M; FY19E: HK$527M; FY20E: HK$638M; FY21E: HK$748M
  • Net margin: FY17A: 11.7%; FY18A: 9.5%; FY19E: 6.0%; FY20E: 6.8%; FY21E: 7.5%

• Balance Sheet:

  • Total assets: FY17A: HK$2,732M; FY18A: HK$4,984M; FY19E: HK$5,236M; FY20E: HK$5,585M; FY21E: HK$6,038M
  • Total liabilities: FY17A: HK$1,162M; FY18A: HK$2,536M; FY19E: HK$2,539M; FY20E: HK$2,604M; FY21E: HK$2,686M
  • Shareholders' equity: FY17A: HK$1,570M; FY18A: HK$2,448M; FY19E: HK$2,697M; FY20E: HK$2,980M; FY21E: HK$3,352M

• Cash Flow:

  • Cash flow from operations: FY17A: HK$492M; FY18A: HK$111M; FY19E: HK$458M; FY20E: HK$502M; FY21E: HK$580M
  • Free cash flow: FY17A: HK$-45M; FY18A: HK$-772M; FY19E: HK$308M; FY20E: HK$352M; FY21E: HK$430M

• Company Update:

  • Date: 7 December 2018
  • Contact: Hayman Chiu, hayman.chiu@cinda.com.hk, (852) 2235 7677

• Trading Data:

  • 52-Week Range: HK$3.53 to HK$0.95
  • 3-Month Avg Daily Vol: 3.53 million shares
  • No. of Shares: 2,245.3 million
  • Market Cap: HK$1,594.1 million
  • Major Shareholder: Wong Ting Chung & Family (72.29%)

• Key Challenges:

  • Intense competition in knitted shoe upper business
  • Continued pressure on GM due to rising material costs
  • Lower utilization rates in FY19E/FY20E due to market competition

• Peer Comparison:

  • Nameson's FY19E PE is 6.5x, significantly lower than peers' average of 12.896 million HKD
  • Dividend yield: ~5.5%

Conclusion

Despite the revenue growth from cashmere and whole garment segments, Nameson faces ongoing challenges in the knitted shoe upper business due to fierce competition and falling ASP. The company has taken a more conservative approach by halting capacity expansion and focusing on improving utilization rates. The initiation at a Neutral rating with a target price of HK$0.77 reflects the ongoing margin pressures and the company's current valuation. However, the potential for growth from whole garment technology and cashmere production remains a key factor for future performance.