20180326-信达国际控股-南旋控股-01982.HK-Wait_for_better_entry_point_9页_1mb

Nameson Holdings (1982.HK) Summary

Core Content

Nameson Holdings is a leading knitwear manufacturer in China, listed on the Hong Kong Stock Exchange (HKEx) in April 2016. The company provides a one-stop service including raw material development, product design, sample manufacturing, high-quality production, quality control, and timely delivery. Its major clients include international brands such as Uniqlo (61% of total sales), Tommy Hilfiger (21% of sales), and Lands' End. The company has also expanded into the knitted shoe upper manufacturing sector through an acquisition, which is expected to contribute significantly to its revenue in the future.

Main Points

• Share Price and Valuation:

  • The share price has dropped by 30% since March 16, 2018.
  • The current price is HKD 1.92, with a target price of HKD 2.41, resulting in an upside of 25.3%.
  • The company is trading at a 9.5x FY19E P/E ratio, which is a 47% discount to peers.
  • The valuation is considered undemanding, with a 3.8% dividend yield.

• Earnings Forecast:

  • Earnings per share (EPS) for FY18E, FY19E, and FY20E have been revised downward by 18.9%, 20.7%, and 27.4% respectively.
  • The revised earnings growth rate is expected to be 17.9% CAGR over FY17-FY20E.
  • The company expects a more gradual margin expansion due to increased competition and cost pressures.

• Key Challenges:

  • Rising Raw Material Costs: Cashmere prices increased by ~21.5% year-over-year in February 2018 and ~27% since September 2017. This, combined with a strong RMB (up 6.6% from Sept 2017 to Feb 2018), has negatively impacted gross margin (GM).
  • Competition in Knitted Shoe Upper Business: New players are entering the market, offering lower ASP for mid-low end products. This could put pressure on current ASP and reduce utilization rates.
  • Order Volume and ASP: In FY18E, Nameson received ~2 million cashmere orders from Uniqlo, and ~3 million in FY19E. However, the ASP of cashmere is ~50% higher than the company's average, leading to lower GM than the company's average.
  • Market Risks: Potential trade war intensification is a concern that may weigh on the share price in the near term.

• Business Expansion:

  • The company plans to add 200 new fully-automated knitting machines to its Vietnam plant in FY19E.
  • The expansion is viewed as more prudent than previous guidance.
  • The Vietnam plant is expected to increase capacity from 6.0 million pairs to 8.0 million pairs by FY19E.

• Key Revenue Sources:

  • Japan and North America contributed over 60% of revenue during FY13-FY17.
  • The company's revenue is expected to grow from HKD 3,276 million in FY18E to HKD 4,566 million in FY20E.

Key Information

• Trading Data:

  • 52-Week Range: HKD 3.53 to HKD 1.40.
  • 3-Month Average Daily Volume: 6.59 million shares.
  • Market Cap: HKD 4,376.4 million.
  • Major Shareholder: Wong Ting Chung & Family (72.29%).

• Financial Highlights (FY18E-FY20E):

  • Revenue: HKD 3,276M (FY18E), HKD 4,015M (FY19E), HKD 4,566M (FY20E).
  • Gross Profit: HKD 701M (FY18E), HKD 895M (FY19E), HKD 1,049M (FY20E).
  • Net Profit: HKD 336M (FY18E), HKD 457M (FY19E), HKD 537M (FY20E).
  • Diluted EPS: HKD 0.159 (FY18E), HKD 0.203 (FY19E), HKD 0.262 (FY20E).

• Gross Margin (GPM):

  • FY18E: 21.4% (down 200bps from previous forecast).
  • FY19E: 22.3% (down 210bps).
  • FY20E: 23.0% (down 300bps).

• Key Financial Ratios:

  • ROE: 19.9% (FY18E), 22.8% (FY19E), 23.0% (FY20E).
  • Net Margin: 10.3% (FY18E), 11.4% (FY19E), 11.8% (FY20E).
  • Interest Coverage: Negative in FY18E and FY19E, indicating potential financial risk.

• Peer Comparison:

  • The company's P/E ratio is significantly lower than the average of its peers.
  • It is positioned as a potential value play in the textiles and sports shoes manufacturing sectors.

Key Recommendations

• Rating: Maintain.
• Trading Advice: Investors are advised to wait for a better entry point due to short-term negatives, including trade war concerns and margin pressure.
• Valuation: The current valuation is considered undemanding, with a target price of HKD 2.41 based on a 11.9x weighted average P/E.

Technology and Innovation

• Whole Garment Knitting Technology: Nameson uses this technology to offer benefits such as:
  • Dimensional Shaping: Clean shoulder lines and better body conformity.
  • Seamless Design: No seams under the arms, improving comfort.
  • Material Efficiency: Elimination of cutting and sewing, reducing waste.
  • Customization: Ability to produce one-of-a-kind items.
  • Environmental Benefits: Reduced carbon footprint and waste.
  • Consumer Satisfaction: Ideal fit and comfort, leading to high satisfaction.

Risk Factors

• Slower-than-expected ramp-up in shoe-upper manufacturing.
• Delayed Vietnam Plant Phase 2.
• Reduced orders from Uniqlo.
• Sharp rise in raw material costs.

Analysts

• Hayman Chiu - Research Director, Cinda International Research Limited.
• Kenneth Li, Lewis Pang, Chloe Chan, Edith Li - Senior Research Analysts and Research Analysts.

Conclusion

Nameson Holdings is facing short-term margin pressures due to rising raw material costs and increased competition in the knitted shoe upper business. Despite these challenges, the company is expected to benefit from revenue growth driven by cashmere orders and expansion in the shoe-upper sector. The current valuation is considered undemanding, and the company is advised to wait for a better entry point before investing. The company's use of whole garment knitting technology offers significant advantages in terms of efficiency, quality, and sustainability, which could drive long-term growth.