20180718-信达国际控股-南旋控股-01982.HK-Negatives_priced_in_with_attractive_yield_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 high-quality production. The company has been supplying products to major international brands such as Uniqlo, Tommy Hilfiger, and Lands' End. It was listed on the Hong Kong Exchange in April 2016.

Main Points

Financial Overview

• Current Price: HKD 1.02
• Target Price: HKD 1.81
• Upside: 77.4%
• Trading Recommendation: Maintain
• Market Cap: HKD 2,324.9 million
• Number of Shares: 2,279.4 million
• 52-Week Range: HKD 3.53 to HKD 0.95
• Average Daily Volume (3M): 3.46 million shares
• Major Shareholder: Wong Ting Chung & Family (72.29%)
• Auditors: PWC
• Result Due: 1H19: December 2018

Earnings Forecast and Adjustments

• Earnings Adjustments: Earnings for FY19E and FY20E were lowered by 6.3% and 5.2% respectively due to increased competition and market pressures.
• EPS Growth: Expected to grow at a 12.2% CAGR from FY17 to FY20E, lower than the previous forecast of 17.9%.
• Margin Expectations: The company expects a more gradual expansion of margins (both GM and NM) due to competitive pressures and lower ASP in the knitted shoe upper business.

Business Segments

• Knitted Shoe Upper Business:

  • Facing competition from small players offering lower ASP products.
  • Current ASP: US$5.2/pair.
  • Expected ASP drop in FY19E: 25% to US$3.9/pair.
  • Impact on GM: Expected to be negative, currently at >30%.
  • Nameson will reduce new machine additions to the Vietnam plant and focus on improving utilization rates with lower ASP orders.

• Whole Garment Products:

  • Applied seamless knitting technology.
  • Contributed ~3% of revenue in FY18.
  • Higher ASP (US$15–25/piece) and GM (~25% vs. company average of 23%).
  • Expected to be a new growth engine, contributing >10% of revenue by FY20E/FY21E.

• Cashmere Products:

  • Produced ~2.6 million pieces in FY18, sold to Uniqlo.
  • Sold ~3 million pieces in FY19E.
  • Lower GM cashmere accounted for 7.5% of volume and 18% of sales.
  • Cashmere ASP was >50% higher than the company average, but GM was >300 bps lower than average.

Key Insights

• Valuation: Nameson is trading at a FY19E 5.4x PE, which is ~72% below the peer average, with a 6.8% dividend yield.
• Investor Recommendation: The company is advised to be accumulated on recent weakness, with potential upside from Uniqlo’s next quarter results and Nameson’s 1H19 results.
• Market Concerns: Trade war escalation remains a risk, but most negative fundamentals have been priced in.

Risk Factors

• Trade War Tensions: May impact export activities.
• RMB Appreciation: Could affect profitability.
• Intense Competition: In the knitted shoe upper manufacturing business.
• Slow Ramp-up of Vietnam Plant Phase 2: Could delay growth.
• Reduced Orders from Uniqlo: May affect revenue.
• Rising Raw Material Costs: Especially for cashmere.

Financial Highlights

Income Statement (HK$ million)

Balance Sheet (HK$ million)

Cash Flow (HK$ million)

Peer Comparison (FY19E/FY20E)

Conclusion

Nameson Holdings is a key player in the knitwear manufacturing industry with a diversified client base and exposure to emerging technologies like whole garment knitting. Despite a slightly disappointing FY18 performance, the company is expected to recover in FY19E with improved GM and growth from new segments. However, it faces challenges from rising costs, competition, and potential trade war impacts. The current valuation offers an attractive yield, and the company is recommended for accumulation with an eye on upcoming results and market catalysts.