development in the retailing markets of China.

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nonetheless, been taken over the last three years since HX.s

listing in Singapore in 2005, to strengthen the combination of

production and retailing capabilities. HX.s progression in product

development and design had facilitated higher ASPs and

continued uptrend in margins which should see further upside on

operational efficiency in the near term. Management is now on its

next step to focus on further brand building through stronger

collaboration with its network of exclusive distributors.Erke is a relatively young and evolving brand. Steps had,

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lower-than expected sales generation especially for new POS,

delay in POS roll-out, sharp slowdown in economic growthRisks: higher than expected costs from retail business expansion,

View:

than a decade experience in the retailing market in China, Erke is a

relatively young and evolving brand. That said, we are of the view that

steps had been taken over the last three years, since its listing in

Singapore in 2005, to strengthen the combination of production and

retailing capabilities. HX.s progression in product development and

design had facilitated higher ASPs and continued uptrend in margins

which should see further upside on operational efficiency in the near

term. Management is now on its next step to focus on further brand

building through stronger collaboration with its network of exclusive

distributors.While compared to its peers like LN and Anta who has more

Catalyst:

retailing platform through an indirect financing scheme for its

distributors. Given management

believe they will be cautious in their approach and take steps against

incurring any unnecessary risks. The resulting alignment of interests

with distributors should see further upside from on-going

improvements in supply chain management. We expect these to drive

CAGR in sales and net profits of 42% and 49%, respectively over the

next three years into 2009E. HX is expected to report its 2Q07E

results in early August.Management will take a more proactive participation into its?s usual conservative stance, we