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Pinnacle
Master |
20-Nov-2007 22:27
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DMG Research - Hot response to Hongxing share placement Despite volatile market conditions and the prospect of earnings dilution on a per share basis, listed China-based shoemaker China Hongxing Sports has received unexpectedly strong response to its $472 million share placement. All 400 million new Hongxing shares have been snapped up largely by institutional buyers. China Hongxing said last week that the placement at $1.18 a share was a 5.14 per cent discount to the weighted average price of $1.2439 on Nov 14. The stock fell 25 cents yesterday to close at $1. Listed here in late 2005, the Fujian-based sports footwear and accessories specialist is one of the top three players in China, with over 3,000 stores across the country - just behind its Hong Kong-listed rival, Lining, which has 5,000 stores. The placement was done primarily to fund its aggressive brand-building across China in the lead-up to the 2008 Summer Olympics in Beijing next year. Some $330 million of the estimated net proceeds of $458 million, will go towards the company's expansion of its sales & distribution network, advertisement & promotion, and renovation and upgrading of older stores. The balance will be used to set up four logistic centres, for production capacity expansion and for general working capital. While noting that FY08/09 earnings per share will be diluted by about 15 per cent by the placement, analysts nevertheless note that this brand-building and profile-raising exercise is critical for long-term sustained growth in a highly competitive Chinese market, where over a dozen players compete tenaciously, often with their stores sitting next to each other on main streets of cities across the country. Although downgrading the price target to $1.32 (from $1.48), Kim Eng noted that China Hongxing's revenue would increase by one to 3 per cent. 'We have also increased grossmargin assumptions to reflect lower outsourcing costs,' it said in a note yesterday. 'We continue to like Hongxing as a key beneficiary of the Olympics and China's rising consumption spending.' About $195 million of the placement funds will be used to secure prime 100-200 sq m stores, which require 24 months of rent as deposit. Hongxing's strategy has been to offer financial assistance to its distributors to fund this rental advance, and collect the money back over the second and third year, to be re-deployed for opening newer tores. China Hongxing, which is fast expanding its sales and distribution network, is also upgrading its older stores to reflect a younger and more dynamic brand image. And with TV stations already demanding huge upfront payments for air-time in the lead up to the Olympics, a portion of the funds raised is also being set aside for a media blitz. Recently, the group posted a more than doubling in third quarter net profit to 91 million yuan (S$17.8 million), thanks to stronger margins, higher sales and better product mix. Net earnings for the first nine months also more than doubled to 260 million yuan. |
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787180
Master |
15-Nov-2007 19:50
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400 mil pte placement at $1.18 each to fund its expansion.In March this year co proposed 5 for 1 stocksplit till todate no news of SGX approval yet.BengKuangMarine already approved within 3 mths EGM on 30 Nov |
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blurfonz
Member |
15-Nov-2007 18:17
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What happened to this counter? It had its trading HALT today... Any idea? |
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Pinnacle
Master |
15-Nov-2007 11:26
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Pinnacle
Master |
15-Nov-2007 10:37
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CIMB - China Hongxing Sports (S$1.25) - 3QFY07 results - Impressive margin gains Above expectations. Net profit came in 8% above our expectations at Rmb90.9m (+136.7% yoy) on better than expected revenues and margins. 9M07 turnover grew 47.9% yoy to Rmb1377.4m while net profit grew 118.9% to Rmb259.7m. 9M07 net profit contributed 70% to original FY estimates. Gross margins beat our expectations, increasing 5.2% pt to 43.8%. Broad-based growth across all product segments. 3Q07 footwear turnover rose 41.3% yoy to Rmb340.6m, while turnover for apparel and accessories rose 138% yoy and 104.5% yoy to Rmb115.0 m and Rmb22.9m respectively. Operating expenses grew 56.4% yoy to RMB108.7m, mainly due to A&P expenses. Expansion plans. Hongxing also announced 1) retail network expansion plans going forward, 2) increase in A&P activities with A&P expenses as a % of revenue to be no more than 20% in FY08-09, 3) renovating/relocating older Erke speciality stores, 4) establishing 4 logistic centres in 4 main regions of the PRC to monitor the performance of the retailers in respective regions and conduct market research, and 5) a 33.5% production capacity expansion to 23.9m pairs of shoes with a fourth plant. We view these expansion plans positively as it is vital for Hongxing to boost brand awareness. The group plans to fund its expansion via internal funds, external borrowings and/or fund-raising. Fine-tuned earnings estimates. As the fourth plant is likely to commence operations towards end-FY08, we have not made changes to the FY08 revenue and increased FY09 revenue forecast by 5%. We have fine-tuned our earnings estimates for FY08-FY09 after taking into account the higher operating expenses related to the expansion plans. We estimate capex expenditure to increase by Rmb300-400m in FY08-09. Target price nudged up to S$1.48, maintain Outperform. We see continued demand for sporting goods in China, particularly from locals in 2nd and 3rd tier cities. Although the stock has done well recently, we believe there is room for more upside . Execution remains as a major risk. Maintain Outperform with our new target price of S$1.48 (previous $1.47) based on 24x CY09 earnings. |
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Pinnacle
Master |
15-Nov-2007 09:49
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PLANS FOR EXPANSION Further to the Company's announcement of its unaudited financial results for the 9 months ended 30 September 2007, the Board of Directors of the Company would like to announce that the Group intends to undertake the following plans for expansion: (i) To expand the Group?s sales and distribution network The Group has embarked on an acceleration of its sales and distribution network expansion plan to further invest in its brand status and presence in the market. As at the end of September 2007, the Group has opened approximately 510 stores of which approximately 90 are mid-sized stores ranging from 100 to 200 sqm. It aims to open at least 600 stores by end of FY2007. It also intends to open at least 600 stores in 2008, with at least 330 of these stores being mid-sized, mainly concentrated in the prime locations of the second-tier cities in the PRC. Currently, the Group relies on its third-party exclusive distributors and third-party retailers to open its Erke Specialty Stores where all the set-up costs are absorbed by its distributors and retailers. However, due to (i) the additional pressure on its distributors brought about by this acceleration; (ii) higher rental requirements of prime locations; and (iii) the intention to secure longer lease terms for these stores, the Group intends to assist its distributors by securing the leases of these mid-sized stores and subsequently sub-letting them back to the distributors to manage and operate these stores. The regions targeted will primarily be in the Eastern and South-western provinces of the PRC, including provinces where the Group does not already have a presence such as the Northwestern region of the PRC. The Group believes that it is pertinent that it expands its sales and distribution network without any delay, to ensure it maintains its competitiveness as well as establish the necessary presence to capitalise on the vast opportunities in the fast expanding sporting goods market in the PRC. (ii) To increase the Group?s advertising and promotion expenses The Group intends to increase its advertising and promotion expenses in FY2008 and FY2009 to capitalise on the upcoming Beijing 2008 Olympic Games and the lead up to it and raise its brand status and visibility in the PRC. Media cost in the PRC has been rising rapidly, new media avenues are constantly being introduced into the market, and the intense competition in securing prime advertising slots on various popular media have changed the landscape in which advertisers are operating. The Group believes that it needs to forthwith secure premium advertising avenues and notable sponsorship deals. This will increase its brand visibility in the market and ensure its competitiveness is maintained through obtaining maximum outreach to its target audience. The Group foresees advertising and promotion expenses to increase in 2008 and 2009 but will seek to limit it to no more than 20% of sales. (iii) To renovate and/or relocate older Erke specialty stores The Group is currently in the midst of rolling out its fourth generation stores boasting a new and modern layout and bigger store formats. The Group is pushing the operators of older stores to either refurbish or relocate to: (a) ensure that its stores will be uniform across the PRC so that brand image and consistency are maintained; (b) ensure that its stores are well prepared for the anticipated increase in demand for its products following the run up to the Beijing 2008 Olympic Games; and (c) to support its strategy to grow the apparel and accessories segments of its business. In order to immediately kickstart the upgrading process, the Group intends to assist its older stores to revamp its format and layout through the offer of subsidies. Currently, approximately 2,000 stores are decorated according to its first to third generation store formats and approximately 1,700 stores are smaller than its average store size of between 60 and 70 sqm. The Group intends to help these stores refurbish and expand their store sizes either at their existing locations or at new ones. The Group considers this as part of its branding exercise and believes that the money invested will have a direct impact on its revenue and earnings. (iv) To establish four logistic centres With the rapid expansion of its sales and distribution network, it is paramount that the Group ensures that this expansion is executed as efficiently and effectively as possible. In this respect, the Group intends to establish four logistic centres in 4 main regions of the PRC as follows: (a) In Xi?an to monitor the Northwest region; (b) In Beijing to monitor the Hua Bei region; (c) In Guangzhou to monitor the Hua Nan region; and (d) In Nanjing to monitor the Central region. These centres will be staffed with between 10 and 20 personnel to undertake sales and marketing, finance and administrative functions. Their roles will be to (a) monitor the points-of-sales in their respective regions, (b) conduct market surveillances and research, (c) provide training to store operators and retail staff, (d) build up experience in the retail aspect of the business and (e) to monitor inventory flows at the distributors and retailers levels. (v) To expand the Group?s production capacity The Group currently has three footwear manufacturing plants totalling approximately 17.9 million pairs of footwear per annum in capacity, which are operating at an average utilisation rate of approximately 70%. The Group intends to construct a fourth manufacturing plant to add to its capacity by approximately 6.0 million pairs of footwear per annum. This will bring total capacity to 23.9 million pairs of footwear per annum. The fourth plant will be built on its existing land at its current production facilities located at Quanzhou Hongrong and the Group believes that construction of the plant will take approximately nine months. In order to implement the above plans, the Group intends to fund the above from funds generated from the Group's operations, external borrowings and/or other fund raising exercises. |
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cashiertan
Elite |
15-Nov-2007 09:46
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sell on news? |
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Pinnacle
Master |
15-Nov-2007 09:45
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CHINA HONGXING REGISTERS NET PROFIT SURGE OF 136.7% IN 3Q FY2007 TO RMB90.9 MILLION Turnover rose 59.2% to RMB478.5 million as a result of higher product sales across the board underpinned by successful advertising and promotion efforts Gross profit margin improved from 38.6% in 3Q FY2006 to 43.8% in 3Q FY2007 on the back of higher selling prices, changes in product mix and greater economies of scale Net profit climbed 136.7% to RMB90.9 million lifted by higher turnover China Hongxing Sports Limited (?China Hongxing? or ?the Group?), one of the leading sporting goods companies in the PRC, today reported commendable results for the quarter ended 30 September, 2007 (?3Q FY2007?). Group turnover soared 59.2% from RMB300.6 million in 3Q FY2006 to RMB478.5 million in 3Q FY2007, while net profit surged 136.7% to RMB90.9 million over the same period. Driven by its sustained efforts in advertising and promotion activities in boosting the Erke brand image and its relentless efforts to augment its presence in the PRC through accelerating sales network expansion rate, the Group continued to achieve an outstanding set of results this quarter. The results reflect a strong appetite for its products across the PRC that has underpinned higher prices and strong sales volumes. Mr Wu Rongguang, Chairman and Executive Director of China Hongxing, said, ?We are deeply encouraged by this quarter?s excellent performance, which is fitting testimony to our wellplaced strategy of investing in our brand and network. To maximise mileage from the opportunities brought about by the fast expanding sporting goods market, we will continue to improve our brand visibility and expand our network to secure our position and ensure our competitiveness.? ?We have established more than 500 retail stores in the first nine months of this year, bringing our total number of stores to more than 3,100 from 2,650 stores at the end of December 2006. This rapid pace of expansion will not abate as we race to cement ourselves as one of the leading sporting goods brand in the PRC.? He added. Performance Review For the first nine months ended 30 September 2007, the Group?s turnover rose to RMB1,377.4 million as compared to RMB931.0 in the previous corresponding period. The 47.9% jump in the Group?s turnover was a direct result of its efficiency in expanding its footprint in the domestic market, successful advertising and promotional campaign to continually lift its brand image, its ability to clinch prominent sponsorship deals as well as its continual focus on introducing more designs and higher quality products to its consumers. These efforts translated into higher sales as well as higher selling prices across all product segments. For the quarter under review, sales of sports footwear rose 41.3% from RMB241.0 million in 3Q FY2006 to RMB340.6 million in 3Q FY2007, accounting for approximately 71.2% of total turnover. Turnover from sports apparel saw the sharpest increase of 138.0%, from RMB48.3 million in 3Q FY2006 to RMB115.0 million in 3Q FY2007, contributing approximately 24.0% to total turnover for this period. Sale of sports accessories, which accounted for 4.8% of total turnover, climbed 104.5% to RMB22.9 million. The shift in product mix, where sports footwear used to account for approximately 80.2% of our turnover in 3Q FY2006, is in line with our strategy to increase contribution from the higher-margin apparel and accessories product segments. On the back of greater cost efficiencies via bringing more footwear to be manufactured in-house and a higher turnover, gross profit for the quarter rose 80.8% to RMB209.7 million, from RMB116.0 million in 3Q FY2006. As a result, gross profit margin climbed 5.2 percentage points year-on-year, improving from 38.6% in 3Q FY2006 to 43.8% in 3Q FY2007. In 3QFY2007, the Group?s selling and distribution costs increased by 76.4% to RMB96.0 million. This corresponds to its continuing commitment to raise brand recognition and visibility through intensified advertising and promotion activities. As a percentage of sales, advertising and promotional cost stood at 16.7%. As a result of the recognition of one-off expenses in relation to the commencement of the Group?s new manufacturing facilities in 2006, administrative expenses decreased to RMB12.6 million in 3QFY2007. Overall, operating expenses increased by 56.4% to RMB108.7 million in the quarter under review. The increase was mainly due to the increase in selling and distribution costs which was slightly offset by higher revenue and gross profit, and the decrease in administrative expenses. Finance cost dipped slightly, by an approximate RMB1.1 million to RMB6.0 million in 3QFY2007, due mainly to the drop in amortisation of interest for RCPS in this quarter, following partial conversion of RCPS. Earnings per share on a fully diluted basis increased from RMB1.72 cents in 3QFY2006 to RMB4.03 cents in 3QFY2007. Based on an issued share capital of 2,140 million ordinary shares, net asset value per share as at 30 September 2007 stood at RMB50.35 cents. As at 30 September 2007, the Group has cash and cash equivalents of approximately RMB357.0 million. Outlook Earlier in September 2007, the Group held its Spring/Summer Collection trade fair in Nanning City, Guangxi Province, which saw more than 2,000 participants. The four-day trade fair introduced over 150 new footwear designs and launched more than 270 new sports apparel designs, where the Group received encouraging orders at the quarterly event. Mr Wu added, ?We are heartened by the positive feedback we received during the last trade fair. Moving forward, we are set to increase our revenue by continuing to introduce new designs and products and boost orders from our higher-margin product segments. We will also place focus on augmenting our product range, such as shoes incorporated with the anti-bacterial and ultraviolet technologies, as well as the new football training footwear and yoga wear product lines which were introduced into the market this year.? ?At the same time, we have embarked on an intensified expansion plan for our sales and distribution network and aim to open at least 600 stores by end of FY2007. We have also set a target to open at least 600 stores in FY2008, with at least 330 of these stores mid-sized stores ranging from 100 to 200 sqm, mainly concentrated in the prime locations of the second tier cities in the PRC. This will enables us to gain the necessary presence in the PRC in order to capitalise on the vast opportunities in the fast expanding sporting goods industry.? In addition, the Group intends to refurbish and/or relocate its older Erke specialty stores and plans to boast a new and modern layout and bigger store formats. These are done so as to, firstly, maintain a consistent brand image of its stores across the PRC; secondly, ensure that the Group is well placed for the expected increase in demand for the Group?s products due to the impending Beijing 2008 Olympic Games; and lastly, in line with the Group?s overall strategy to grow its accessories and apparel product segments. The Group intends to provide subsidies to its older stores so as to assist them in revamping or relocating their stores, in order to accelerate the upgrading process. This move, the Group believes, is an investment which will later translate into higher revenue and earnings. With the nearing of the Beijing 2008 Olympic Games, the Group also believes that it needs to increase its brand visibility and maintain its competitive edge in the market through advertising and promotional efforts. It plans to increase maximum outreach to audience through securing premium advertising avenues and notable sponsorship deals. Advertising and promotion expenses are expected to increase in FY2008 and FY2009, but will be limited to 20% of sales. As the sales and distribution network expands rapidly, the Group plans to establish four logistic centres in four main regions of the PRC to ensure its operations and supply chain management are conducted smoothly and efficiently. The regions include: i) Xi?an (to monitor the Northwest region); ii) Beijing (to monitor the Hua Bei region); iii) Guangzhou (to monitor the Hua Nan region); and iv) Nanjing (to monitor the Central region). 10 to 20 staff will be allocated to each centre to undertake sales and marketing, finance and administrative functions that include monitoring point-of-sales in their respective regions, conducting market surveillances and research, providing assistance and training to store operators and retail staff, as well as monitoring of inventory flows. In March 2007, the Group has increased its production capacity to 17.9 million pairs of sports footwear as the second phase of the new production facility commenced production. This is in line with the Group?s strategy to meet the expected increase in demand for its products. Operations have been smooth and consistent, and at the same time, the Group is able to produce more while reducing its reliance on subcontractors. In anticipation of higher demand for its products in the future, the Group intends to further expand its total capacity to 23.9 million pairs footwear per annum, by constructing a fourth plant on the existing plot of land on Quanzhou Hongrong Light Industry Co., Ltd. In order to implement the above plans, the Group intends to fund the above from funds generated from the Group's operations, external borrowings and/or other fund raising exercises. Barring any unforeseen circumstances, the management is optimistic about its business outlook for the rest of the financial year. |
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