Yue Yuen Industrial (Holdings) Sun Hung Kai Financial Group reiterated a 'strong buy' rating on the firm after the leading contract footwear maker unveiled plans to spend US$120 million on increasing its production lines in Vietnam and upgrading its equipment in China. The investment had made the management confident of achieving double-digit growth in orders from top shoe brands, said analyst Maggie Choi. Yue Yuen is also planning to develop its upstream business in Vietnam to provide a one-stop solution for footwear brands. Ms Choi said she had a price target HK$35.50 for the stock, based on 10.5 times expected earnings for this year.
Esprit Holdings Daiwa Institute of Research said it was expecting 25.8 per cent growth in Esprit's interim earnings when the clothing retailer reports today. The projected bottom line of $484.6 million would be helped by the appreciating euro, particularly as Esprit's European stores remained a key growth driver, said analyst Natalie Chow. For the full year, earnings growth should be 24.6 per cent. She cautioned that growth could slow in Germany due to the poor economy and Esprit's already strong presence of 1,100 stores. A key point to note from the results was whether the Benelux countries could add new growth impetus. Esprit's 'quality' management has sustained growth for nine years but there are concerns on a growth slowdown in Europe and how long its investment in the United States market will take to pay off. Trading on 17.8 times this year's expected earnings, there is only limited upside. Ms Chow has a price target of $16.40 and a '2' recommendation, meaning the stock is expected to outperform the Hang Seng Index by 5 to 15 per cent over the next six months.
Hongkong Land Holdings Merrill Lynch noted a report that the Securities and Futures Commission is considering moving out of Hongkong Land's Edinburgh Tower in The Landmark into the property investor's new Chater House nearby. Hongkong Land had the option to build an extra 18 floors on top of the Landmark and could combine this with Edinburgh Tower and convert the space into a hotel, analyst Clifford Lam said. Hongkong Land might be clearing out Edinburgh with this plan in mind but might lose some tenants, he said. A loss of 50 per cent of tenants at Edinburgh would equate to about US$10 million per year. Including interest expenses, this would be about 10 per cent of cash flow and dividend payments. With the new project costing about US$160 million and the loss of rental income, Hongkong Land might not be able to continue its policy of paying more than 100 per cent of its cash flow as dividends, he said. Mr Lam kept a 'neutral rating' on the stock.