The world's largest sports shoe manufacturer Yue Yuen Industrial (Holdings) Ltd. (0551.HK) Yuyuan Industrial (Group) Co., Ltd. issued a profit warning after the market on Thursday. The net profit is expected to plunge by 20-25% in the first quarter.
Influenced by the profit warning on Thursday, Yuyuan Industrial plunged more than 5% in early trading on Friday.
According to a Taiwanese company announcement, a one-time gain of US $ 19.2 million was recorded in the same period last year, including a gain of US $ 9.4 million from the change in the fair value of derivatives and a gain of US $ 9.4 million from the sale of associates. The financing cost in the first quarter of this year increased by US $ 8.6 million year-on-year. The increase in financing costs was mainly due to the increased stimulus from the company ’s improved capital structure.
In addition to the non-recurring business mentioned above, in the first quarter of fiscal 2018, the Group's manufacturing business experienced an approximately 6.7% decrease in operating income due to adverse fluctuations in customer orders. The unfavorable product mix triggered operational back-leveraging, which affected the gross profit margin of the manufacturing business.
In addition, the proportion of the Group's retail business revenue contribution increased, leading to a year-on-year increase in sales and distribution cost rates.
According to data from China Fashion.com, Yuyuan Industrial recorded a net profit of US $ 124.5 million in the first quarter of fiscal year 2017.
Since the privatization plan of Pou Sheng International (Holdings) Ltd. (3813.HK), a holding subsidiary of the Group, was rejected at the extraordinary general meeting at the beginning of the month, the stock prices of Yuyuan Industrial and Baosheng International continued to fall. The two companies also continued to be downgraded by major banks and their target prices.
Citigroup and HSBC have recently joined the bearish view on Yuyuan. Citigroup has downgraded the ratings of Taiwanese companies from "Buy" to "Sell". The bank believes that the shortened delivery time of Yuyuan Industrial has caused increased order volatility. The weak US dollar and rising raw material costs have put pressure on the gross profit margin of Taiwanese companies, and Yuyuan Industrial failed to pass on the costs to its customers. Its manufacturing and retail gross margins have peaked in 2017 and 2016, so Yuyuan Industrial The target price has been significantly reduced from HK $ 34.2 to HK $ 24, and the profit forecast for the fiscal year 2018/2019 has been reduced by 14-16%.
The other two big banks, HSBC and Credit Suisse, have given Yuyuan Industrial target prices of HK $ 28 and HK $ 21.6, respectively, the latest prices for the past two weeks.
Source: Chinese network of non-fashion: Chen Yifei
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