Shares of textile manufacturer Eclat Textile Co (儒鴻) outperformed the broader market last week, as investors welcomed the company’s latest efforts to improve its profit margins.
The company’s gross margin increased to 28.04 percent in the second quarter, improving on the first quarter’s 26.71 percent and 27.92 percent a year earlier, company data showed.
Daiwa Capital Markets Inc attributed the increase to its favorable product mix.
Eclat, which supplies fabric and sports apparel for global clothing brands, saw its shares rise 8.72 percent in the past week, while the benchmark TAIEX edged up 0.64 percent, Taiwan Stock Exchange data showed.
The company’s shares gained further support after MSCI Inc on Thursday last week raised Eclat’s weighting by 0.00324 percentage points, the biggest increase among local equities, although the global index provider trimmed the weighting of local shares in its latest quarterly review.
Eclat shares closed 3.1 percent higher at NT$399 on Friday.
The MSCI change is to take effect next month.
Daiwa expects the company’s gross margin to increase in the coming quarters and over the next two years due to several positive factors, including the launch of new products for sportswear clients, some rush orders from retail clients and the addition of new premium clients.
Eclat remains a solid partner of global sportswear brands such as Nike, Under Armour and Lululemon, the brokerage said.
“We predict Eclat likely see a quarter-on-quarter revenue uptrend for the rest of this year,“ Daiwa analyst Helen Chien (簡君穎) said in a research note last week.
Chien said that the company has shipped its new knitted jacquard fabrics to clients and plans to send another new fabric, slimming fabric, to clients in October.
“Research and development innovation capability in the fabric segment is the company's strength,” Chien said.
Eclat said it plans to add more jacquard production lines by the end of this quarter at its plants in Taiwan and Vietnam to increase capacity.
The company hopes the new computerized jacquard machines will further lift its gross margin and sales in the fourth quarter.
In the first half of this year, Eclat's sales were nearly flat from a year earlier at NT$11.42 billion (US$364 million), while net profit dropped 13.95 percent annually to NT$1.45 billion, or NT$5.46 earnings per share, company data showed.
Some analysts said Eclat's revenue and margin outlook in the second half are a concern, citing potential new product delays and garment price pressure from clients.
In a separate note, Yuanta Securities Investment Consulting Co (元大投顧) said the company's production volume for new fabric products would be small and might not significantly boost sales.
Eclat started to ship new jacquard products last month and shipments of its body-mapping fabrics used in functional wear is to begin late next month or early October.
The company’s earnings growth next year could be dragged down by a more saturated sportswear market in the US and the company's limited exposure in the fast-growing Chinese market, Yuanta analyst Livia Wu (吳靚芙) said.
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