Eclat Textile Co (儒鴻) last week reported a stronger-than-expected gross margin and operating margin for last quarter, with analysts predicting that the margins will continue their uptrend on rising product prices and larger economies of scale derived from the firm’s new plants in Vietnam.
In the April-to-June quarter, gross margin expanded by 2.25 percentage points year-on-year to 28.87 percent, while operating margin rose by 3.29 percentage points to 19.51 percent, Eclat said in a filing with the Taiwan Stock Exchange on Tuesday last week.
The improvement in gross margin was driven by “the effects of economies of scale from increasing sales volume and a favorable product mix, with greater vertical integration for the production of its high-margin fabrics to be used in its garments, as well as the New Taiwan dollar’s depreciation against the US dollar,” Yuanta Securities Investment Consulting Co (元大投顧) analyst Peggy Shih (施姵帆) said in a research note, adding that the firm’s second-quarter operating margin matched a record-high from 2015.
“We are positive on Eclat’s gross margin and operating margin reaching historical highs of 28.5 to 29 percent and 19.5 percent [respectively] in 2019, as its product pricing is strong,” Shih said.
The New Taipei City-based company supplies functional and flexible knitwear fabrics, as well as garment products for international sportswear and apparel brands.
A steady recovery in end-market demand and the gradual addition of new capacity have driven Eclat’s sales and boosted its operating profit by 40.04 percent annually to NT$1.35 billion (US$44 million) in the second quarter, the highest in six quarters.
Net profit grew 53.23 percent to NT$1.21 billion, with earnings per share (EPS) of NT$4.41.
In the first half of this year, net profit expanded 97.93 percent year-on-year to NT$2.1 billion, with EPS of NT$7.66, Eclat data showed.
Revenue last month rose 19.68 percent to NT$2.37 billion from a year earlier, resuming double-digit annual growth after dipping to 6.27 percent growth in June, the data showed.
From January through last month, aggregate revenue grew 21.5 percent annually to NT$15.88 billion, the data showed.
As the capacity utilization rate at Eclat’s two new garment plants in Vietnam has reached 60 percent and is likely to reach 90 percent in the fourth quarter, Shih said the company’s third-quarter sales could grow 3 percent quarterly, while fourth-quarter sales might increase 6 percent sequentially.
Jih Sun Securities Investment Consulting Co (日盛投顧) said it might revise upward its profit forecast for Eclat this year, considering the company’s strong bottom-line figures for last quarter and its positive sales outlook for US apparel brands.
“The company’s growth momentum is likely to extend into next year, as sales generated by new clients might increase significantly in the second half of this year,” Jih Sun analyst Channie Wang (王章妮) said in a note on Thursday last week.
“The new plants in Vietnam will make a marked contribution in the fourth quarter,” Wang said.
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