Mon, Sep 02, 2019 - Page 16 News List

Makalot might face capacity constraints after Vietnam fire

By Chen Cheng-hui  /  Staff reporter

Makalot Industrial Co Ltd (聚陽實業) is likely to face near-term headwinds due to capacity constraints in its Vietnam operations after a fire affected two of the apparel maker’s plants there in July, Nomura International (Hong Kong) Ltd Taipei Branch said in a note on Thursday last week.

In addition, the US-China trade dispute has created macro uncertainty and caused major clients to become conservative about their inventory levels, which would also affect Makalot’s revenue performance this quarter, Nomura said.

The brokerage said it now projects that Makalot’s revenue would increase 6 percent year-on-year in the third quarter, compared with 27 percent it reported in the first half and the company’s guidance of high-single-digit percentage growth.

Gross margin this quarter is expected to be flat from a year earlier due to higher manufacturing costs as a result of higher expenses for overtime and transportation after the fire, despite the company’s efforts to improve product mix, Nomura said.

“We believe the fire will affect Makalot’s total capacity by 3-4 percent for the rest of 2019. However, our positive long-term view on Makalot remains largely unchanged on industry consolidation and capacity relocation,” Nomura analyst Lee Shao-tang (李紹唐) said in the note.

Makalot’s consolidated revenue for the first seven months totaled NT$15.02 billion (US$478.2 million), up 19.53 percent from the same period last year, while pretax profit rose 41.59 percent to NT$1.35 billion in the same period, or earnings per share of NT$6.15, the company said on Aug. 14.

Nomura said the company’s order demand is solid through the end of this year, but it has limited visibility for next year, as customers are tending to be cautious given macro-economic conditions.

SinoPac Securities Investment Service Corp (永豐投顧) said that Makalot’s capacity shuffling and outsourcing have begun to bear fruit, supplementing 70 percent of the capacity lost to the fire.

The two plants are to be renovated and automated, with plans to resume mass production in the first half of next year, SinoPac said in a separate note on Wednesday last week.

Moreover, the company’s orders from its top five clients will increase due to supply chain consolidation and apparel brands’ increased sourcing from outside China, it said.

SinoPac maintained a “buy” rating for Makalot, with a target share price of NT$244.

Nomura retained its “buy” recommendation, but lowered its target share price to NT$230.

Makalot shares closed 0.54 percent higher at NT$185 on Friday in Taipei trading.

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