Pou Chen Corp (寶成工業) on Thursday reported that net income in the third quarter of this year increased 21.82 percent from a year earlier, due mainly to non-operating gains.
Pou Chen, the world’s largest manufacturer of branded athletic and casual footwear, has a 18.13 percent stake in Nan Shan Life Insurance Co (南山人壽), the nation’s most profitable life insurer last year.
It has investments in areas ranging from shoe manufacturing and footwear retailing to electronics, banking and land development.
Net income totaled NT$4.39 billion (NT$143.8 million) in the July-to-September quarter, up from NT$3.6 billion a year earlier, thanks to non-operating income of NT$3.78 billion, the company said in a filing with the Taiwan Stock Exchange.
Earnings per share (EPS) rose to NT$1.49, from NT$1.23 a year earlier.
Revenue increased 4.61 percent year-on-year to NT$76.62 billion, while operating income decreased 6.39 percent to NT$3.15 billion, with operating margin falling from 4.59 percent to 4.11 percent.
Gross margin also declined from 25.51 percent to 24.85 percent in the period, Pou Chen said.
“The 3Q EPS of NT$1.49 is 12 percent above our estimates thanks to investment income from Nan Shan; however, operating profit is 13 percent below our forecast due to tepid improvement in the manufacturing business and sale of the wholesale apparel business,” JPMorgan Securities (Taiwan) Ltd analysts Bill Lin and Cindy Huang wrote in a note on Friday.
Commenting on the company’s business outlook, the analysts said they do not see a clear market share gain for Pou Chen in terms of brand clients’ supplier consolidation, while rising order volatility is likely to worsen the firm’s operating leverage.
In the first three quarters, Pou Chen reported that net income totaled NT$11.34 billion, up from NT$8.47 billion a year earlier, with EPS of NT$3.85.
That included non-operating income of NT$6.72 billion derived from Nan Shan Life’s equity and bond investments, Pou Chen said in a statement.
Overall sales increased 9.07 percent to NT$234.13 billion, but gross margin fell by 0.13 percentage points to 25.35 percent in the nine-month period.
The company’s shoe manufacturing comprised about 58.8 percent of its revenue, sliding from 60.2 percent in the same period last year, while retail business accounted for 40.9 percent, up from 39.5 percent a year earlier, Pou Chen said.
The company attributed the decline in gross margin to more complicated designs in shoe manufacturing, production capacity adjustments in concert with brand clients’ procurement strategy, and investment in automated manufacturing and enterprise resource planning systems.
Pou Chen reiterated its goals of enhancing manufacturing automation and supply-chain system integration as well as deeper collaboration with brand clients, while expanding sales channels and further enriching its product portfolio, the statement said.
“We expect the company’s multiclient strategy, rising investment in automation and capacities relocation out of China to hamper margin expansion,” the analysts said, adding that the retailing business would remain the bright spot on the back of solid sportswear demand in China and further store expansions.
Pou Chen shares fell 1.91 percent to close at NT$41.05 on Friday in Taipei trading. They have risen 25.92 percent this year.
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