Yue Yuen Industrial (Holdings) Ltd (裕元工業), a Hong Kong-listed footwear maker, yesterday said its board had agreed to adjust employee benefits for Chinese workers in Dongguan City, Guangdong Province, as a strike continues.
The company, which counts major brands such as Nike, Adidas, Reebok, New Balance, Timberland and Rockport among its clients, said the adjustment is being made in accordance with relevant local government policies that will take effect from May 1.
The move came as work stoppage at the company’s Gaobu factory in Dongguan continued for a fourth day, with workers demanding better social insurance benefits and housing subsidies.
More than 30,000 workers were on strike yesterday, making it one of the largest-ever at a private business in China, the Associated Press reported, citing US-based China Labor Watch.
The Gaobu factory employs between 40,000 and 50,000 workers.
“The company will continue to review its employee benefits policy,” Yue Yuen said in a filing with the Hong Kong Stock Exchange. “Adjustment to the employee benefit payments may have a material adverse effect on the financial performance of the group.”
The company did not provide more details.
Yue Yuen is the world’s largest branded footwear manufacturer, with approximately a 17 percent market share of all branded athletic and casual footwear.
The company was founded in 1988 and 49.98-percent owned by Taiwan’s Pou Chen Corp (寶成). It has factories in China, Vietnam, Indonesia, Mexico and the US, according to the company’s Web site.
Revenue last year was US$7.58 billion, down 8.97 from US$9.19 billion in 2012, while net profit was US$440 million, 29 percent lower compared with the previous year. Gross profit margin fell to 21.7 percent from 22.8 percent during the period, company data showed.
The last time such a large-scale strike happened in Yue Yuen’s factories in China was in November 2011, according to a note to clients yesterday by UBS AG analysts Spencer Leung (梁裕昌), Chen Siguo (陳思果) and Erica Poon Werkun.
The analysts said their recent conversations with company management suggest that Yue Yuen plans to close down higher-cost production lines in Guangdong, but hopes to maintain its overall production capacity by ramping up production in Indonesia and Vietnam.
“However, the process of such production relocation could be less smooth than what management expected, as the workers in Guangdong are becoming more conscious and are demanding more employees’ rights, which is a different case compared with a few years ago,” they said.
Yue Yuen is following a trend among foreign manufacturers in China that are relocating their production lines from coastal regions to inland areas or even to other lower-cost countries in the face of increasing wages.
UBS expects Yue Yuen’s short-term profitability to be relatively stable thanks to its cost-control measures, but the firm could still face margin pressure in the long term because of a structural decline in average selling prices (ASPs) amid production location shifts.
The ASP for its China products is US$20 a pair, while those from Indonesia and Vietnam sell for US$13 to US$15 a pair, UBS said.
UBS retained its “sell” rating on Yue Yuen shares, with a target price of HK$22.00. The stock closed 0.97 percent higher at HK$26.10 yesterday.
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