Makalot Industrial Co Ltd (聚陽) is likely to see revenue expand further next year as the manufacturer of ready-to-wear apparel and functional clothing sees clear growth momentum in orders from its five major clients, SinoPac Securities Investment Service Corp (永豐投顧) said in a research note on Friday.
Makalot’s plans to increase capacity by 10 percent to ease tight supply, coupled with rising demand for high-priced functional sports apparel, might further improve its gross margin next year, SinoPac Securities said.
Citing these prospects, Sino Pac maintained its “buy” recommendation on Makalot’s shares, but raised the 12-month target price on the stock by 37 percent from NT$157 to NT$215.
“Makalot’s order visibility is clear through March,” analyst Shawna Chen (陳淑芳) said in the note. “The company’s revenue in 2019 is likely to benefit from the order growth of between 5 and 10 percent at its five major clients, especially GAP Inc and Fast Retailing Co’s GU sub-brand, as well as a twofold increase in orders from new clients.”
The new clients include Swedish fashion retailer Hennes & Mauritz AB (H&M), Canadian lifestyle brand Roots and American footwear maker Skechers USA Inc, Chen said.
Shares of Makalot fell 2.2 percent to NT$178 in Taipei trading on Friday. They have surged 42.4 percent so far this year, outperforming the broader market, which declined 9.17 percent over the same period.
The US is Makalot’s main export market, with clients including GAP, Fast Retailing, Kohl’s Corp, Target Corp and Walmart Inc.
The company’s pretax profit jumped 16.4 percent to NT$1.67 billion (US$54.04 million) in the January-to-October period from NT$1.43 billion a year earlier, the company said in a filing with the Taiwan Stock Exchange on Nov. 13.
Earnings per share hit NT$7.98 in the period.
Consolidated revenue in the first 10 months increased 4.9 percent annually to NT$20.07 billion from NT$19.13 billion, after sales last month grew by a better-than-expected 12.7 percent annually to NT$2.25 billion.
“The fourth quarter is traditionally a low season for the company as its shipments shift from autumn/winter apparel to spring/summer apparel, but thanks to high end-market demand, Makalot’s plants are at full capacity and the company’s performance might not follow the seasonal pattern,” Chen said.
As most of its plants are in Vietnam, Indonesia or Cambodia and only 6 percent of its total output comes from operations in China, Makalot is expected to face limited effects from the US-China trade dispute, SinoPac said.
SinoPac forecast Makalot’s revenue would grow 6.5 percent annually to NT$23.84 billion this year, while net income would increase 17.2 percent to NT$1.51 billion, making for earnings per share of NT$7.2.
Revenue next year could increase 8.3 percent year-on-year to NT$25.81 billion and net income might grow 19.3 percent to NT$1.8 billion, with earnings per share of NT$8.59, thanks to higher capacity utilization and continued margin improvement, SinoPac said.
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