Shoelace, elastic band and fastener supplier Taiwan Paiho Ltd (台灣百和) last week reported better-than-expected profit for the first quarter, mainly due to an improved operating margin in its core business and contributions from subsidiary Paiho Shih Holdings Corp’s (百和興業) construction business in China.
Net income grew 31 percent year-on-year to NT$532.81 million (US$17.7 million) in the first quarter, or earnings per share of NT$1.79, with gross margin for its core business and China construction projects improving to 38.1 percent and 41.6 percent respectively, compared with 36.2 percent and 27.4 percent each a year earlier, the company said in a regulatory filing on Monday last week.
First-quarter consolidated revenue rose 5.63 percent year-on-year to NT$4.59 billion, consisting of NT$3.44 billion from its core business and NT$1.15 billion from construction projects in China, company data showed.
Sales of touch fasteners declined 5.9 percent year-on-year, elastic tapes fell 0.8 percent, molded hook and loop products dropped 3 percent, and powder coatings plunged 32.2 percent, the data showed.
Webbing and shoelace sales grew 8 percent, warp-knitted jacquard fabrics surged 126.1 percent and construction projects rose 2.8 percent, the data showed.
Improvement in gross margin for Paiho’s core business was driven by a favorable product mix as the firm continued to develop new higher-margin webbing and shoe tape — especially in the woven jacquard tapes segment, for which gross margin increased to 31.6 percent in the first quarter from 19 percent in the previous quarter — amid a product complexity trend in the industry, analysts said.
Gross margin from the company’s construction projects in China increased by 25 percent from a year earlier due to rising prices, they said.
However, Paiho’s revenue in the near term could decline from a year earlier, as its brand clients have deferred orders due to lockdowns in the US and Europe, and the postponement of the Olympic Games in Tokyo to next year, analysts said.
“Due to weak order visibility and [market] volatility, we see some likely downside given COVID-19, as its key clients include Adidas and Nike, and about 70 percent of its products are related to footwear and apparel,” Daiwa-Cathay Capital Markets Co (大和國泰證券) said in a note on Tuesday.
Paiho’s top five brand clients — Adidas AG, Nike Inc, Under Armour Inc, New Balance Athletics Inc and Puma AG — make up about 62 percent of its total sales.
The lockdowns in the US and Europe are likely to cause sales of its footwear and apparel to fall this year from last year, but the construction projects in China and the transferred orders could partially help it cushion the impact of COVID-19 this year, analysts said.
“The second-quarter core business products would be hit hard by COVID-19 and the impact would depend on whether the pandemic could be effectively controlled in the near future and how the end-market demand could recover,” Jih Sun Securities Investment Consulting Co (日盛投顧) said on Thursday.
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