by Kim Eng Research (21 July)
Retail sales in China jumped by 23% y-o-y in June, reflecting the still buoyant domestic consumption. The group's strong net cash position of 2.6b renminbi (SGD500m) or 19cents per share will facilitate its expansion plans.
Its placement of 400m new shares in nov 2007 raised approximately 2.3b renminbi, and will be mainly used for the expansion of its sales and distribution network and for advertising and promotional activities.
Gross margin in FY2008 is likely to stay flat at around 41% due to the product discount programme that will last until 1Q2009. The group is confident of reverting to a 2%-point annunal increase in gross margin by FY2009.
China Hongxing's share price has corrected 50% year-to-date, and is trading at a discount to its peer average of 15x FY2008 PER.
-Research Report by Kim Eng Research (21 July)
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