Yarn manufacturer Texhong Textile is ‘back in fashion,’ upgraded to Buy by Maybank KimEng

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Maybank KimEng upgraded Hong Kong-listed Texhong Textile to Buy from Hold, saying shares were at “an inflection point.” 

“Texhong’s profit decline in 2017 was well expected and now fully factored in, and we recommend investors look ahead to a better outlook for 2018,” the brokerage said in a note on Monday. “We raised our target price based on a better margin outlook and a higher target multiple.”

It raised its target to HK$12.00 from HK$9.50.

The brokerage pointed to Texhong’s “strategic move into the downstream garment business, which will not only diversify its product offerings but also reduce the margin volatility due to raw material price changes.” 

Additionally, Maybank KimEng raised its 2018-19 earnings per share by 7-8 percent, on the back of a higher margin assumption from its jean-wear business acquired last year and on higher government subsidies.

The brokerage recommended that investors eye cotton prices as a swing factor to potentially increase margins and average selling prices.

The stock was down 0.37 percent at HK$10.74 at 2:38 P.M. SGT on Wednesday