The recent stake in Taisan taken by Barron Partners may have aroused interest in some other US funds, said CFO Patrick Kan. File photo by Sim Kih

CHINA TAISAN’S largest competitor, Hontex, which listed in Hong Kong on Christmas eve, last closed at HK$2.03 per share, or a trailing 12-month historic PE of about 12 times.

Even taking into account Hontex’s profit guarantee of HK$400 million for FY09, its FY09 PE works out to 9.8 times, still much higher than the 2.2 times average commanded by SGX-listed fabric makers.

Unlike the SGX-listed fabric makers, however, Hontex is relatively large, and is China’s largest functional fabric maker.

Hontex has a market cap of about S$738 million and also operates its own sports and leisure fashion apparel chain, MXN.

”We are looking out for M&A opportunities to integrate vertically downstream,” said China Taisan’s CFO, Mr Patrick Kan, during a phone interview with NextInsight yesterday.

At a market cap of S$162.4 million, China Taisan is the largest fabric maker listed on the SGX but Hontex’s integrated model helped it generate gross profit margins of 34% during 1H09, higher than Taisan’s 31.9% during its peak in FY08.

And China Taisan appears to be emulating Hontex’s integrated business model.

To raise funds for expansion, the functional fabric maker wants to make use of depositary receipts (ADRs) in the US as a platform to meet foreign investors.

fabric maker
Market Cap
Close price
Rolling 12-mth PE
CHINA TAISAN162.417.52.8
Source: Bloomberg, NextInsight, 28 Dec 2009

Encouraging investor interest was garnered during a 2-day roadshow with more than 10 institutional investors in Hong Kong this month, said Mr Kan.

At rolling 12-month PE of 2.8 times, investors found China Taisan exceptionally undervalued compared with Hontex, given both of them are leading producers of knitted performance fabrics.

Both supply to local and internationally renowned brands in sports and leisure apparel such as Nike, Adidas, Umbro, Li-Ning, Anta, Metersbonwe and Xtep.
What’s more, the local bourse has been getting all excited over recent overseas listings, with stocks like China XLX and Oceanus holding at levels up well above book building price on the second exchange.

At 17.5 cents per share however, China Taisan is languishing at some 22% below its stock price on the local bourse in Oct when its plans to issue ADRs were announced.

Local investors shunned China Taisan after its 2Q09 earnings were hit when sports apparel makers wound down on excess inventory stocked up from last year’s Olympic games.
Thankfully for shareholders who stuck on, earnings rebounded in 3Q09. 

On 12 Nov, it announced it had secured Rmb 94.5 million worth of orders, in addition to its announcement on 15 Oct of an order book of Rmb 205 million.


The new orders resulted in a rise in capacity utilization to about 85% to 90% since the beginning of 4Q09, from a low of about 50% in 2Q09 and 3Q09.
At a PE of 2.8 times, are local investors missing something? 

Related story: CHINA TAISAN: Insights from 3Q09 investor briefing

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