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• | AUO (2409 TT, HOLD): AUG 27, 2010 |  |
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• | Yungtay (1507 TT, BUY): AUG 27, 2010 | |
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• | Hon Hai (2317 TT, BUY): Initial: AUG 26, 2010 | |
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• | Harvatek (6168 TT, BUY): Initial: JUL 12, 2010 | |
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• | Richtek (6286 TT, BUY): Long Report: JUL 8, 2010 | |
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• | I-Chiun (2486 TT, BUY): Initial: JUN 29, 2010 | |
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• | Longwell (6290 TT, BUY): Long Report: JUN 21, 2010 | |
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• | Chicony (2385 TT, BUY): Initial: JUN 7, 2010 | |
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• | Winbond (2344 TT, BUY): Initial: May 27, 2010 | |
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• | Yeun Chyang (2034 TT, BUY): Initiate: MAY 12, 2010 | |
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| Title: | Tainan Ent. (1473 TT, BUY): Long Report: APR 23, 2010 |
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| Download File: | 1473 TT Tainan Enterprises 100423--sinopac.pdf  |
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| Summary: | Tainan Enterprises (1473 TT, NT$36.8): BUY
Strong brands in Chinaˇ¦s garment market sweet spot
Company profile: Tainan Enterprises (TAINAN) derives its sales from its OEM garment manufacturing business (70%) and its expanding OMB business in China (30%) under its Tony Wear (menswear) and Emely (womenswear) brands targeting the mid- to high-end retail garment market. Anticipating long-term RMB appreciation and rising labor costs in China, TAINAN has shifted most of its China production to Cambodia to reduce exchange rate risk for its exports.
1) Tapping into Chinaˇ¦s garment market sweet spot: Based on our assumption that personal income in China will increase 10% YoY in 2010, we forecast 15~18% annual growth in retail sales over the next three years, with especially strong demand expected in the market for mid- to high-end garments, where we forecast 23% YoY growth in 2010 (vs. 19% growth in 2009). In the short term, demand should surge during the four-day May Day holiday week, which also marks the start of the 2010 Shanghai World Expo (May 1-OCT 31). We thus forecast both sales and profit of TAINANˇ¦s OBM business to grow 30% YoY in 2010 to NT$2.94bn and NT$207mn, respectively, for EPS of NT$1.41 (vs. NT$0.4 in 2009). TAINAN plans to IPO its China OBM business in 2011.
2) BUY with a TP of NT$50.0 (20X China EPS + 9X OEM EPS): The firm is trading at 9.41X 2010F EPS, which is attractive relative to its historical trading band of 10X-14X and the 25X-35X range of its peers in the Chinese apparel industry. Given the firmˇ¦s positive earning outlook and the likely re-rating for the industry overall once an ECFA is signed, we think the NAV of TAINAN China could reach NT$35~NT$49. We set our TP at NT$50 using SOTP methodology (a 20X PER applied to its 2010F EPS of NT$1.4 from TAINAN China plus a 9X PER applied to its 2010F EPS of NT$2.5 from its OEM business. This is equivalent to 12.8X our overall 2010F EPS of NT$3.9. For comparison, we can look at Ruentex Industry (2915 TT, trading at 64X) and Les Enphants (2911 TT, trading at 19X), similar Taiwanese capital firms whose main market is China.
Analyst: Rae Sing
rae.sing@sinopac.com
FINI Contact: Yafen Hsu
(886 2) 8161-8064
yafen.hsu@sinopac
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| Date: | 2010/04/26 |
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| Author: | TaiwanResearch.com |
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Market Commentary