JPMorgan published a research report raising BEST PACIFIC's (02111) target price from HK$3.4 to HK$3.8, representing an 11.8% increase, while maintaining its "Overweight" investment rating. JPMorgan revised down BEST PACIFIC's earnings forecasts for 2025-2027 by 1-3% and extended the valuation period to December 26. The new target price of HK$3.8 is based on a discounted cash flow methodology, equivalent to 5x one-year forward price-to-earnings ratio.

JPMorgan expects BEST PACIFIC's visibility to improve in the second half of 2025, with sales and earnings projected to grow 3% and 11% respectively, outperforming the first half's declines of 2% and 6%, as tariff impacts show signs of easing. This improvement will be driven by several factors: 1) Order improvements as tariff issues are resolved, particularly for sportswear where orders have already shown recovery in July-August; 2) Gross margin improvements due to higher utilization rates (fabric/webbing utilization rates were 75% in H1 2025 compared to 80-85% in 2024), with second half margins expected to expand 60 basis points year-over-year versus a 40 basis points contraction in the first half; 3) Limited impact from tariff cost-sharing on profit margins in the first half as most brands did not require price adjustments.

Therefore, the firm expects Vietnam capacity expansion to resume (previously suspended due to tariff uncertainties), with capital expenditure projected at HK$500-1000 million over the next two years. This should drive an increase in overseas capacity contribution, which currently stands at approximately 40%.