According to Zhitong Finance APP, CICC released a research report stating that, considering the impact of US tariff policies in the first half of the year, it has lowered BEST PACIFIC's (02111) 2025 earnings forecast by 3.6% to HK$617 million, while introducing a 2026 earnings forecast of HK$661 million. The current stock price corresponds to 5.9x/5.5x P/E for 2025/26 respectively, leading to an upgrade to outperform rating. Since 2025 impacts are mostly one-off effects from tariffs, the valuation switches to 2026. Considering the upward shift in valuation center for Hong Kong textile manufacturing sector, the firm raised its target price by 65% to HK$4.45, corresponding to 7.5x/7.0x P/E for 2025/26, representing 27.5% upside potential from current stock price.
CICC's main viewpoints are as follows:
Investment Recommendation The company announced 1H25 results: revenue of HK$2.33 billion, down 2.3% year-over-year; net profit attributable to shareholders of HK$260 million, down 6.1% year-over-year. 1H25 performance was below the firm's expectations, mainly due to cautious customer ordering caused by uncertainty in US tariff policies in 2Q25. The company declared an interim dividend of 12.5 HK cents per share, corresponding to a payout ratio of approximately 50.0%.
The company has deep expertise in underwear fabrics and sportswear sectors. The firm believes the company is positioned to benefit from new product orders from sports clients, while the new Vietnam factory supports long-term capacity growth. Benefiting from downstream customer order recovery, the firm upgraded the company's rating to outperform.
Elastic Band Revenue Grows Against the Trend, Sportswear Fabric Clients Remain Cautious By product segment, 1H25 fabric/elastic band/lace revenues were down 4.4%/up 6.9%/down 20.6% year-over-year to HK$1.807 billion/HK$501 million/HK$22 million respectively, accounting for 77.6%/21.5%/0.9% of revenue respectively. Elastic band revenue growth was mainly due to the company's continued investment in colored yarn elastic band products this year, securing orders from multiple important clients. Within fabrics, sportswear & garment/underwear fabric revenues were down 5.5%/1.9% year-over-year to HK$1.231 billion/HK$577 million respectively. The decline in sportswear & garment fabric revenue was mainly affected by cautious ordering from some US apparel brand clients in 2Q25.
Lower Capacity Utilization Drags Down Gross Margin, Good Expense Control 1H25 gross margin decreased by 0.4ppt year-over-year to 26.6%, mainly due to lower capacity utilization in 2Q25, with fabric/elastic band/lace gross margins changing by +0.2ppt/-2.0ppt/-10.7ppt year-over-year respectively. On the expense side, 1H25 selling/administrative/financial expense ratios changed by +0.3ppt/-0.1ppt/flat year-over-year to 4.5%/6.8%/1.8% respectively, remaining basically stable. Overall, 1H25 net profit margin attributable to shareholders decreased by 0.4ppt year-over-year to 11.2%.
Inventory Operating Efficiency Under Short-term Pressure, Debt Continues to Optimize Affected by the impact of US tariff policies on orders in 2Q25, inventory turnover days at end-1H25 increased from 112 days at end-2024 to 131 days; accounts receivable turnover days remained basically stable at 60 days. 1H25 net cash flow from operating activities increased by 14.2% year-over-year to HK$348 million, mainly due to overall optimization in working capital management. Additionally, 1H25 net debt decreased by 37.1% from end-2024 to HK$300 million, with net debt-to-equity ratio falling from 13.5% to 8.2%.
Potential Catalysts: Approximately 50% of the company's revenue comes from the US. The firm expects that as US tariff policies become clearer, customer ordering is expected to gradually recover in the second half, thereby driving recovery in capacity utilization and profitability.
Risk Warnings: Downstream demand recovery falling short of expectations, exchange rate fluctuations, raw material price increase risks.