Stock Upgraded: China Hongxing fair value raised to 1.7 sgd by CIMB-GK!

CIMB-GK Research has upgraded its assumed fair value for China Hongxing Sports Ltd to 1.70 sgd from 1.65, saying it expects the shoemaker's full-year earnings to be on track with its estimates despite slower first-quarter performance. On Monday, China Hongxing reported that net profit for the March quarter rose to 30.08 mln yuan from 26.92 mln a year ago. "The less-than-inspiring 12 pct year-on-year growth in first quarter net profit was blamed mainly on a jump in tax rate to 21 pct from 12 pct a year ago, as tax concession enjoyed by a subsidiary expired at end-2005. Also, there was a small contraction in gross profit margin to 32 pct due to increased outsourcing of shoe manufacturing in the face of Hongxing's capacity constrain," CIMB-GK told clients in a note. But with the company doubling its shoe-making capacity by the third quarter, and tripling capacity by the second quarter of 2007, margins should gradually improve as outsourcing is reduced, it said. The tax rate should also ease going forward as another subsidiary of the company has been granted a tax holiday, it added. CIMB-GK said it expects China Hongxing's full-year net profit to rise to 181.80 mln yuan from 127.50 mln last year, and further to 308 mln yuan next year and to 423 mln in 2008. At 11.01 am, China Hongxing was up 0.07 sgd or 4.27 pct at 1.71 with 1.28 mln shares changing hands.