Daphne Gets the Call in China Footwear Sector

Gene Linn |

Daphne Gets the Call in China Footwear SectorFrom the ground up is one sure way to reach China’s growing and increasingly fashion-conscious middle class. But footwear stocks met a rough patch in 2012, and picking a winner is not a sure thing.

Last year was marked by a “growth setback” due to an “operating margin squeeze,” according to a research report by BOCOM International, the brokerage arm of China’s Bank of Communications (BCMXY). A difference in expansion tactics and valuation cause BOCOM Int. to prefer Daphne (DPNEY) in the footwear sector.

Daphne focused 2012 spending on an operating system improvement and an increase in self-operated stores, the brokerage said. A main competitor, Belle (BELLY) took a different path. “For Belle, we see the operating cost further pressured by the higher and lengthened new store loss due to its continued aggressive store expansion (against the subdued sector landscape),” BOCOM Int. said.

The brokerage said footwear would still face slow growth in 2012, but rated Belle “neutral” and Daphne a “buy” due to Daphne’s “margin  recovery story and undemanding valuation.” End

DAILY FIX

Hong Kong Blue Chips: -42, -0.2%, to 22,042, 3-19-13, Hang Seng Index

Chinese Stocks in Hong Kong: -55, -0.5%, to 10,740, 3-19-13, HSCE Index

Shanghai Stocks: +17, +0.8%, to 2,257, 3-19-13, Shanghai Composite Index.

Chinese Stocks in the U.S.: -3.5, 369.4, 3-15-13, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong opened 55 points higher after recent big losses but could not maintain momentum, closing with a slight loss. China Resources Power (CRPJY) led the power sector higher after beating earnings expectations and soaring 8.1%.KGI Research

Quotable: "Even (though) we may see a rebound, the 20-day MA will be a short-term resistance. So, we believe that the trading range of HSI will be from 22,000 to 22,900 for the coming week." Core Pacific Yamaichi. 3-18-13

Brokerages and analysts cited here have disclaimers on their websites emphasizing their statements are for information only. They do not endorse my blog, and I don’t endorse them.

For a list of Chinese companies sold in the U.S. and information on each company go to http://www.adrbnymellon.com/dr_country_profile.jsp?country=CN

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
TOL Toll Brothers Inc. 29.32 0.18 0.62 3,045,963

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