From 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
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
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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