Dafu said 0602.HK had net cash of 245 million yuan at the end of the first half of 2009 and is expected to raise funds for its development plans through internal resources. The bank believes that measures such as expanding sales and strengthening cost controls at Jiahua will ensure long-term profit growth, especially as purchasing power increases in the south of mainland China. The bank expects Jiahua Department Store's profits to increase significantly in fiscal 2010 and the contribution of new stores to increase significantly.

The bank maintains its holding rating on Jiahua, giving it a target price of HK $0.42, or 12 times fiscal 2010 earnings, which is still undervalued. But the bank is more bullish on its big peer, 0984.HK, with a price-to-earnings ratio on a par with Jiahua.

Jiahua fell 3.41 per cent to HK $0.425 yesterday.