Dafu said that Jiahua Department Store Holdings (0602.HK) had a solid financial position as of the end of 2009, with net cash of 271 million yuan, which means the company will fund its development through internal resources.

The bank believes Jiahua's move to expand sales and tighten cost controls will ensure sustainable long-term profit growth, especially as spending power recovers in southern China. Tai Fook expects its profits to improve significantly in fiscal 2010, and the profit contribution from new stores is expected to increase significantly this fiscal year.

Tai Fook maintains its holding rating, with a target price of HK $0.37, or 16.4 times forecast earnings for fiscal 2010, in line with the valuation of 0984.HK.

The shares closed yesterday at HK $0.38.