Net profit is expected to grow by 15 per cent in the middle of fiscal year 2013. Time Group's interim results for fiscal year 2013 will be announced in February, and we expect turnover and net profit to grow by 15.9% to HK $1.878 billion and 14.9% to HK $205 million for the six months ended December 31, 2012, respectively. Manufacturing business is the main source of income. We estimate that revenue from the manufacturing business will grow by 15.2% to HK $1.862 billion during the period, while revenue from the retail business is expected to rise significantly by 337.9% to HK $16.6 million over the same period.
Business partners have performed satisfactorily. As a handbag contract manufacturer (OEM), time Group benefits from customer support. Time Group's biggest customer, Coach, reported its latest quarterly sales growth of 10.6 per cent. Meanwhile, the latest quarterly sales of other major customers, including Michael Korr, Tumi and Fossil, increased by 74.4%, 22.3% and 6.4%. We believe that better sales from the main customers of the time Group will bring more orders to the company.
The retail business contributes less. Although the business opportunity of the retail business is huge, its contribution to the time Group is negligible. We expect retail sales to account for 1.6% of total turnover in fiscal 2013, up from 0.4% a year ago. Due to the small base and initial stage of the retail business, we do not expect the retail business to make any profit contribution in the next few years.
A sound balance sheet can pay dividends generously. Time Group held HK $807 million in cash and zero debt in June 2012. At the same time, the company has recorded positive operating cash flow in the past four years. We believe the company will maintain a high dividend payout rate in the future.
It increased by 82% in 2012. The company's expansion plan is at the expected pace, with an expected production capacity of 20 million products in the 2013 calendar year, and the current equipment utilization rate is about 80%. Capital expenditure for fiscal year 2013 is expected to be HK $125 million and will hold HK $807 million in cash in June 2012. Time Group's future production expansion can be met by internal resources. We maintain our profit forecasts for the past fiscal year 2013-15 of HK $444 million, HK $518 million and HK $587 million, respectively, equivalent to a compound annual growth rate of 15.5 per cent of net profit over the next three years. The company's share price rose 82% in 2012. The previous valuation is 11.1 times the price-to-earnings ratio for the 2013 fiscal year, which is close to that of its peers. We raised our target price from HK $4.43 to HK $5.74, which is equivalent to 12 times the price-to-earnings ratio of 2013 calendar years. The potential for appreciation is 17.1%. Maintain the buy rating.