Xiaomo released a research report to maintain the "neutral" investment rating of Mutai Textile (01382), with the target price reduced from HK $8 to HK $6.90.

Xiaomo said that Mutual's income and net profit for the 2019 fiscal year ended at the end of March were 12% and 21% lower than expected, respectively, mainly due to warm winter temperatures and lower-than-expected orders from Uniqlo. As a result, the bank cut its net profit forecast for the 2020-2021 fiscal year by 12% to 13%, as sales are expected to remain weak during the continued warm winter.

In addition, management pointed out that the progress of land negotiations for the new plant in Vietnam has been delayed, which also explains the increase in the dividend payout ratio in fiscal year 2019, and the company is expected to face capacity constraints in fiscal year 2020-2022. There will be no significant sales contribution from any new plant.

Xiaomo also said that although it is cautious about Mutai Textile's conservative capacity expansion policy, it is positive about its cooperation with Toray and its 9% dividend yield, and believes that the company can expand its customer base by taking advantage of Toray's innovation capabilities.