In the first half of the fiscal year ending September 2024, the total revenue of Nanxuan Holdings (01982.HK) achieved a 2.2% year-on-year increase, and gross margin increased to 19.9%, driving the Group to achieve a net profit level of HK$310 million. In addition, the Group also announced an interim dividend of HK$0.098 per share.

Sales of knitted products declined slightly: Sales volume of knitted products was slightly lower than the same period last year, offsetting the positive impact of rising average sales prices, leading to a 5.0% year-on-year decline in the sales business of knitted products.

The increase in average sales price is mainly due to changes in product combinations, and the increase in sales volume of cashmere products has had a positive impact on average sales prices. However, due to the rapid decline in orders and the prolonged period of high temperatures in Japan this year, sales of traditional knitted products and fully molded products have suffered as a result. The Group's latest guidelines are also conservative. It anticipates that sales will record a slight decline in the 2024/25 fiscal year, and that urgent orders will return to normal levels. However, due to the impact of one-time air temperature, orders from major customers have declined, and the Group has separately acquired a new customer in Europe and Canada. The latter is expected to inject good growth momentum into the group like American customers.

The cashmere yarn business improved: The cashmere yarn business increased 26.8% year over year to HK$420 million. Both internal demand and export demand grew, and annual production in the first half of the fiscal year also increased to 550 tons. The Group's cashmere yarn production capacity is close to full production, and the Group will meet sales needs through external supply.

Uncertainty in the fabric business: In the same period, the fabric business continued to grow year-on-year. We continue to focus on the absorption of the Group's new fabric production capacity next year. Fortunately, the capital to further increase production capacity is limited. The equipment supplier also provides a fixed payment period to reduce the financial pressure on the Group, and the Group currently has no intention of reducing the dividend ratio as a result.

Operational efficiency being optimized: We see the possibility of a further increase in the Group's profit rate, mainly due to i) the continuous increase in the operating efficiency of existing factories in Vietnam, ii) rental income from the Chinese factory, and (iii) the continuous improvement of the fabric business. However, new factories for Vietnamese knitting products and fabrics may also bring short-term pressure to the group. Such newly built factories will take a certain amount of time to improve production efficiency.

Risk Factors

Negotiations with customers about orders for the new year are not progressed well

Weak demand for fabrics has led to low capacity utilization and increased business losses? Increased US tariffs? Demand fails to absorb increased production capacity