Incidents:

The company issued an announcement on December 2 to announce the acquisition of land use rights in an industrial park in Nghe An Province of Vietnam. The reason for the acquisition is that the company plans to expand production scale in order to seize the potential growth opportunities of medium- to long-term sales orders. The total land area acquired this time is about 0.512 million square meters, and the installment payment amount is about HK$0.22 billion. Key information in the announcement also included:

Purchase price and payment terms: The fee is USD 28.663 million, which is equivalent to approximately HK$0.22 billion. The installment rule is to pay 10% for the first installment, then pay the remaining 30% in January 2025, January 2026, and January 2027 respectively.

The company expects to invest in the plant over the next 15-21 months, with an estimated investment of HK$0.5 billion. It plans to increase the annual production capacity of core products by 10-15%, and is scheduled to start production in March 2026.

Subsequent companies will develop in stages based on market conditions and sales in the next few years.

Review opinions:

The sportswear market continues to grow, and the company seizes opportunities to maintain steady growth. The international sportswear industry has maintained growth and development trends in recent years. As one of the core suppliers of elastic fabrics, the company's related businesses have also benefited from industry trends. In 2014-2023, the company's revenue CAGR was 9.5%, of which the sportswear business revenue CAGR was 31.6%; in the first half of 2024, the company's sports and apparel business revenue rose 35.8%, accounting for 54.6%, an increase of 4.3 percentage points over the previous year. We believe that the current international sports and casual wear market still has potential for large-scale expansion, and the trend of fabric upgrading continues to advance. In this context, the company's production expansion plan is in line with the direction of industry development, helping the company to further develop and enhance competitiveness in the overall industry and the elastic fabric segment.

Vietnam's factory efficiency and customer appeal are excellent, which is expected to improve the company's operating efficiency in the future. Vietnam currently has competitive labor costs and policies. Furthermore, it has certain tariff advantages in the international supply chain, which is attractive to most of the company's textile and garment export business customers. Meanwhile, the company's other production site in Vietnam has achieved double-digit profit margins in recent years and is superior to the company's other plants. We believe that by expanding production in Vietnam, the company can use local labor costs and supply chain advantages to improve operational efficiency and help long-term development.

According to the review, the company's expansion of production in Vietnam is expected to further increase future business revenue and profit margins, and it is recommended to keep an eye on it.