Macro likely bottoming out; new clients’ revenue to drive sales growth
​Upgrade from Hold to BUY: Makalot’s share price has fallen by 17% since we highlighted its lukewarm 2017F outlook in our Oct 17 note. However, we deem market expectations are already low, and observe US macro conditions are likely bottoming out, which indicates that end-demand may rebound. Some US channel stores saw stronger Oct sales vs. Aug/Sept, and many of their inventory changes YoY seem healthier vs. revenue changes. Makalot (after mid Nov) raised its 2017 revenue growth expectations from 5% YoY (guided in early Nov) to over 5% YoY, which we view as a positive sign that macroeconomic conditions are warming. In addition, its new clients’ revenue contribution will increase meaningfully in 2017 to drive sales growth. Hence, we raise our 2017/18F EPS forecasts by 10%/16%, and lift our TP to NT$135, based on 16x (from 15x) 2017F P/E and our DCF valuation method. With a payout policy of 80-90%, its current share price implies a dividend yield of 5.5%.
Makalot Industrial and its subsidiaries are principally engaged in the manufacture, processing, distribution and export of garment, apparel goods, ready-to-wear clothing, knits and woven fashion, tops, dress, jackets and other garment accessories.
Yuanta is a Taiwan-headquartered brokerage with a growing presence in Asia, especially across Greater China. Our team of 140+ provides cutting-edge analysis on key sectors, spread across offices in Taiwan, Hong Kong, Shanghai (A-Share), Seoul and Jakarta. With an ever-expanding coverage universe of 400+ companies, we provide in depth analysis with unique local color to investors. Consistently being voted the Best Investment Consulting Firm in Taiwan in the AsiaMoney broker poll is evidence of our strength. We target providing an extensive range of research, from small, to mid-sized, to large cap. We bring you the big, well-covered names, as well as going off the beaten track to research the less-familiar companies.
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