Result Analysis: FY22 earnings results below expectations due to margin erosion
- FY22A earnings miss due to distortion of one-off gain in disposal and worse-than-expected GP margin
- Expect margin pressures to ease moving forward as the raw material price hikes slow down
- Revised down FY23 earnings by 26% to reflect a more conservative order flow and weaker-than-expected GP margin
- Maintain BUY with a lower TP of HK$4.46 for steady dividend play at 9%+ yield; the stock is too cheap to ignore
FY22 earnings results below expectations due to margin erosion. Pacific Textiles (PT) recorded a 20.6% y-o-y drop in net profit to HK$572m, missing market expectations. Excluding the distortion from the one-off gain on disposal of property, plant, and equipment from last year, net profit dropped 7.9% y-o-y. The earnings miss was mainly due to the margin contraction, from 16% in FY21 to 12.8% in FY22, implying a GP margin of 10.8% recorded in 2HFY22 – this is because raw material prices, such as of yarn and coal, increased significantly during the period. The average selling price (ASP) increased 9.6%, however, the hike was not enough to offset the rising raw material prices. PT proposed a final dividend of HK$14 cents per share with an 86% payout ratio (2HFY21: HK$22 cents).