China Hongxing 2008 Q2 result

The quarterly reporting season is back. It is number crunching time.

Revenue +53.1%
Gross profit +53.8
Selling and distribution expense +83% (so high)
Income tax +108%
Profit for shareholder +31% (obviously the cost and tax weight the profit down)

Bank balance 2,201,588k RMB vs current liabilities 227,954k RMB (more than enough to cover the liabilities)
There is an increasing cashflow to 150,676k RMB. But after adjusting receivables, there is net cash outflow from operating activities. Not a big problem, since company has so much cash.
EPS increased to 4.37 RMB cent, growth of 8.7%

Apparel and accessories sales is catching up. There is a decrease of gross margin. Expenses increased in line with outlet expansion and promotion activities. The environment is still favourable for sporting goods, but the group is mindful of the inflation situation which could affect the raw material price.

The growth is still on track, strong growth is still expected. I am assuming they would continue to growth at the 30% rate per year. However, inflation has indeed caught up with many China companies now. I still prefer company with strong brand like hongxing. There is the only way to mitigate the cost pressure. They are having some Olympic advertising, hopefully it would raise further awareness on the group's product. The sporting good bull seems to still going strong.

Consider the quarterly earning of 4.37 cents. Full year EPS should be 17.48 cents, which is 3.51 SGD cents. At today's closing of 0.49, it is selling at forecast PE of 13.9. If the earning accelerated, we are looking at even lower PE. I think it is quite reasonable for a company with high growth. If we compare the expected growth rate of 30% against this PE, it is really cheap. Of course, the market is going through the PE compression. To invest or not, depends on whether you are taking long term view of the business.