Hongguo FY09 half year result

Revenue +19.31%
Cost of sales +29.31%
Gross profit +6.2%

Selling and distribution expenses +42.5%
Profit after tax 38,022 (-38.69%)

Cash and equivalent 208,097
Current liabilities 182,456
Amount repayable in one year 14,426 + 41,008

Cash generated from operation 95,753
EPS 9.58 RMB cts (from 15.63 last year same period)

Revenue continue to increase, the company still on the growth track. Gross margin decreased to 38.5% from 43.3%. The retail competition is fierce. Expenses increased because of continue store expansion. But the cost escalation is at alarming level.

This shows the consumer spending is slowing in China because of the financial crisis. But as the China economy picking up and the existing brand building effort already spent. The group could back on the growth track in coming years. The cashflow is strong, more than enough to cover the loan.

I remained confident in the China consumers. But, like planting fruit trees, it takes a while for it to bear fruit. If we estimate the second half they are able to make the same amount of money. Forecast EPS is 19 RMB cts or 4 SGD cts. The stock closed at 0.28 last Friday. It is about PE of 7. It is definitely not very expensive. But I won't buy at the current market level, as market has priced in lots of optimism. Hopefully when the China economy turn up, the company would be able to made up the growth.