HONG KONG, Jan 14: Shares of Li & Fung Ltd fell 16 percent to a three-month low after the global supply chain manager warned of a steep drop in core operating profit, taking investors by surprise and triggering concern over its ability to reach a three-year earnings target.
A global economic slowdown has weighed on consumer-related companies and Li & Fung, which sources and supplies goods for retailers such as Wal-Mart Stores Inc and Target Corp , has reported shrinking margins in recent years.
Some investors have questioned whether its reliance on acquisitions to meet growth targets is working, and have cautioned its business model is at risk as companies look to save costs by cutting out the middleman and sourcing goods directly.
Li & Fung warned on Friday warned of a 40 percent fall in full-year 2012 core operating profit, hit by ongoing restructuring costs and an additional provision tied to its U.S. Business unit LF USA for which it appointed a new chief.
‘It was a surprise to the market in terms of timing. It booked in all the provisions from its U.S. Operation, but it makes sense to me in a way to book in all one-off losses (in 2012) to pave the way for a turnaround in 2013,’ said William Lo, an analyst at Ample Capital.
‘The U.S. Market is picking up and the outlook for Li & Fung is not that bad,’ he said. ‘It may need to revise down its three-year target in the current operating environment, but any weakness in the stock price appears to be a buying opportunity.’
The stock fell as much as 16 percent to HK$11.64, the lowest since October, while the benchmark Hang Seng Index added 0.3 percent. It was the stock’s biggest percentage loss since August last year.
The company had embarked on an ambitious 3-year growth plan that aims to grow core operating profit to US$1.5 billion by 2013.
(AGENCIES)
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