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Table of Contents
1 Introduction................................................................................................................... 1
2 Background ................................................................................................................... 2
2.1 Giordano Holdings International Limited
(0709.HK) ...................................................................... 2
2.2 Esprit Holdings Limited
(0330.HK) .................................................................................................... 2
3 Industry Factors ..........................................................................................................3-4
3.1
Distributions ............................................................................................................................
............. 3
3.2 Fashions and Product
Mix ................................................................................................................... 3
3.3
Technology ..............................................................................................................................
.............. 4
3.4 Seasonaility and
Weather ..................................................................................................................... 4
4 Economic Factors.......................................................................................................5-6
4.1 Current Economic
Conditions ............................................................................................................. 5
4.1.1 Income /
Output ............................................................................................................................... 5
4.1.2
Unemployment.........................................................................................................................
........ 5
4.1.3
Inflation....................................................................................................................................
.......... 5
4.1.4 Interest
Rate ...................................................................................................................................... 5
4.2 Expected Economic
Conditions ........................................................................................................... 6
5 Financial Ratios Analysis .........................................................................................7-11
5.1
Profitability .............................................................................................................................
............... 7
5.2
Liquidity ..................................................................................................................................
.............. 8
5.3
Risk..........................................................................................................................................
................ 8
5.4 Leverage and Capital
Structure.......................................................................................................9-11
5.4.1
Leverage...................................................................................................................................
.......... 9
5.4.2 Capitalization
Raio........................................................................................................................... 9
5.4.3 Equity
Ratio.....................................................................................................................................
10
5.4.4 Debt
Ratio........................................................................................................................................
10
5.4.5 Asset
Turnover ...............................................................................................................................
11
5.4.6 Times Interest
Earned..................................................................................................................... 11
6 SWOT Analysis.........................................................................................................12-13
6.1 Giordano Holdings International Limited
(0709.HK) .................................................................... 12
6.2 Esprit Holdings Limited
(0330.HK) .............................................................................................12-13
7 Recommendations...................................................................................................... 14
Appendices ..............................................................................................................15-18
Appendix A: Table of
Ratios ...............................................................................................................15-16
Appendix B: Charts of
Ratios .................................................................................................................. 17
Appendix C: Share Price Figures and
Graphs ...................................................................................... 18
Page 1 of 18
1. Introduction
This report serves the purpose of identifying companies, which are publicly listed in
Hong Kong stock exchange and with strong financial background, for long-term
investments for a professional investor.
We will provide an in-depth analysis on the financial statements for the selected two
companies, within the same industry, listed on the local stock exchange. And, we
will provide recommendations as to which company should the client invest.
Page 2 of 18
2. Background
Looking at the recent strong demand trend on retail business, we think it is wise for
investors to consider investing in this business for long-term investments with
highexpected
return. Amongst all the companies with retail business on the local stock
exchange, we select Giordano and Esprit as part of the financial analysis, because
they seemed to have strong financial background, competing each other. Now, let
us take closer look at the background for each company.
2.1 Giordano Holdings International Limited (0709.HK)
Giordano was a leading clothing manufacturer and retailer internationally in the
1970s. It opened its own brand shop "Giordano"“ in 1981 by Jimmy Lai (who is no
longer with Giordano). In the past two decades, it has been gradually developing
and there are about 1,700 shops in Asia Pacific today. It started with low-end
simple casual wear, i.e. T-shirts and denim products. Up to now, Giordano has
developed to have four brands, namely Giordano, Giordano Junior, Giordano
Ladies and Giordano Concept. The "Giordano mainly targets for selling affordable
trendy casual wear, whereas the "Giordano Junior"“ for - selling kid clothes. The
"Giordano Ladies"“, which was introduced in 1996, focuses on office ladies clothes,
and "Giordano Concept"“, which was recently introduced, tends to target high-end
consumers.
Giordano International Limited has been listed on the Hong Kong Stock Exchange
since June 1991.
2.2 Esprit Holdings Limited (0330.HK)
The brand Esprit established in 1968, founded by Susie and Doug Tomkins. There
are 12 different product lines including men wear, women wear, kid wear,
shoes, bedding and accessories etc. Its wide ranges of products are both
fashionable and stylish.
In 1971, Hong Kong businessman Michael Ying joined Esprit, in which he managed
Asia Pacific market for the company. According to the record, Esprit has over 660
shops worldwide and 11,450 controlled-space wholesale point-of-sales. In 2001,
the company also introduced its own cosmetic brand "Red Earth"“. Lately, Esprit
also widened their business by providing hairdressing service.
Esprit has been listed on the Hong Kong Stock since 1993.
Page 3 of 18
3. Industry Factors
Let us take a brief review on the industry factors for Giordano and Esprit, in the
areas of Distribution, Fashion/Product Mix, Technology and Seasonality as detailed
below:
3.1 Distribution
With Giordano long history of establishment, good quality of products and
services, and good network of retail shops, Giordano has attracted loyal customers
and increased its market share in Hong Kong compared to other companies with
same industry nature such as Bossini, U2, and Baleno. Although the turnover in
Hong Kong and Mainland China market had been increased by 5% and 9%
respectively, the overall turnover in 2006 was decreased by 0.93% compared to
that in 2005. It also recorded a decrease in sales in some Asia-Pacific countries
such as Malaysia, Japan, and South Korea. The majority of the opportunities for
Giordano are still in Hong Kong and Mainland China. The fast economic growth in
China has given rise to the average income, allowing consumers to spend more
money on clothing. However, with increased spending potential, Giordano also had
to accept new challenges such as the increased competition in Hong Kong and
mainland China - new brands emerged, increasing production cost of raw material
and labor in China, and continuous changes of policies and regulations in China
As for Esprit, its main markets were in Europe, which accounted for approximately
85% of 2006 sales; and in Asia, which accounted for approximately 12% of 2006
sales. The Esprit brand products were principally sold via directly managed retail
outlets, wholesale customers, including department stores, specialty stores and
franchisees, and by licensees in relation to products manufactured under license,
principally through the licensees own distribution networks. As of result of the cash
strength from its operating activities in the recent years and its large network of
retail outlets already established worldwide, Esprit should take advantage and
increase its online retail presence as well as further expand the network of retail
stores in Asia-Pacific regions, especially in mainland China. Thanks to the
economic growth of Mainland China, sales will increase under the low price and
high-value apparels. Quite a few of the consumers in China can afford and are
willing to spend more money on higher priced and higher quality casual wears.
3.2 Fashions and Product Mix
Initially, Giordano positioned its product within the low-priced apparel market; In the
late 90s, Giordano introduced a new product line to venture into the mid-priced
market of women fashion, hoping to attract young, stylish women and benefit from
the higher profit margins. However, Giordano wandered into a market crowded with
seasoned players and it had to compete with more than a dozen other brands
