Hayleys Fabric PLC ‘set to steer through’ stiff economic conditions

First Capital Research says considering the solid order book of Hayleys Fabric PLC and and gradual shift in orders from China to other destinations through the China-plus-one strategy, they broadly maintain their revenue target for Hayleys Fabric PLC at LKR 66.4 bn (previous-LKR 66.2 bn) for FY23 while marginally lowering their expectation for FY24 to LKR 75.5Bn (previous- LKR 76.1 bn).

“Topline of Hayleys Fabric significantly increased by 105.9%YoY (+11.7%QoQ) to LKR 16.8Bn compared LKR 8.2Bn recorded in 2QFY22 largely owing to the steep depreciation of LKR. Revenue in dollar terms too grew by 13.3%YoY to USD 45.5Mn cf. USD 40.2Mn in 2QFY22 backed by the sizeable contribution stemming from tier-1 customer segments such as Nike along with improved efficiency levels while, capacity enhancements through the latest addition SAT further strengthened the topline performance. Moreover, overall apparel exports during the July-Sep period grew by 13.8% compared to the same period last year reflecting the revenue growth of Hayleys Fabric. However, the apparel exports reverted with a negative growth of 12.9%YoY during Oct-22, as currently largest apparel importers in the West such as US and UK are facing severe economic challenges which has squeezed down the clothing budget of consumers resulting in a slow-down in orders from many brands”, First Capital said.

Several other facts mentioned in First Capital Research’s report are as follows.

“Earnings of Hayleys Fabric displayed an uptick of 27.3%YoY and recorded at LKR 501.4Mn backed by strong topline performance aided by LKR depreciation. Accordingly, revenue for the quarter climbed high by 105.9%YoY and recorded at LKR 16.8Bn with the improvement in apparel exports during the quarter while LKR depreciation further strengthened topline growth. On account of escalated cost of sales GP margin edged down by 145bps and recorded at 10.7% compared to 12.1% in 2QFY22. However, earnings contracted by 68.9% on a QoQ basis as a result of mounting raw material cost pressures and finance cost. Taking into consideration the high inflation levels at key export destinations and local market and higher tax impact, we lower our earnings target for FY23E to LKR 3.6Bn (-29% from previous target) and FY24E to LKR 4.1Bn (-26% from previous target). Accordingly, fair value for FY23 is estimated at LKR 35.0 (previous – LKR 60.0) and for FY24E is estimated at LKR 45.0.

“Suppliers of Hayleys fabric from China charged higher on raw materials owing to the economic setback and tight supply conditions which resulted in a sharp surge in cost of sales by 109.3%YoY (+14.6%QoQ) to LKR 15.0Bn cf. LKR 7.2Bn in 2QFY22 while LKR depreciation further aggravated cost pressures. As a result, GP margin skid low by 145bps to 10.7% while it declined by 226bps on a QoQ basis. Furthermore, high inflationary environment caused EBIT margin to slid lower by 113bps to 5.6% compared to 6.7% in 1QFY23. However, aided by the declining global crude oil prices First Capital expects the costs of synthetic yarn to decrease favouring Hayleys Fabric.”


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