There are signs that apparel orders might increase as lockdowns in the US and Europe eased over the past few weeks, which would lead to a faster-than-expected recovery for Makalot Industrial Co (聚陽), Nomura International (Hong Kong) Ltd Taipei Branch said in a note on Thursday.
Based on Nomura’s supply-chain checks and considering the apparel industry’s order visibility, demand for casual clothes and fashionable sportswear is likely to increase from the third quarter rather than later in the year as it previously expected, the brokerage said.
Makalot — a manufacturer of ready-to-wear apparel with global brand clients including GAP Inc, Fast Retailing Co’s GU sub-brand, Kohl’s Corp, Target Corp, Walmart Inc and Hanesbrands Inc — on May 14 reported that pretax profit in April fell 11.1 percent annually to NT$89.29 million (US$2.97 million).
Revenue declined 37.71 percent to NT$1.13 billion in April, the lowest since November 2013, as clients deferred orders due to the COVID-19 pandemic.
“We believe the weak April sales should mark the bottom, followed by a modest recovery in May and June. We believe monthly sales should accelerate further every month from the third quarter because we see a gradual easing of lockdowns in major US cities, which will likely boost end demand,” Nomura analyst Lee Shao-tang (李紹唐) said in the note, adding that US sales accounted for more than 70 percent of Makalot’s sales last year.
“Following COVID-19, we see an uptick in demand and rush orders from June for isolation gowns, which carry higher margins and should bring revenue upside in the near term,” Lee said.
The company has transferred some of its production to special protective gowns to help meet soaring demand for those that have P3 particulate filters, Makalot chairman Frank Chou (周理平) told local media in March.
Shipments of higher-margin protective gowns began at the end of last month and are forecast to make up 5 to 10 percent of the company’s sales, Makalot said.
“We expect Makalot’s year-on-year sales decline to shrink from 27 percent in the second quarter to 8 percent in the third quarter, suggesting 50 percent quarter-on-quarter growth. The sales recovery is faster than our previous expectation of late 2020,” Lee said.
However, the faster-than-expected recovery just reflects clients’ confidence in restocking inventories and not a rebound in real end demand, which would be more easy to gauge with clearer signs in the next few months, he said.
Moreover, based on market conditions, Target and GU might be the only brands among Makalot’s major clients to post year-on-year growth this year, while business for other brands, including GAP, Walmart and some department store clients, would likely remain challenging this year, Lee said.
In the first four months of this year, Makalot’s pretax profit dropped 11.12 percent year-on-year to NT$673.58 million, or earnings per share of NT$3.06, while combined revenue decreased 14.93 percent to NT$7.26 billion, company data showed.
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