Pacific Textile

Pacific Textile is a manufacturer of customised knitted fabrics used in sportswear, swimwear and innerwear. Notable brands such as Under Armour, L Brands, Target and Uniqlo are among their customers. Uniqlo is Pacific Textile’s largest client by revenue and produces Uniqlo’s Heattech range of products.

In 2017, Pacific Textile’s factory in Vietnam was interrupted as villagers blocked the gateway. As a result, profit for the year decreased by 24 percent to HK$744 million and missed its profit target. However, production in the Vietnam factory has resumed production since the start of the year and production is expected to ramp up.

Analysts from DBS Research believe that the worst is over for Pacific Textile with the poor results and negatives all priced in. Giving the company a “Buy” call with a target price of HK$9.40. For FY18, Pacific Textile declared a total dividend of HK$0.45. Based on the price of HK6.59, the indicative dividend yield of the stock will be at 6.8 percent.

HKBN

HKBN (Hong Kong Broadband Network) is a telecommunications company that provides internet, voice and IPTV services. The company is the second largest broadband service provider in Hong Kong and along with Hong Kong Telecom (HKT), the two companies dominate the duopoly residential broadband market with a combined market share of over 80 percent.

The average revenue per user is expected to increase as the residential broadband contracts that were signed two years ago during the price war will be due for renewal. Given the duopoly-like market, HKBN will able to gain form the higher ARPU and increase in profitability.

Analysts from DBS Research reiterated their “Buy” call for HKBN and gave a price target of HK$13.90. This is based on the strong dividend growth potential and a dividend yield of over five percent. Currently, the stock is trading at HK$12.06.

HKT Trust

HKT Trust is the other half of the duopoly in Hong Kong’s residential broadband market and is the incumbent player of fixed-line services. After merging with CSL in FY14, HKT is the biggest mobile operator in the market. Notably, HKT is owned by Hong Kong tycoon Richard Li.

Similar to HKBN, HKT Trust is expected to gain from the industry-wide tariff hike in the residential broadband segment. In addition, HKT Trust will benefit from the lower capex that was generated from the synergies of merging with CSL and the company intends to distribute 100 percent of its adjusted cashflow.

Analysts from DBS Research gave HKT Trust a “Buy” call with a price target of HK$12.80. HKT Trust has an approximate dividend yield of six percent and has the potential for further growth. Investors are looking at a potential upside of 25 percent based on the current share price of HK$10.24.

Bank of China

One of China’s largest banks, Bank of China is well positioned to reap from the Belt and Road initiatives, increasing cross-border investments and the internationalisation of the Renminbi. With its strong global presence and loan franchise in 54 countries, Bank of China is expected to gain from the increasing US interest rates which would widen net Interest Margin as its FX loan exposure stands at 23 percent of the total loan compared to 10 percent of its peers.

A key focus that investors should look at will be the asset quality of Bank of China. Despite its rising non-performing loans (NPL) and higher exposure to risky sectors compared to its peers, Bank of China’s NPL continues to be the lowest among the Big 4 banks. This is largely attributed to its overseas operations that contributed an approximate 30 percent of its profit.

Analysts from DBS Research reiterated their “Buy” call for Bank of China with a target price of HK$5.15. In addition, they expect a dividend yield of 4.8 percent from Bank of China. Currently, Bank of China is trading at HK$3.55.

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