JP Morgan raises BEST PACIFIC's target price to 3.8 Hong Kong dollars, maintaining a "buy" rating.

JPMorgan released a research report stating that it has raised the target price of BEST PACIFIC (02111) from 3.4 Hong Kong dollars to 3.8 Hong Kong dollars, an increase of 11.8%, and maintained a "hold" investment rating. JPMorgan has lowered its earnings forecast for 2025-2027 by 1-3% and extended the valuation deadline to December 26. The new target price based on discounted cash flow is 3.8 Hong Kong dollars, equivalent to 5 times the one-year forecasted P/E ratio. JPMorgan expects improved visibility in the second half of 2025, with sales/profits expected to grow by 3% and 11%, higher than the 2% decline and 6% decline in the first half (partially due to relief from tariff impact). This will be driven by the following factors: 1) Improved orders as tariff issues are resolved, especially in sportswear (orders have shown recovery in July and August); 2) Improved gross margins due to higher utilization (fabric/tape utilization rates were 75% in the first half of 2025, compared to 80-85% in 2024), with a 60 basis point increase year-over-year in the second half, compared to a 40 basis point contraction in the first half; 3) Limited impact of tariff sharing on profit margins in the first half (as most brands did not request in the second half), the trend is expected to resume capacity expansion in Vietnam (previously halted due to tariff uncertainty), with capital expenditure reaching 500-1 billion Hong Kong dollars in the next two years; this is expected to drive an increase in overseas production contribution (currently around 40%).