CICC: Maintains BEST PACIFIC (02111) Outperform Rating, Lowers Target Price to HK$3.50

China Gold released a research report stating that it maintains a rating on BEST PACIFIC (02111) as outperforming the industry. Considering the downward shift in industry valuation, the bank has lowered the target price by 21% to HK$3.50, corresponding to a 6.5x/5.9x P/E ratio for 2026/27, with a 25% upside potential from the current stock price. Taking into account the impact of the current rise in raw material prices, the bank has lowered the profit forecast for 2026 by 15% to HK$560 million and introduced a profit forecast for 2027 of HK$610 million, corresponding to 5.2x/4.7x P/E for 2026/27 respectively. The company announced its performance for 2025, with revenue of HK$5.021 billion, a year-on-year decrease of 0.8%; and a net profit attributable to shareholders of HK$551 million, a year-on-year decrease of 9.3%. In the second half of 2025, revenue was HK$2.691 billion, a year-on-year increase of 0.6%; and net profit attributable to shareholders was HK$291 million, a year-on-year decrease of 12.0%. The performance was below the bank's expectations, mainly due to lower-than-expected revenue from lingerie fabrics and exchange losses leading to lower-than-expected profits. In terms of product breakdown, in 2025, revenue from fabrics/ribbons/laces decreased by -2%/+6%/-18% to HK$3.925 billion, HK$1.046 billion, and HK$0.50 billion respectively, accounting for 78%/21%/1% of total revenue; revenue from sportswear and clothing fabrics decreased by 0.2% to HK$2.80 billion, with a 4% year-on-year increase in the second half of 2025. In 2025, the company's annual sales/management/research and development expense ratios increased by 0.1ppt/0.4ppt/0.1ppt to 4.6%/7.1%/2.2% respectively. The company paid a dividend of 26.5 Hong Kong cents per share, with a payout ratio of 50%, and a dividend yield of approximately 9.5% based on the current stock price. The increase in management expense ratio was mainly due to the company actively preparing for new production capacity in Vietnam, with amortization and increased labor costs related to the leasing of the new An Xin factory in Vietnam, which the bank expects to be operational by the end of 2026. The bank expects the company's current order book to continue to show healthy growth, with the order growth for sportswear and clothing fabrics expected to outperform the company as a whole. Additionally, the bank advises monitoring how the company deals with unfavorable factors such as the rise in raw material prices.