China Hongxing Sports Ltd - Sales healthy for now

China Hongxing is scheduled to announce its 4Q08 results in mid-Feb 09. We expect 4Q08 revenue to rise 37.1% yoy to Rmb916.6m and net profit of S$164.3m, up only 5% yoy due to flat gross margins and high operating expenses. Although 4Q08 revenue growth is expected to be healthy as orders were placed in 3Q08 amid the Olympics fever, we understand that order-value growth would probably slow down from Feb 09 onwards. Maintain Outperform, nevertheless, for its attractive value. Our target price stays S$0.40, still based on 8x CY10 P/E, at the lower end of its historical band. More than 70% of its share price is now backed by net cash.

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