Yue Yuen profit misses forecast, challenges seen

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HONG KONG (Global Markets) - Yue Yuen Industrial (Holdings) Ltd (0551.HK), the world's largest branded sports shoe manufacturer, said it expects next year to be challenging after posting a 6.2 percent fall in net profit for fiscal 2011, missing forecasts.

Chairman Tsai Chi Neng said in a filing to the Hong Kong bourse that the global economic environment in 2012 would remain volatile as recovery was gaining momentum only gradually and consumers in developed economies "may be reluctant to spend and would rather increase their savings."

He added that customers should still be willing to purchase sports footwear and apparel ahead of the UEFA Champions League football competition in June next year and the Olympic Games in August.

Yue Yuen, which makes shoes for New Balance, Nike Inc (NKE.N) and Adidas AG (ADSGn.DE), on Friday posted a $449.8 million profit for the year ended September, down from $479.5 million in the previous year. The result missed a forecast $511.1 million profit from Thomson Global Markets Starmine.

Earnings per shares fell 6.2 percent to 27.28 cents.

Total production volume in 2011 rose 14 percent to 326.6 million pairs of shoes.

Shares of Yue Yuen have fallen about 11 percent this year, versus a 20 percent drop in Hang Seng Index .HSI. The stock was down 0.4 percent early on Friday.

"Despite a drop in earnings, hopes for (industry) consolidation and moderating cost growth in the coming year are expected to make companies like Yue Yuen look more defensive and attractive in the current investment climate," said Ample Finance Group Director Alex Wong.

Yue Yuen's 56.5 percent owned unit Pou Sheng International (Holdings) Ltd (3813.HK), which makes products for Li Ning Co Ltd (2331.HK), ANTA Sports Products Ltd (2020.HK), 361 Degrees International Ltd (1361.HK), XTEP International Holdings Ltd (1368.HK), posted a 152 percent profit gain to $53.7 million, with revenue up 20 percent at $1.6 billion.

RISING COSTS

While group volume and turnover maintained growth momentum, margins came under pressure, "mainly from rising raw materials costs and factory wages," said Tsai.

Yue Yuen said labor costs jumped 38.5 percent during the year and materials costs rose 24.6 percent, with production overheads up 26.6 percent.

Yue Yuen, in which Taiwan-listed parent Pou Chen Corp (9904.TW) holds a 49.98 percent stake, said revenue rose 21.7 percent to $7.05 billion, 28.5 percent of which came from the U.S. market, 21.9 percent from Europe and 28.06 percent from China. Sales in Asia grew 26.2 percent from last year.

Yue Yuen increased production lines by 16.7 percent to 537 during the year, with new factories in China, Indonesia and Vietnam to take advantage of lower costs and more stable labor supplies.

In November, one of Yue Yuen's major factories in the southern Chinese province of Guangdong was hit by a large-scale strike. A spokesman said the company was having difficulty raising wages as it had done in the previous 3-4 years as operational costs increased.

(Editing by Jonathan Hopfner and Chris Lewis)