Review: China Hong Xing

China Hong Xing saw a 59% growth in revenue, with a increase in 85.5% for its gross profit. EPS increased 31.7% for FY06.

China Hong Xing has attributed the increase in sales to its advertising and promotion campaign for major sporting events in China. The company has recently launched its new "Ground Shock-damping System" in April 2006, and according to the management, has received positive feedback from the market.

In addition, the company is successfully increased the number of Erke specialty stores by 550, from 2100. This 550 stores far exceeds the target of the management of 364 stores (1 a day). In addition, the actual profit for FY06 exceeded the target of 180Million RMB by 30.4%.

The management has proven itself as a over performer, ie delivers more than what they promise. In the stock market sense, this is good for share prices as they constantly exceed market expectation. The company has set a $300Million profit target in FY07. I look favourably for the company to exceed that expectation.

China Hong Xing has constantly found itself as sponsors for sporting events, and is looking enthusiastic about getting a foothold in Beijing before the Olympics in 2008 with a flagship store near the Olympics location.

China Hong Xing looks to expand its capacity to be completed in 2Q2007. With a inventory turnover time of 37 days (increase in 6 days over 06), China Hong Xing must keep a watchful eye on this trend of increased turnover time for its inventory as it increases its capacity.

Dispite this, China Hong Xing shows good potential with good growth and ambitious marketing campaign. Like Sino-Env, with the large global sell-off, its perhaps a good time for investors to accumulate more China Hong Xing stocks.

Maintain BUY, with a target of $3.80