J.P. Morgan said Li & Fung's (00494) disposal of its LF Asia business (consumer and healthcare distribution businesses for FMCG products) to Dah Chong Hong for US$350mn is a non-event.
The research house said LF Asia is a relatively low margin business and divestment of the business is unlikely to impact the remaining trading business in any major way. Based on the numbers from Li & Fung, JPM estimated the transaction to dilute Li & Fung's 2016 recurring earnings by 2% on a full year basis (assuming proceeds is simply used to generate interest income) and impact is likely to be less on headline earnings in FY2016 given the one-off gain of US$10mn from the disposal.
On the other hand it remains to be seen what Li & Fung's plans will be for the proceeds from the sale as it may lead to better capital allocation, JPM said. The research house maintained its "neutral" call on Li & Fung, with a target price of HK$4.3.
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