DJ MARKET TALK: Merrill Ups Li & Fung To Buy; Target HK$20.44
0911 [Dow Jones] STOCK CALL: Merrill Lynch upgrades Li & Fung (0494.HK) to Buy from Underperform as it's "banking on cost-saving for growth"; also hikes price target by 48% to HK$20.44, noting "we have raised earnings estimates for 2009-10 by 10/20% to factor in larger-than-expected cost savings."
Says company responding to tougher macro environment by actively using natural attrition to reposition its cost base in lower-cost countries; notes around 150 people laid off as a result of customer bankruptcies, but Li & Fung's high staff churn rate of 20% offers flexibility.
"We expect cost-cutting to be 2H-loaded in 2009, with 2010 reflecting the full benefit. Based on our analysis, the Street has not factored in any meaningful SG&A savings." Stock ends down 1.2% at HK$15.90