Li & Fung falls to 7-mth low as profit misses forecast

HONG KONG, March 25 - Li & Fung Ltd fell 9.2 percent in its biggest single-day fall in percentage terms in about a year after the global consumer goods exporter posted a forecast-lagging profit for 2010 and failed to meet its previous three-year profit target.

The stock fell to as low as HK$39 in early trade, its lowest since Sept. 1 last year, before trimming losses to HK$40 by 0216 GMT, down 6.9 percent. That was compared with a 0.84 percent rise in the benchmark Hang Seng Index .

The manager of supply chains for retailers, including Wal-Mart Stores Inc and Target Corp , posted a record profit for 2010 of HK$4.28 billion, but lower than a consensus forecast of HK$5.03 billion, on high overheads.

Lower-than-expected earnings growth due to higher overheads and a rise in professional fees of acquisitions triggered selling, but bargain hunting interest is seen limiting the slide, analysts said.

Analysts also worry that the company's profit margins may face pressure as costs increase, especially on raw materials.

"It was disappointed on its bottom line," said Patrick Yiu, a director at CASH Asset Management. "But it is a rather solid company with good growth prospects and that will allow it to continue enjoying a high valuation."

Li & Fung, which missed its three-year 2008-2010 profit target, set an ambitious plan for the coming three-years to actively expand its sourcing network to rake in higher profits.

It set a target of achieving core operating profit of $1.5 billion by 2013, a target which its managing director William Fung described as "difficult" but "achievable".

The new target is 50 percent higher than the $1 billion in the previous three-year plan and more than double its core operating profit in 2010.

The stock rose 39.8 percent in 2010, against 5.3 percent rise in the broader market.