Belle of the Ball

01/21/2009 9:51 am EST


Yiannis Mostrous

Editor, The Capitalist Times

Yiannis Mostrous, editor of The Silk Road Investor, thinks a Chinese apparel retailer’s dominance and China’s expected growth will keep the dollars flowing in.

China’s National Bureau of Statistics revised upward 2007 real GDP growth to 13% from 11.9%. The importance of the announcement is twofold.

First, it was higher growth in the service industries that provided the boost, indicating the steady transformation of the Chinese economy towards a domestic consumption-oriented economy, which will provide a more stable growth pattern. Domestic consumption is now contributing close to 41% and rising, while manufacturing is coming down, currently at around 48%.

Second, it looks like China became the world’s third largest economy in 2007. The top five economies in 2007 were the US (US$13,808 billion), Japan ($4,380 billion), China ($3,383 billion), Germany ($3,321 billion), and the UK ($2,807 billion).

Belle International (Hong Kong: 1880) is the largest retailer of ladies’ footwear in the country based on sales revenue. It has one of the strongest brand names and an extensive distribution network.

Recent acquisitions have expanded the company’s portfolio to include local brands of men’s shoes, ladies’ footwear, and higher-end licensed international brands (e.g., Clarks, Geox, Hush Puppies, and BCBG).

Belle is also one of the largest sportswear retailers in China and was the number one and number two distributor for Adidas and Nike, in China in 2007. The company operates 3,732 footwear retail stores and 2,358 sportswear stores in 30 provinces in China.

The company has one of the most efficient supply chains in the business. This means a shorter production and delivery cycle and substantially lower inventory costs. Its management team on the national and regional levels is considered top of the line.

Ladies’ fashion is rapidly becoming a big business in China, and given the relatively low per capita consumption, the growth potential is substantial.

The major risk for the company is the economic slowdown. But I expect that the Chinese government’s initiatives for boosting the economy will be successful, softening the blow substantially. Furthermore, the company’s low valuation offers a good entry point at current levels. Buy Belle International. (It closed Tuesday at $3.31—Editor)

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