Li & Fung Ltd. (494), the biggest supplier to retailers including Wal-Mart Stores Inc. (WMT) and Esprit Holdings Ltd. (330), named President Bruce Rockowitz as chief executive officer, driving up the company’s stock.
Chairman Victor Fung will step down by 2012, to be replaced by his brother William Fung, the Hong Kong-based company also said in a statement to the stock exchange today. “Our focus in the next three years will be on organic growth” instead of acquisitions, William Fung said.
Li & Fung gained 3.5 percent, the most in six weeks, to HK$37.30 at the 4 p.m. close of trading in Hong Kong, paring its loss this year to 17 percent. The outsourcer’s annual profit has grown about 250 percent in the seven years that Rockowitz has been president and its shares have more than tripled in value since the end of 2003.
“The stock price gain today is likely to be a combination of a technical correction and market hopes of increased organic growth,” said Matthew Marsden, a Hong Kong-based analyst at Samsung Securities Co. “Li & Fung has been an underperformer year-to-date,” said Marsden, who recommends selling the stock.
The outsourcer had dropped the most in a year in Hong Kong trading after reporting on March 24 that last year’s profit gained 27 percent to HK$4.28 billion ($551 million), missing analyst estimates. William Fung today said the company needs to invest in distribution within Asia, particularly China, to meet its three-year target of doubling operating profit for its main business to $1.5 billion by 2013.
“I will beat the three-year plan,” said Rockowitz, who has been president of Li & Fung since 2004 and boosted earnings through acquisitions and supply agreements. The company will have nine presidents who will report to him, he said. He will also hold the title of group president.
“The biggest challenge ahead for Li & Fung will be the economy,” said Gabriel Chan, a Hong Kong-based analyst for Credit Suisse Group AG who has an “outperform” rating on the stock. “U.S. economic data are not that perfect. Inflation could be an issue if it continues to worsen to a point that affects consumer-end demand.”
Li & Fung's U.S. revenue last year was 65 percent of the HK$124 billion total.
Victor Fung will focus on compliance, risk management and sustainability after stepping down next year, he said at a briefing in Hong Kong today. He will remain a non-executive director.
“We are now moving on to really structure the company properly for the long-term development of the group,” he said.
The billionaires are the biggest shareholders of Li & Fung and control closely held Li & Fung Group.
“Bruce Rockowitz has become more and more the front man for Li & Fung over recent years,” Samsung Securities’ Marsden said in a phone interview. “The Fung brothers are still the controlling shareholders and it is sure that they will still be leading the strategy for the group.”
The supplier of Inditex SA’s Zara and Marks & Spencer Plc completed 16 purchases and “a number” of outsourcing and licensing deals last year, some of which weren’t announced, Rockowitz said in March. Announced deals last year were worth at least $1.24 billion, according to data compiled by Bloomberg.
Li & Fung bought out Integrated Distribution Services Group Ltd. last year to gain a network in China and other Asian nations. The purchase was its biggest in at least the past decade, according to data compiled by Bloomberg.
“The three-year plan won’t be easy,” William Fung told reporters after the company’s annual general meeting in Hong Kong today. “We have added a strong logistics business through acquiring IDS. We have also started distributing in China and Asia. We have confidence in the next three years.”
Li & Fung, founded as a porcelain and silk trader in southern China in 1906 near the end of the Qing dynasty, also signed a supply agreement with Wal-Mart last year. The deal may contribute $2 billion in revenue this year, Rockowitz has said.
Victor and William Fung ranked No. 5 on Forbes’ Hong Kong rich list with an estimated combined wealth of $8.6 billion.
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