Bloomberg News

Li & Fung Says Wal-Mart May Gain Amid Fading U.S. Recovery

June 23, 2011

(Updates with analyst comments in fifth paragraph.)

June 23 (Bloomberg) -- Li & Fung Ltd., the world’s biggest supplier of clothes and toys to retailers, said Wal- Mart Stores Inc. may benefit from a flagging U.S. economic recovery.

Wal-Mart’s focus on low-priced products may help the retailer amid a slower-than-expected economic recovery, Deputy Chairman William Fung said in an interview in Hong Kong today. The world’s biggest retailer is expected to become one the five biggest of Li & Fung’s 2,000 clients this year, he said.

“I think they actually might be gaining,” Fung said of Wal-Mart. “The last three years, the American economy has not been great but now it’s recovering, though slowly. Europe still has some debt crisis and other fiscal problems.”

Li & Fung rose the most in almost a year in Hong Kong trading yesterday after saying the division that handles sourcing for Wal-Mart will grow and may be profitable as early as this year. The Hong Kong-based outsourcer, which announced the purchase of five companies yesterday to expand its trading and distribution businesses, made 65 percent of its $16 billion in 2010 revenue in the U.S.

U.S., Europe

“Because the US economic environment is tougher, Wal- Mart is under increasing pressure to gain any advantage it can on the cost side, including potentially accelerating the flow through Li & Fung’s specialist sourcing capabilities to reduce costs,” said Matthew Marsden, a Hong Kong-based analyst at Samsung Securities Co. He upgraded the company’s stock to “buy” from “sell” today.

Li & Fung rose 2.44 percent to close at HK$15.96 in Hong Kong today, boosting its gain this week to 13 percent. The stock has lost 29 percent since the start of the year, compared with a 5.5 percent loss for the benchmark Hang Seng Index.

Deutsche Bank AG raised the supplier’s rating to “buy” from “hold.”

The supply agreement with Wal-Mart may contribute $2 billion in revenue this year, Li & Fung has said.

Li & Fung’s LF Asia division aims to achieve sales of more than $1 billion by 2013, Jason Rabin, the president of the company’s Asia hard- and soft-goods division, said yesterday. More than half of that revenue will come from China, Fung said today.

Batman, Ben 10

“The acquisition strategy has always been one part of Li & Fung’s strategy, beside strong organic growth, we are also looking for acquisitions to supplement that,” Fung said.

The purchases announced yesterday were made at a price-to- earnings ratio of about 6.5 times, Bruce Rockowitz, the company’s chief executive officer, said yesterday, declining to provide more details.

Li & Fung acquired TVMania, a European supplier of branded products whose character licenses include Hello Kitty, Mickey Mouse and Batman and Ben 10 as well as Hampshire Designers, the women’s division of Hampshire Group Ltd.

The three other companies are clothing supplier Loyaltex Apparel, color cosmetics maker Collection 2000 and Thailand- based furniture trading company Exim Designs, according to an e-mailed statement.

--With assistance from Robert Fenner in Melbourne and Michelle Yun in Hong Kong. Editors: Dave McCombs, Nicholas Wadhams

To contact reporter on this story: Sophie Leung in Hong Kong at

To contact the editor responsible for this story: Frank Longid at

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