Youngor, the country's biggest shirts maker, has bought a large tract of land at its home base in Ningbo to develop residential projects, in the latest move by the garment maker to expand its property business at a time of dwindling export demand and narrowing manufacturing profit margins.
The Shanghai-listed garment maker said in a stock exchange filing that it bought the 59,000 sq m land slot for 1 billion yuan, its first major land deal this year.
The company has been trying to diversify into real estate development and equity investment for the past several years - and the strategy has yielded higher returns than manufacturing.
Its property arm, which generated 3.47 billion yuan in revenue last year, has become a major cash cow for the company and accounted for 30 percent of its total revenue.
Youngor, already a top property developer in the affluent port city of Ningbo, also owns and is developing properties in some eastern cities, especially in Suzhou, where it has a significant presence.
"Youngor's revenue from its property business is expected to touch 4.5 billion yuan this year, and 5.5 billion yuan in the next. Its gross profit margin may touch least 40 percent," Founder Securities said in a research note.
Youngor's share price jumped 9.97 percent to close at 12.8 yuan yesterday.
The company said it had no plans to shrink its garments business, which, it said, would remain a core operation. On the contrary, "the company will devote more resources to the garment business and beef up its research and development capacity," Youngor said in a statement.
"But the company will continue to expand its property and equity investment business as the two have already acquired considerable clout on their own," it said.
Youngor, which owns more than 1,500 sales outlets across the country, has increased investment into its cloth business in recent years.
The company acquired US clothing maker Smart Shirts, which employs more than 20,000 people and whose customers include Polo Ralph Lauren Corp, from Kellwood Co for $120 million in 2008 in a bid to expand its overseas presence.
Thanks to the deal, which was the first major overseas acquisition by a Chinese clothing maker, Youngor's overseas sales jumped by 60 percent last year, Chen Zhigao, Youngor's vice-president, said earlier.
Analysts said moves like this were an indication that the company was now paying more attention to the garment business - its bread and butter business for 20 years.
Youngor, which is also known for its shrewd investments in financial firms such as CITIC Securities Co and Bank of Ningbo, has been reducing its holdings in these companies, reaping billions in profits.
"The property and clothing business are expected to bring stable streams of revenue and profits to the company while its holdings in the listed financial companies have the significant potential to rise in value," said Founder Securities, giving a "buy" rating to the company.