HONG KONG — Fast Retailing Co. Ltd. has a lot on its plate.
The company, which is said to be in talks about a bid of up to $5 billion for J. Crew Group Inc., makes its debut on the Hong Kong Stock Exchange today with a secondary listing, highlighting the growing importance of the Chinese consumer to the Japanese retailer.
No capital will be raised through the secondary listing. Fast Retailing, which revealed its Hong Kong listing in January, has said it hopes to demonstrate its commitment to, and focus on, Asia through the listing, as well as to improve the company’s exposure to investors and customers in Asia, including China.
Analysts note that international growth, particularly in China, is a bright spot in Fast Retailing’s outlook. In the recent first quarter, the company posted weak performance from its Uniqlo Japan and U.S. Theory divisions, but Uniqlo International’s better-than-expected performance made up for the sluggishness. Profit growth in China and narrower losses in the U.S. helped boost results, said Dairo Murata, analyst at J.P. Morgan. Accelerated new store openings in China and elsewhere in Asia could provide greater-than-expected profit growth, Murata said. “We think the Asian Uniqlo business, centered on China, will do better than management expects in fiscal year 2014 and generate 34 percent operating profit growth a year,” Murata wrote in a recent note.
But if analysts are keen on the company’s expansion in Asia, Fast Retailing’s move onto the Hong Kong Stock Exchange may be set for a more muted response from investors, who are still hurting from the memory of the recent initial public offering of Huisheng International, a Chinese pork supplier that had a disappointing debut despite being massively oversubscribed.
Sentiment towards new listings in Hong Kong has been mixed, said Benjamin Collett, head of Asia and Japanese equities at Sunrise Brokers in Hong Kong, adding that strong brand names have an advantage. Fast Retailing, though a “biggish name,” is probably not strong enough on its own to support strong investor support. High-end names such as Prada and Graff are likely to attract more interest, he continued.
“Japan is on the move up and it was a good month in Hong Kong in February so it’s not a bad time to be launching some new paper, but I wouldn’t expect a retailer to be that hot right now, especially in Japan ahead of the consumption tax,” Collett said.
Still, Fast Retailing’s name has been all over the global news in the last few days following reports that it was in talks to buy J. Crew Group from TPG and Leonard Green & Partners. Neither Fast Retailing nor J. Crew has commented on the reports, but sources have said a deal could be finalized in 60 days.
If completed, a purchase of J. Crew would be a major stride forward in Fast Retailing’s stated goal of becoming the world’s largest apparel retailer. In addition, it might help accelerate J. Crew’s international expansion.