Trinity gives two thumbs up on selling 30% Ferragamo stake

Its stake is worth HK$199m.

According to Maybank Kim Eng, Trinity has agreed to sell its 30% stake in its Ferragamo JV at a consideration of HKD199m (USD26m) to Salvatore Ferragamo S.p.A., subject to adjustment, with a cap of HKD261m (USD34m).

Here's more from Maybank Kim Eng:

Trinity is expected to book a gain of HKD35m (USD5m) in FY12F. The consideration implies a FY12 PER of 8X, adjusted for 22% withholding tax in South Korea.

The consideration is based on net depreciated asset value as stipulated in its contract.

Trinity has also entered into new JV agreement with Ferragamo for another five years, effective 1 Jan 2013. With a minority stake of 20%, Trinity is not likely to be involved in its operations.

Nonetheless, it shall be entitled to one board seat out of the total of five. Meanwhile, both companies have been granted call and put options so that each party can sell or buy the 20% stake upon the expiry of agreement.

The price cap is set at HK1.6b (USD207m), which, in our view, should safeguard Trinity’s interest. We estimate that the reduction in its JV stake will lower our pre-tax profit estimates by 4% for each of FY13/14F.

It would also result in a 3% cut in our original net profit forecasts for each respective year, which is insignificant, in our view. Looking ahead, management expects to free up human resources at its existing JV to focus on development of its own brands in South East Asia, as cooperation with direct competitors of Ferragamo is restricted