China's Doldrums Hit Xiniya Fashion, But Growth Prospects Are Still Strong

| About: Dunxin Financial (DXF)
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With the European and U.S. economies stagnating, one has to be on the outlook for Chinese companies that benefit as the country's stimulus kicks in. Xiniya Fashion Inc. (XNY) is one of those companies.

The company designs, manufactures and sells men's clothing and accessories. Its American Depositary Shares are now trading at a 52-week low.

For the quarter ended June 30th, the company showed an increase in revenue of almost 25% to nearly $25 million. But the company's net income was another matter. Net income for the quarter was almost $3.2 million, a 43% decrease compared to the second quarter of 2011. The company indicated that the substantial decrease in net income was largely due to a rise in selling and distribution expenses, which were three times larger than for the second quarter of 2010. It's likely that part of the reason that selling and distribution expenses went up so significantly was the company being in an expansion mode and not anticipating the general economic slowdown affecting the country. Another likely factor resulting in the increased costs was the continuing effort to gear up to generate the significant increase in revenues.

The company's management commitment is substantial. Xiniya Fashion's Chairman and CEO and its CFO have been recent buyers of its securities, totaling $1.23 million, at an average price of around $1.89. With its current American Depositary Shares trading at around $1.03, they're down on these purchases almost a third. So, they can't be happy with the share price situation.

There is no question that Xiniya Fashion is well-positioned to grow as China's economy grows, especially with 1,659 retail locations in China carrying its products. As China's latest economic stimulus kicks in, and as the country's new leadership more than likely proceeds with additional economic stimulus measures, Xiniya Fashion will be in a good position to be a beneficiary.

My conclusion is that the company has already started reining in its selling and distribution costs, and that the likely decrease in these costs will be reflected in the company's third and fourth quarter results, making the company a definite buy.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in XNY over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.