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China: Hon Hai's retail strategy helps business integration: analyst

China: Hon Hai's retail strategy helps business integration: analyst

Efforts to extend into the retail field by the Hon Hai Group -- the world's largest contract electronics maker -- are expected to help the group's business strategy of vertical integration, an analyst said today.

Hon Hai announced yesterday that its Shanghai MediaMart flagship store retailing computer, communications and consumer electronic products will open Nov. 17 as a joint venture with Germany-based Metro Group.

After inauguration of the flagship store, the two partners have plans for at least another 10 stores in the Shanghai area.

In addition to the MediaMart expansion project, Hon Hai plans to work with Chinese hypermarket operators to open 200 electronic product retail stores, while 40-50 Cybermarket stores, similar to retail outlets, are also in the pipeline.

"Hon Hai's founder Terry Gou is a farsighted entrepreneur, envisioning rising consumption power in the fast growing China economy, " Taiwan International Securities analyst Michael Chiang said.

Chiang said efforts by the group to enter the retail market will boost the group's bottom line in the long run as the manufacturing side encounters a squeezed gross margin amid fierce competition and rising labor costs.

Chiang said Gou has encouraged Chinese employees to return to their hometowns in smaller cities and even rural areas to start their own retail businesses with Hon Hai's financial assistance.

"If Hon Hai's retail business efforts extend to inland Chinese cities, the gains will be more significant," Chiang said.

Judging from Hon Hai's fundamentals, Chiang said the current valuation appears attractive, adding there is room for the stock to rise further to NT$130.00-132.00.

Hon Hai shares closed up 1.74 percent at NT$117.00 on the Taiwan Stock Exchange today.

Updated : 2021-07-27 15:08 GMT+08:00