Hong Kong based Luen Thai Holdings, one of the world's largest apparel and accessories manufacturers, is expanding its business with the US$28m acquisition of Universal Elite Holdings.

Universal Elite produces bags and small leather goods in Myanmar (EMC Manufacturing Limited), Thailand (Unison Pan (Asia) Company Limited), and China (Dongguan Huan Yi Industrial Limited).

The deal will see Luen Thai unit Sunny Force Limited buy the entire issued share capital of Universal Elite Holdings, which will become a wholly-owned subsidiary of the company.

Crucially, it also gives the business new production facilities in two of the US Generalized System of Preferences (GSP) beneficiary countries (namely, Myanmar and Thailand), which provides preferential duty-free entry for certain products.

The company also says the acquisition "represents a valuable chance for the group to diversify its accessories business, expand and supplement its customer base and enhance market penetration. Moreover, the acquisition will not only improve the Group's competitive position but also achieve geographic diversification."

Luen Thai has over 40,000 employees and production facilities across Southeast Asia in China, Bangladesh, India, Vietnam, Cambodia, Philippines and Indonesia where it makes sportswear, sweaters and outerwear, casual knits and woven wear, accessories and fabrics.

In its latest results, the group recorded a 7.0% rise in revenue to US$378.151m for the six months to 30 June, but said gross profit slipped 5.3% to US$52.951m.

The revenue gains were mainly due to a 35.7% jump in the accessories division to US$139.801m, which offset a 4.8% decline in sales of apparel to US$238.350m.

The apparel and accessories businesses accounted for around 63.0% and 37.0% respectively of total revenue. Apparel declines were blamed on weakening demand from brand customers, while accessories growth was attributed to order inflows from existing major customers, and GSP exemptions on travel goods and bags made in the Philippines and Cambodia.

Geographically, Europe and the US continue to be the major export markets, making up 73.8% of total revenue. The Asia market (mainly the PRC and Japan) accounted for 15.2% of the total.

Among the headwinds, management pointed to rising labour costs in Southeast Asia, the rapid increase in material costs, and a trend by brand owners and retailers to maintain low inventory level due to the popularity of online shopping and rapid changes in consumer demand.

"The demand for prompt replenishment of smaller quantity of orders added severe pressure on our profit margin," they added.

The current trade war between the US and China is seeing brand owners shifting production out of the PRC to evade the additional tariff and to maintain their competitiveness.

"Under such circumstances, more existing and new customers will incline to place more orders in our production sites in the Philippines and Cambodia, which can enjoy the benefit of GSP. We believe that the future prospect of the business growth in the Philippines and Cambodia is promising."