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HomemarketsWal-Mart supplier shares soar on spin-off plans

Wal-Mart supplier shares soar on spin-off plans

Shares of global supply chain manager Li & Fung rallied almost 20 percent on Friday on robust earnings and plans to spin-off its brands and licensing unit as a newly-created entity called Global Brands Group.

"When we looked at our businesses, we realized that the brands business – where we control and license brands – is quite different from the supply chain business. For that to grow up and maximize its potential it's better as a separate listed company," Bruce Rockowitz, CEO of Li & Fung told CNBC on Friday.

Li & Fung, which supplies large retailers including Wal-Mart and Target with goods from clothing to home furnishings, hopes to list the new company on the Hong Kong Stock Exchange this year, subject to approval.

STR | AFP | Getty Images

The Hong Kong-listed company does not plan to raise new funds through the spin-off. Instead, with the separation, each company will be able to focus on their respective businesses.

If Hong Kong regulators sign off on the deal, Li & Fung shareholders will own shares of both companies.

(Watch this: Li &Fung: It's all about onmi-channel retailing)

Li & Fung's brands and licensing operation is relatively new compared with its long-established core business of sourcing for retailers and managing their supply chain, which has been around for more than 100 years.

"The brand management business has only been around for the past eight or nine years. So when we look at that – there's a huge growth opportunity ahead of us," he said.

The company on Thursday reported a net profit of $725 million for 2013, beating forecasts of $577.1 million, according to Thomson Reuters.

(Read more: Time to closeWal-Mart stores? Analysts think so)

Li & Fung's shares jumped as much as 19 percent to HK$12.26 on Friday, their highest since January 2013, outperforming a 0.5 percent rise in the benchmark Hang Seng Index.

Outlook for US demand

Rockowitz said he was upbeat on the outlook for demand from the company's U.S. customers, despite the looming rise in interest rates.

"Over the past 5-6 years, retailers have taken down their debt and have much cleaner balance sheets. I believe [U.S.] retailers are in a good situation," he said.

(Read more: Black Friday, spring edition: Wal-Mart's second Xmas)

"If interest rates go up, it probably means businesses are starting to do better and consumption is going up – they are going to go hand in hand," he added.

This week, Federal Reserve Chair Janet Yellen said the U.S. central bank might end its bond-buying program this autumn, and could start to raise interest rates around six months later. That would put a rate hike in the spring of 2015, earlier than market expectations for the second half of the year.

—By CNBC's Ansuya Harjani. Follow her on Twitter @Ansuya_H

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