Li & Fung's trading business predicted to slow down due to size woes

But here are some good news.

Li & Fung attended Barclays' conference last September 2 and met with investors. 

Below are Barclays two key takeaways from the meetings.

Here's more from Barclays Research:

Despite some guiding down by US retailers of late and a weak air-freight market, which is a good indicator of replenishment orders, Li & Fung believes it is on track to achieve its target of reverting core operating profit (COP) back to the level for 2011.

Longer term, however, management believes that the company's Trading business will see slower growth due to its size but that there seems to be more upside from its Distribution business.

Brand Management strategy: pre-cursor to the Next Plan?: One of the highlights of the meeting to us was an engaging discussion on how the company sees itself as managing a portfolio of brands and its strategy of how to maximize revenue streams from these across their product lifecycles.

Our sense is that the Distribution business will drive the majority of revenue and earnings growth in the next Plan.

E-commerce impacting Li & Fung customers, and therefore, Li & Fung too: The proliferation of e-commerce means the US retail model is mutating from one that milked key product successes to one of Zara, where new products are introduced quickly and older ones forced out.

This means smaller orders, sourcing from smaller factories, more complexity and rising costs in sourcing but this probably plays to Li &Fung's advantages.

Indeed, management sees a new trend of consumers having their own buying offices but simultaneously using Li & Fung too.

Risks to thesis and valuation: There were no negative takeaways from the meeting, in our view. Management remains cautiously optimistic while the consensus estimates indicate the market remains fairly cautious on the company and its changing business model.

We expect no surprises for 2013, but if the company can improve its Distribution margin, 2014 could see strong growth, in our view.

We believe the key risk would be worsening retail trends in the US.