The company announced its 2023 results, and the results were in line with expectations. In '23, we achieved revenue of 25 billion yuan, down 10.1% year on year, and net profit of 4.56 billion yuan, down 0.1% year on year, mainly affected by insufficient consumer demand for sports products in Europe and the US and the removal of inventory by customers. Among them, 23H2 achieved revenue of 13.4 billion yuan, a year-on-year decrease of 5.5%, and net profit of 2.43 billion yuan, an increase of 10.7% over the previous year. Performance improved month-on-month over the first half of the year. The second half of the year gradually picked up with orders, and the decline in revenue narrowed and profit improved to a higher degree. It is proposed to pay a final dividend of HK$1.08 per share. Previously, an interim dividend of HK$0.95 per share was paid. The cumulative dividend for 23 years was HK$2.03 per share, with a dividend ratio of 60.3%.
Demand for sports products in Europe and the US has temporarily declined, and the underwear category and new customer contributions have increased. 1) By category: Underwear products have the highest revenue growth rate.
In '23, revenue from sports products was 18 billion yuan, down 13.6% year on year, accounting for 72.2%. Mainly European and American customers were in the inventory removal stage, affecting procurement demand; revenue from casual products was 5.67 billion yuan, down 1.4% year on year, accounting for 22.7%; revenue from underwear products was 1.07 billion yuan, up 30.2% year on year, accounting for 4.3% of revenue. The increase in underwear revenue was mainly due to increased demand for underwear in Japan and other markets. 2) Distribution locations: European and American revenue declined by double digits, and domestic revenue increased year-on-year. In '23, mainland China's revenue was 7.12 billion yuan, up 0.7% year on year, accounting for 28.5% of revenue; EU revenue was 5.03 billion yuan, down 19.1% year on year, accounting for 20.1% of revenue; US revenue was 3.88 billion yuan, down 20.4% year on year, accounting for 15.5%; Japan's revenue was 3.68 billion yuan, down 6.4% year on year, accounting for 14.7% of revenue; revenue from other regions was 5.26 billion yuan, down 7.6% year on year, accounting for 21.1% of revenue.
3) Customer division: Orders from sports customers are temporarily weak, and the revenue contribution of new customers has increased. In '23, Nike contributed 7.70 billion yuan in revenue, down 10.8% year on year, accounting for 30.8%; Uniqlo contributed 600 billion yuan, up 2.9% year on year, accounting for 24.0% of revenue; Adidas contributed 3.69 billion yuan, down 24.1% year on year, accounting for 14.8%; Puma contributed 2.49 billion yuan, down 28.1% year on year, accounting for 10.0% of revenue. The four major customers accounted for 79.6% of the total revenue before '23, down 2.4 pct from '22, reflecting the gradual increase in new customer orders. Other customers contributed a total of 5.09 billion yuan in revenue in '23, an increase of 2.0% over the previous year.
Taking the initiative of customers to inventory dragged down capacity utilization, leading to phased pressure on gross margin in the first half of the year, and there was a significant month-on-month improvement in the second half of the year. The gross profit margin in '23 was 24.3%, up 2.2 pct year on year. Among them, 23H1/H2 gross margin was 22.4%/25.8% respectively, a slight decrease of 0.1 pct/y increase of 4.3 pct. Improved orders in the second half of the year led to a month-on-month increase in gross margin. The sales expense rate/management expense ratio decreased by 0.1 pct year on year and increased by 0.5 pct year on year, and the increase in the share of profit contribution in regions with low tax rates led to a 4.5 pct year-on-year reduction in the income tax rate. In the end, the net interest rate for 23 increased by 1.8 pct to 18.3% year on year, and the net interest rate for 23H1/H2 was 18.4%/18.1%, respectively.
The company strengthens competitiveness through product diversification and lean production, relieves downstream customer inventory pressure, and strengthens signals of 24-year performance improvement. Tracking the inventory status of downstream sports customers, Nike/Adidas/Puma's inventory amounts declined year-on-year and month-on-month in the most recent fiscal quarter, and inventory pressure eased. Facing fluctuating demand, the company diversifies the supply of products, strengthens lean production, enhances delivery capabilities, and comprehensively enhances core competitiveness. As customer inventories return to a healthy level in 24 years, orders are expected to be gradually repaired, driving continuous improvement in performance.
Shenzhou International is a global integrated clothing manufacturer. It has formed a large-scale integrated production capacity layout at home and abroad, deeply tied to the world's top brands. The 24-year performance is expected to continue to improve and maintain a “buy” rating. Shenzhou International has long served the world's top clothing brands such as Nike, Adidas, and Uniqlo. The scale of production capacity and integration advantages are obvious, demand disturbances have weakened, and it is optimistic about medium- to long-term performance growth as the company's competitiveness is unleashed. Based on the 23-year performance, the 24-year revenue growth rate was adjusted to 17% (originally 22% increase). Due to the month-on-month restoration of 23H2 gross margin, the 24-year gross margin was raised to 28% (previously 27%), the 24-25 profit forecast was slightly lowered and the 26-year profit forecast was added. The net profit for 24-26 is estimated to be 55.5/64.9/7.58 billion yuan (originally 5.68/6.72 billion yuan in 24-25). The corresponding PE is 18/16/13 times, and the 24-year PE valuation was given 23 times (comparable to the company 23). Average annual PE), maintaining a “buy” rating.
Risk warning: External demand weakens due to the downturn in overseas economies; rising costs are less than expected; capacity expansion falls short of expectations.