Incident: In 2023, Shenzhou Group achieved operating income of 24.970 billion yuan, -10.12% year on year, and net profit attributable to the parent company of 4.557 billion yuan, or -0.12% year on year. Among them, 23H2's revenue was 13.408 billion yuan, -5.50% year on year, and net profit to mother was 2,430 billion yuan, +10.67% year over year; the revenue decline in the second half of the year narrowed, profit margins increased, and operating improvements were obvious. The gross profit margin for the whole year was 24.3%, compared to 22.1% in the same period last year. The year-end dividend payout ratio was 60.3%.
The company's orders improved markedly in the second half of '23, and changes in the customer structure supported part of the revenue. The company's annual revenue decreased by 10.12%, due to a decrease in order volume for major customers during the inventory removal phase. Judging from the changes, in the second half of the year, the inventory removal of international brands came to an end, and the decline in orders narrowed somewhat. Looking at the whole year, under pressure from the industry to remove inventory, the company's revenue side has fully demonstrated its resilience as a leading supplier.
By region, the mainland region, which accounts for the largest share, saw a slight increase of 0.71%. Mainly in 2023, the revenue of the European Union and the US fell -19.11% and -20.38% respectively, mainly due to the removal of inventories by international brands and weak consumption under conditions of high inflation. By customer, sales revenue for Nike/Uniqlo/Adidas/Puma was -10.82%, 2.89%, -24.09%, and -28.13%, respectively. Uniqlo's growth was good, and other customers declined to varying degrees. The top four customers accounted for 79.62% in 2023, down 2.42 percentage points from the same period last year, mainly related to the company's increased cooperation with domestic sports brands. The increase in orders from the company's new customers has made up for the decline in revenue from the top four customers to a certain extent. In the future, new customer orders will also be the main source of the company's incremental business.
The gross margin was further repaired in '23, and the expense ratio increased slightly. The gross margin for 2023 was 24.3%, up 2.2 percentage points from last year, mainly the optimization of production capacity utilization. In terms of expenses, sales and management expenses increased by a total of 0.42 percentage points; in terms of other income, foreign exchange income in 2023 was 151 million yuan (1,106 million yuan in the same period last year), interest income of 779 million yuan (278 million yuan in the same period last year), and revenue from financial expenses decreased by 454 million yuan under positive and negative offsets. Under comprehensive gross profit and expenses, the company's net interest rate in 2023 was 18.23%, and the net interest rate increased slightly by 1.83 percentage points, mainly due to an increase in operation-related profit.
Capacity utilization is high, product diversification continues, and the company's 24-year outlook is optimistic. Against the backdrop of the normalization of inventory of major footwear brands, we expect the company's capacity utilization rate to be quite full. In future development, the company promotes product diversification. Currently, it is actively expanding chemical fiber products and woven products. The company is also actively expanding and cultivating customers, expanding cooperation with high-quality domestic brands and emerging brands such as Lululemon, and seeking growth through customer expansion. In terms of profit margins, as capacity utilization increases, the company's performance will also grow well.
Profit forecast and investment rating: In the long run, we continue to be optimistic about the company's leading manufacturing position in the sports industry chain. In terms of performance, based on customer orders and the company's production capacity plan, we think 2024 is optimistic, with steady growth in 25/26. The company's net profit for 2023-2025 is expected to be 53.60, 59.78, and 6.609 billion yuan respectively, with growth rates of 17.61%, 11.54%, and 10.55% respectively. Currently, PE corresponding to the stock price is 21.5, 19.3, and 17.4 times, respectively, maintaining a “highly recommended” rating.
Risk warning: Overseas inflation continues to affect consumption, the RMB exchange rate fluctuates greatly, and raw material prices fluctuate sharply.