Orders continue to improve, and 1H24's performance can be expected to improve. While maintaining the “buy” rating and the low base for the same period last year, we expect 1H24's orders to grow rapidly. At the same time, as a global industry leader, the company has obvious competitive advantages such as industrial chain integration, internationalization of production capacity, production automation, and efficient management. Considering order recovery and profit elasticity, we expect 1H24's performance improvement to be highly certain. We will maintain the company's net profit of 5.73 billion yuan and EPS forecast of 3.81 yuan unchanged in 2024; however, considering that the “double pillar” tax reform plan in Vietnam starting in 2025 may lead to an increase in corporate income tax rates, we will lower the corporate income tax rate in 2025 /2026 net profit to mother reached 6.504/7.299 billion yuan (previous value: 6.723/7.809 billion yuan), corresponding EPS was 4.33/4.86 yuan (previous value 4.47/5.19 yuan), respectively. Based on the DCF estimate (WACC: 11.0%, sustainable growth rate: 3%), the target price was 93.00 HKD (previous value: HK$96.00), maintaining the “buy” rating.

Company orders continue to improve, capacity utilization increases, and profitability restoration is driven by international brand inventories and a low base over the same period last year. We expect 1H24 orders to grow rapidly. Looking at each brand, we expect orders from Adidas and Puma to resume rapidly this year, Uniqlo is expected to achieve good growth, and Nike orders are expected to grow steadily. Among new customers, Lululemon and domestic sports brands will continue to increase in revenue share, and orders are expected to continue to grow rapidly. With the recovery of orders and capacity utilization, we expect the company's gross margin to improve significantly in 2024. According to the company's financial report, the company's gross margin of 1H23/2H23 was 22.4%/25.8%, respectively, showing a trend of quarterly recovery. Combined with the cost-side scale effect, we expect the company to have greater profit elasticity throughout the year.

Production capacity expansion and product innovation continue to advance, continuously consolidating barriers to competition. According to the company's announcement, the recruitment plans for new employees at the Ningbo factory and Vietnam's Shitong factory are progressing smoothly throughout 2023. The company's domestic and foreign production capacity is gradually increasing. We expect the company's production capacity to grow by 10-20% in 24 years. In the medium to long term, the company will continue to expand its production capacity. The increase will mainly come from overseas factories. In addition to existing production bases in Vietnam and Cambodia, Indonesian plants are also being planned. Domestic production capacity is expected to continue to improve efficiency through the construction of digitization and automation capabilities. In addition, the company actively lays out diversified products, such as woven and chemical fiber products, to continuously improve market competitiveness and customer stickiness.

Risk warning: 1) Global demand recovery is slow; 2) capacity expansion is slow; 3) RMB appreciates against the US dollar; 4) raw material prices fluctuate.