According to the research report released by Haitong Securities, it maintains the rating of Stella Holdings (01836) as "outperforming the market", and expects the net income of the company in 2024-2026 to be USD 0.166/0.184/0.203 billion, with a year-on-year increase of 17.7%/11%/10%. It gives a 2024 PE valuation of 10-11X, converted at a rate of 1 USD = 7.81 HKD, corresponding to a reasonable value range of HKD 15.94-17.53 per share. The company's gross margin and EBITMargin in 2023 reached a ten-year high, and the bank believes that with the optimization of production and operation efficiency, the profit level will further improve in 2024.

The main points of Haitong Securities are as follows:

The net income is expected to increase by 63% in 24H1 due to the recovery of sports orders and early delivery.

The group's revenue in 24H1 reached USD 0.77 billion, with a year-on-year increase of 7.5%. Among them, the manufacturing revenue was USD 0.75 billion, with a year-on-year increase of 7.7%. The shipment volume/ASP in 24H1 were 26.5 million pairs/28.3 USD, with a year-on-year increase of 12.3%/decrease of 4.4%. The increase in shipment volume was mainly driven by the recovery of sports orders and early delivery for some customers, while the main reason for the decline in ASP was the increased proportion of low-priced sports orders. The group expects the net income in 24H1 to be no less than USD 90 million, a year-on-year increase of about 63%. The net profit margin in 24H1 was about 11.7%, a year-on-year increase of 4pct, and it is believed to have benefited from early delivery, optimization of customer mix, and improvement in operating leverage due to the improved utilization rate of sports capacity.

It is judged that the growth rate of sports orders in 24H will be higher in the first half of the year and lower in the second half of the year.

Sports is the largest category of the group's manufacturing, accounting for 43.2% of revenue in 2023. Due to some customers clearing inventory, the sales volume of sports in 23H1 decreased by 12.4% year-on-year. The utilization rate of production capacity was relatively low, and the sports revenue for the whole year of 23 decreased by 8% year-on-year. Since 23Q4, the quarter-on-quarter growth rate of overall shipments has turned positive, and the growth rate in H2 is higher than that in H1. The bank believes that the sports orders in 24H2 will continue to recover, and the growth rate for the whole year will be higher in the first half of the year and lower in the second half of the year. Due to the low ASP of sports orders, the increase in proportion will negatively affect ASP, and it is judged that the ASP for the whole year will decrease year-on-year, with a smaller decrease in H2 than in H1.

The high increase in net income is partly due to early delivery, and it is judged that the order visibility in 24H2 will remain good.

According to Yingxi's forecast, the main reasons for the increase in net profit are the increase in sports orders, the optimization of customer mix, the improvement of operating leverage due to the improved utilization rate of sports capacity, and early delivery for some customers. Although Nike's FY24Q4 revenue is lower than expected by institutions, and FY25 guidance is weak, some product lines still have impressive growth rates:① basketball series double-digit growth in FY24Q4, ② strong growth in women's fitness shoes, ③ significant growth in retro running shoes and Y2K series, and it is expected that the scale of retro running shoes will triple year-on-year at the end of FY2025. The bank believes that the company, as a Nike supplier, is expected to continue to expand its strong categories.