孟加拉、印尼产能扩张，计划24 全年中国及越南外产能达25%。24H1 中国/越南/亚洲其他地区（孟加拉、印尼、菲律宾）贡献制造收入28%/51%/21%，同比+3/0/-3pct，公司计划24 全年达25%/50%/25%，较23 全年变动-1/-1/+2pct。Key points of investment:
Product portfolio optimized+sports capacity utilization increased, net profit increased 66%. 24H1's revenue increased 7.5% year over year to 0.77 billion US dollars, gross margin increased 2.7 pct to 25.8%, net profit increased 65.8% to 91.5 million, and net profit increased 4.2 pct to 11.9%. 24H1 shipments/ASP were 26.5 million pairs/$28.3 respectively, +12.3%/-4.4% YoY (Q1: +21.9%/-3.5%). About 1 million pairs of sneakers were shipped early, and the net profit of 9 million US dollars 24H2 was confirmed to 24H1 in advance. The increase in shipment volume is mainly due to early delivery of some orders+inventory replenishment by sports customers. The decline in ASP is mainly due to an increase in the proportion of sports orders with lower ASP, an increase in profit level benefiting from product portfolio optimization+increased production efficiency+increased utilization rate of sports factories.
Sports/fashion revenue increased 13%/10%, and fashion and luxury gained new customers. Revenue in the sports/fashion/leisure/luxury category of the 24H1 manufacturing business increased by +13%/+9.9%/-3.6%/+1.8% respectively, accounting for 45%/26%/20%/8% of manufacturing revenue, compared to +2.2/+0.5/-2.3/-0.4pct. The decline in leisure revenue was mainly due to the transfer of production capacity to other categories, and some leisure and sports customers have completed inventory removal. The fashion and luxury categories all received revenue driven by new customers. Fashion customers added Stuart Weitzman, and luxury customers added Miu Miu.
Production capacity in Bangladesh and Indonesia will expand, and production capacity outside of China and Vietnam is planned to reach 25% throughout the year 24. 24H1 China/Vietnam/the rest of Asia (Bangladesh, Indonesia, the Philippines) contributed 28%/51%/21% of manufacturing revenue, +3/0/ -3pct. The company plans to reach 25%/50%/25% for the whole year 24, a change of -1/-1/+2 pct over the full year of 23.
The company's production capacity expansion plans are mainly in other parts of Asia: production capacity at the Solo plant in Indonesia, which was put into operation in '22, climbed production capacity, built an exclusive Indonesian sneaker factory with major customers, and increased production capacity in Bangladesh.
An additional $0.18 billion in cash is expected over 3 years, with a total return of 13.7%. An interim dividend of HK65 cents per share was declared, with a dividend ratio of 71.5%. The company announced an additional return of up to 60 million US dollars in cash per year to shareholders in the form of special dividends or repurchases for 2024-2026 on the basis of maintaining a 70% dividend rate, totaling $0.18 billion. At the closing price on August 21, the dividend rate for the past 12 months was 9.4% (2023 final dividend+24H1 interim dividend), the return on additional cash was 4.3%, and the total return reached 13.7%.
Trading will begin on September 9, which will help improve liquidity. The company will be included in the Hang Seng Composite Index and Hong Kong Stock Connect on September 6. It will take effect on September 9 and can be traded through Hong Kong Stock Connect. It is determined that it will increase stock awareness and liquidity.
Profit forecasting and valuation. The company's 23-year gross profit margin and EBIT margin hit new highs in ten years. We believe that with the optimization of production and operation efficiency, the 24-year profit level will further improve. We expect the company's net profit for 2024-2026 to be 0.166/0.186/0.205 billion US dollars, up 17.4%/12.1%/10.2% year on year. The 2024 PE valuation is 11X, converted to HK$7.81, corresponding to a target price of HK$17.49 per share. Assuming that the 2024 dividend ratio remains 70% of 2023, the dividend rate is expected to reach 7.6% (calculated at the closing price on August 23), maintaining the “better than the market” rating.
Risk warning. Customer orders have declined, raw materials have fluctuated sharply, labor costs have risen, exchange rates have fluctuated, and tariffs and trade policies have changed.
