Guosheng Securities expects Shenzhou International Group Holdings Limited Unsponsored ADR's Net income for 2024-2026 to be 5.8/6.55/7.39 billion yuan.
According to Zhito Finance APP, Guosheng Securities released a research report stating that it maintains a 'Buy' rating for Shenzhou International (02313), expecting the company's Net income for 2024-2026 to be 5.8/6.55/7.39 billion yuan, with year-on-year growth of 27%/13%/13% respectively. The company is the largest vertically integrated apparel manufacturer globally, with a clear trend of improvement in pre-orders, long-term capacity expansion, efficiency improvement, and enhanced competitiveness.
Guosheng Securities' main viewpoints are as follows:
The bank estimates that the company's revenue for the second half of 2024 is expected to grow by 10% to 20% year-on-year, continuing a robust growth performance.
1) Looking at quantity and price separately: ① Quantity: Based on past business trends, the bank determines that the company's orders are still steadily growing year-on-year, estimating a shipment volume growth of over 15% year-on-year for the second half of 2024 ((the bank determines it's from the pre-order period) ② Price: Considering the changes in the company's customer structure, the bank estimates that the sales unit price for the second half of 2024 may still decline year-on-year, but the decline will narrow compared to the first half of 2024 (where the first half of 2024 saw a high single-digit drop year-on-year). 2) From the perspective of profit quality: In the first half of 2024, the company's gross margin increased by 6.6 percentage points year-on-year to 29.0% ((the gross margins for the first and second halves of 2023 were 22.4% and 25.8% respectively), and the bank predicts that the company's gross margin in the second half of 2024 is expected to continue to improve year-on-year.
Orders: The market share of core customers continues to increase, and the bank determines that in 2025, orders from customers like Adidas and Uniqlo will perform well.
1) By category: Sales of sports/leisure/underwear/Other categories in the first half of 2024 were 92.1/2.76/0.9/0.1 billion yuan, with year-on-year growth of +8%/+20%/+47%/+12% respectively, accounting for 71%/21%/7%/1% respectively. Considering the changes in the customer structure, the bank predicts that the share of sports products will improve quarter-on-quarter in the second half of 2024. 2) By customer: The company has deep collaborations with leading international brands such as Uniqlo, Nike, Adidas, and PUMA. In the first half of 2024, sales to the four major customers were 34.0/3.24/2.33/1.34 billion yuan, with year-on-year changes of +34%/-6%/+24%/+0%, accounting for 26%/25%/18%/10% respectively. ② Other customers achieved sales of 2.66 billion yuan, an increase of +14% year-on-year, accounting for 21%. Looking ahead: Based on the business situation of downstream brands, the bank predicts that in the second half of 2024 and in 2025, the company's orders directed toward Adidas, Uniqlo, and domestic brands are expected to achieve steady and rapid growth, while orders directed toward Nike will remain stable. Overall, it is estimated that the company's revenue in 2025 is expected to grow steadily by over 10%.
Production capacity: Actively recruit workers in 2024, with plans to continue building overseas production capacity in 2025, continuously strengthening Industry Chain advantages.
1) In order to meet the increasing demand for Orders, the company has strengthened recruitment efforts, optimized production management models since 2024, actively improved capacity utilization rates, and expanded overseas capacity. In the first half of 2024, the number of employees at the Cambodia garment new factory has reached the planned scale (0.018 million people) and efficiency continues to climb, while the workforce at the Ho Chi Minh garment factory in Vietnam has increased by 0.0022 million people since the beginning of the year. ② Acquired the Xining factory in Vietnam to enhance fabric supply capacity.
2) In the medium to long term, the company will continue to promote independent integration and internationalization of the Industry Chain, strengthening core competitiveness. In 2023, the company's domestic/Vietnam/Cambodia bases contributed about 47%/27%/26% of garment output, with year-on-year changes of -7pct/+3pct/+4pct respectively. The bank determines that as new overseas bases expand, the contribution of future overseas capacity will continue to increase (previous estimates had already exceeded 50%), meeting the demands of the international market Business. ① Domestic capacity: primarily serving China and the Asian overseas market, strengthening digital construction, with R&D, efficiency, and speed as core competitive advantages. Overseas capacity: while the scale continues to expand, upstream and downstream support gradually improves, consolidating cost advantages, and deeply binding the core medium to long-term demands of overseas customers.
Revenue in 2024 is expected to grow steadily, and the recovery of profit quality is expected to drive Net income to grow rapidly.
1) In 2024: Combining the situation of H2 2024, the bank determines that the company's revenue for the entire year of 2024 is expected to grow steadily by over 10%, with gross margin expected to continue to recover year-on-year, and main business profits (excluding the effects of Exchange Rates and other factors) expected to grow rapidly year-on-year. 2) In 2025: Considering Orders and capacity expansion situations, the bank estimates that the company's revenue and Net income in 2025 are expected to grow steadily by more than 10%.
Risk warning: Risks of fluctuations in downstream demand, ② risks of capacity expansion falling short of expectations, ② risks of fluctuations in major customer Orders, and risks from Forex fluctuations.
