The new plant's efficiency climbs and affects Q4 profits. Adidas's order outlook is optimistic and maintains a “buy” rating

The company released the 2024 performance report and dividend plan, and plans to distribute a cash dividend of 2.33 billion yuan, with a dividend ratio of about 60% (44% in 2023). Revenue in 2024 was 24 billion yuan (YoY +19.4%, same below), net profit attributable to mother +20.0% to 3.84 billion yuan, after deducting non-net profit +18.9% to 3.78 billion yuan. 2024Q4 revenue +11.9% to 6.495 billion yuan, net profit to mother +9.2% to 0.997 billion yuan, net margin -0.4pct to 15.4%. Q4 revenue is affected by the high base of inventory replenishment from downstream customers, and the net interest rate is affected by the decline in production efficiency of the new plant. We lowered our profit forecast. The net profit for 2024-2026 is 3.84/4.34/5.07 billion yuan (originally 3.9/4.56/5.3 billion yuan). The current stock price corresponds to PE 20.1/17.8/15.3 times. The company continues to expand and optimize the customer structure. The order growth rate is expected to be better than the industry. At the same time, the company actively expands with Vietnam and Indonesia as double bases in line with customer orders Production, in the long run, is expected to increase steadily as the efficiency of the new plant climbs, and the profitability is expected to increase steadily, maintaining the “buy” rating.

Volume-price split: sales growth drives revenue, and shipments grew by double digits under a high base in Q4

In terms of RMB, sales volume/unit price in 2024 increased by 17.53%/1.6% to 0.223 billion double/107.7 billion yuan, Q1-Q4 sales volume was 0.46/0.062/0.055/0.06 billion, +18.4%/+23.9%/+10.5% YoY. The average shipping price in RMB was +10%/+1.7%/-4.3%/+1.3%, respectively.

New customer Adidas and growing customers are optimistic about their orders, and actively expand production capacity at dual sites in line with orders

Order outlook: The company began cooperation with Adidas in 2024, and mass production and shipment will begin in September. It is expected that Adidas will be the driving force for order growth in 2025. In addition, New Balance, On, and Reebok orders reflect growth. Short-term growth rates of old customers such as Nike are affected, but there is still room for share growth. Capacity expansion: Production capacity will be actively expanded according to order demand. Four finished shoe factories will be put into operation in 2024, and the Sichuan plant in China and 1 new plant in Indonesia will be put into operation in February 2025. It is expected that 2025-2026 will be a major capital expenditure year. 2025H2-2026Q3 plants in Indonesia and Vietnam are still to be put into operation. The total production capacity of the Indonesian Phase II plant is expected to be 50-60 million/year.

Multiple new factories put into operation & dividends raised income tax rates, 2024Q4 net interest rates are under month-on-month pressure

The net interest rate returned to mother in 2024 was 16% (+0.1pct). The increase in the dividend ratio is expected to lead to an increase in the income tax rate compared to 2023, and the net interest rate will remain stable, reflecting the company's ability to manage finely. The net interest rate due to 2024Q1-Q4 was 16.5%/16.3%/16%/15.4%, respectively. For 2024H1, 1 finished shoe factory in Vietnam, 1 shoe material factory in Indonesia put into operation, and 2024Q4 put into operation 2 new factories. The increase in the share of new production plants led to phased pressure on gross margins in 2024Q4.

Risk warning: Headwinds in the global economic situation, weak demand in Europe and the US, and production capacity expansion falls short of expectations.