A leading global sportswear manufacturer, deeply exploiting the high quality of racetrack customer resources. The company was founded in 1988. It initially started by foundry Japanese high-end baby clothing, and entered the Uniqlo supply chain in 1997. Since then, it has strengthened cooperation with Nike and Adi in 2005, and began overseas expansion of production capacity in 2016. By category, the company mainly manufactures sportswear, and its revenue share remains around 70% year-round; by market, the overseas market's revenue share continues to grow to 71.3% of 24H1, with the European market being the main driver of growth.

Client: Changes in industry demand inject order improvement expectations into the company. From an industry perspective, in recent years, the size of the overseas sports market has continued to grow, and the growth rate is expected to continue as demand for outdoor sports from emerging market residents increases; in addition, overseas sports brands continue to demand to replenish stocks, and orders from upstream foundries continue to grow. From a client-side perspective, downstream brand customers have high requirements for supplier assessments, and the share of leading foundry companies has gradually increased in recent years, making it easier for leading foundry companies with strong OEM capabilities to continuously obtain stable manufacturing orders.

Company side: Compared with comparable companies that have been deeply involved in the racetrack for many years, the competitive advantage is obvious. The company's advantages in scaling up are obvious. From a labor perspective, the company's number of employees and labor efficiency rank among the highest in the industry; from the ROE side, the company's profitability continues to be at the forefront of the industry, driving overall ROE to maintain a high level of industry standards; from the perspective of future development, the company deeply binds downstream high-quality customers through continuous joint R&D and innovation to build a high competitive barrier with more advanced and better foundry quality.

Profit forecast and rating: As the world's leading sportswear foundry company, Shenzhou International has been deeply involved in the industry for many years and has excellent customer resource endowments, mature OEM technology, diversified distribution of production capacity, and high employee labor efficiency to form competitive barriers. Along with overseas inventory, expansion of the company's production capacity overseas, and period rate advantages, there is plenty of room for future growth. We expect the company's net profit to be 5.785 billion yuan/6.627 billion/ 7.488 billion yuan respectively in 2024-2026, up 26.93%/14.57%/12.98% year-on-year respectively. We selected Juyang Industrial and Ruhong, the same sportswear foundry companies as comparable companies. The average PE in 2024 was 21.3X, and Shenzhou International's corresponding PE was 15.7X in 2024. Considering the company's advantages such as superior profitability compared to companies and strong stickiness among leading customers under the company's scale and globalization, it was covered and given a “buy” rating for the first time.

Risk warning: risk of changes in the international situation; risk of rising labor costs; risk of customer demand recovery falling short of expectations; risk of choosing comparable companies across markets.