Market Overview - In February, the A-share market saw the CSI 300 index rise by 1.9%, while the textile and apparel sector increased by 1.3%[13] - The Hong Kong market's Hang Seng Index rose by 3.2%, with the textile and apparel sector index up by 2.9%[13] - The US market experienced a decline, with the S&P 500 index down by 1.4% and the consumer discretionary sector down by 9.4%[13] Brand Performance - In January, outdoor and women's apparel sales on Tmall, JD, and Douyin platforms saw significant growth, with respective year-on-year increases of 56% and 45%[19] - Notable brands such as KOLONSPORT and Bi Yin Le Fen achieved year-on-year sales growth of 81% and 101% respectively[24] - Major brands like Nike and Adidas reported year-on-year sales growth of 21% and 34% respectively on these platforms[24] Manufacturing Insights - Vietnam's textile and footwear exports grew by 3.4% and 2.7% year-on-year in January, despite high base effects[2] - Key Taiwanese manufacturers like Yu Yuan and Zhi Qiang reported over 20% growth in January, with Yu Yuan achieving record revenue for the month[2] - Nanshan Zhishang's stock surged by 81.5% due to its involvement in robotic tendon materials, indicating strong future demand[16] Investment Recommendations - The report recommends focusing on undervalued Hong Kong stocks and brands with new growth potential, such as All Cotton Era and Hai Lan Home[3] - For textile manufacturing, companies like Shenzhou International and Huali Group are highlighted for their strong growth prospects and market share potential[3] Risk Factors - Potential risks include macroeconomic weakness, international political and economic uncertainties, and significant fluctuations in exchange rates and raw material prices[3]

Investment Rating - The report maintains a "Buy" rating for the company with a target price of 75.2 HKD, indicating a potential upside of 32.4% from the current price of 56.8 HKD [4][7][21]. Core Insights - The company benefits from a strong order flow due to the recovery in market demand, particularly in sportswear and leisure apparel, which is expected to continue into 2025 [4][5][18]. - The textile manufacturing industry is experiencing a recovery, with stable performance from downstream brands, which supports the company's growth prospects [5][18]. - The company's internationalization strategy is progressing well, with an increasing proportion of overseas production capacity, which is expected to enhance operational efficiency and profitability [6][19]. Financial Performance - For the first half of 2024, the company reported a revenue of 129.75 billion RMB, a year-on-year increase of 12.2%, with a gross profit of 37.61 billion RMB, reflecting a 45.0% increase [10][18]. - The gross margin for the first half of 2024 was 29.0%, up 6.6 percentage points year-on-year, while the net profit margin was 22.6%, an increase of 4.2 percentage points [10][18]. - Revenue by business type showed double-digit growth in leisure and underwear segments, while sportswear recorded a high single-digit growth [11]. Market Dynamics - The company is positioned to benefit from the ongoing demand for sports health and the trend of brands increasing their procurement from key suppliers due to supply chain risks [4][18]. - The recovery in the textile manufacturing sector is reflected in the performance of peer companies, indicating a positive industry trend [5][16]. - The company has a strong customer base, with major clients contributing significantly to its revenue, and it is expected to continue securing orders from high-growth brands [20]. Future Projections - The company is projected to achieve revenues of 276.1 billion RMB, 307.1 billion RMB, and 335.3 billion RMB for FY24E, FY25E, and FY26E, respectively, with year-on-year growth rates of 10.6%, 11.2%, and 9.2% [7][21]. - Net profits are expected to reach 57.6 billion RMB, 65.1 billion RMB, and 73.5 billion RMB for the same periods, with growth rates of 26.3%, 13.1%, and 12.8% [7][21].

Core Viewpoint - Macquarie's latest research report indicates that Uniqlo and adidas are expected to be the main drivers of order growth for Shenzhou International, with gross margins likely to improve further [1] Group 1: Company Performance - Shenzhou International's net profit forecasts for the fiscal years 2024 and 2025 have been downgraded due to a decline in gross margins [1] - The target price for Shenzhou International has been reduced from HKD 97.4 to HKD 92.6, while maintaining an "outperform" rating [1] Group 2: Industry Trends - Nike's revenue is expected to achieve positive growth in the second half of the year, with an increase in product average prices [1]

Investment Rating - The report gives a "Recommend" rating to Shenzhou International (2313 HK) [189] Core Views - Shenzhou International is a global leader in knitted manufacturing with strong innovation R&D vertical integration and early globalization positioning it as a stable leader with upward growth potential [189] - The company is expected to achieve net profits of 5 701 6 530 and 7 410 billion yuan in 2024-2026 with year-on-year growth rates of 25 1% 14 5% and 13 5% respectively [189] - The PE ratios for 2024-2026 are 15x 13x and 12x respectively indicating a valuation advantage compared to peers [189] Financial Performance - In 2023 Shenzhou International achieved revenue of 24 970 million yuan a year-on-year decrease of 10 1% and net profit of 4 557 million yuan a year-on-year decrease of 0 1% [94] - The company's revenue is expected to grow to 27 980 31 172 and 34 399 million yuan in 2024-2026 with year-on-year growth rates of 12 1% 11 4% and 10 4% respectively [94] - The gross margin is expected to gradually increase to 28 4% 28 7% and 29 1% in 2024-2026 driven by improved capacity utilization and overseas expansion [186] Product and Market Analysis - Sportswear is the main driver of revenue growth with sales expected to reach 19 530 21 896 and 24 300 million yuan in 2024-2026 [16] - The European market showed growth with revenue increasing from 3 890 million yuan in 2019 to 5 027 million yuan in 2023 accounting for 20 13% of total revenue [96] - The company has diversified its customer base with major clients including Nike Uniqlo Adidas and Puma [30] Industry Trends - The global sportswear market is expected to grow from 1 92 trillion USD in 2024 to 2 35 trillion USD in 2028 with a CAGR of 4 20% [106] - The top five global sportswear brands (Nike Adidas Puma Skechers and Lululemon) accounted for 31 2% of the market in 2023 with Nike leading at 15 8% [105] - The global sportswear manufacturing market grew from 85 53 billion USD in 2009 to 158 26 billion USD in 2023 with a CAGR of 4 2% [171] Competitive Advantages - Shenzhou International has a strong R&D capability with 767 patent applications and 505 authorized patents by the end of 2022 [18] - The company has a vertical integration model that shortens production and delivery cycles making it highly favored by brand customers [19] - Shenzhou International has established dedicated factories for major clients like Nike Puma Adidas and Uniqlo ensuring independence and confidentiality in production [137] Future Outlook - The company is expected to benefit from the increasing concentration of suppliers to leading brands with Adidas and Nike reducing their number of manufacturing partners [146] - Shenzhou International has expanded its cooperation with new brands like FILA Lululemon and Lacoste which are expected to drive future growth [183] - The company is actively promoting automation and digitalization in its production processes to improve efficiency and reduce costs [166]

Investment Rating - The report maintains a "Buy" rating for Shenzhou International (02313 HK) [5][6] Core Views - Shenzhou International is expected to achieve 10%+ revenue growth in 2024 and 2025, driven by stable order growth and capacity expansion [5] - The company's gross margin is expected to continue improving in H2 2024, following a 6 6pct year-over-year increase to 29 0% in H1 2024 [2] - Net profit is projected to grow 27% in 2024, followed by 13% growth in both 2025 and 2026 [5] Revenue and Profit Analysis - H2 2024 revenue is estimated to grow 10%-20% year-over-year, with shipment volume expected to increase by 15%+ [2] - The company's gross margin improved significantly from 22 4% in H1 2023 to 29 0% in H1 2024 [2] - 2024 full-year revenue is expected to grow 10%+, with net profit projected to reach 5 8 billion yuan [5] Order and Customer Analysis - Major customers include Adidas, Uniqlo, Nike, and PUMA, with Adidas and Uniqlo expected to show strong order performance in 2025 [3] - In H1 2024, sales to top four customers accounted for 79% of total revenue, with Adidas sales growing 34% year-over-year [3] - Sportswear category accounted for 71% of H1 2024 sales, showing 8% year-over-year growth [3] Capacity and Production - The company is actively expanding overseas capacity, with Cambodia and Vietnam factories contributing 53% of total output in 2023 [4] - Cambodia's new garment factory reached its planned workforce of 18,000 employees in H1 2024 [4] - The company acquired a Vietnam factory to enhance fabric supply capabilities [4] Financial Projections - 2024-2026 net profit is projected to be 5 8 billion, 6 55 billion, and 7 39 billion yuan respectively [5] - The current price implies a 2025 PE ratio of 12x [5] - EPS is expected to grow from 3 04 yuan in 2024 to 4 91 yuan in 2026 [11] Industry Position - Shenzhou International is the world's largest vertically integrated garment manufacturer [5] - The company maintains strong partnerships with international brands and continues to enhance its competitive advantage through capacity expansion and efficiency improvements [5]

Investment Rating - The report assigns a "Buy" rating for the company, Shenzhou International, as it is a leading player in the global sportswear manufacturing industry [2][43][44] Core Insights - Shenzhou International has a strong competitive advantage due to its long-standing relationships with high-quality clients, mature manufacturing technology, and diversified production capacity [2][4][44] - The company is expected to benefit from the ongoing recovery in the global sportswear market, with significant growth potential driven by overseas replenishment and expansion of production capacity [2][4][44] - The report forecasts that the company's net profit will grow from 5.785 billion RMB in 2024 to 7.488 billion RMB in 2026, representing year-on-year growth rates of 26.93%, 14.57%, and 12.98% respectively [2][4][42] Summary by Sections 1. Company Overview - Shenzhou International, established in 1988, has developed a robust client base and is a key supplier for major brands like Uniqlo, Nike, and Adidas [9] - The company has a production capacity exceeding 25 million tons of fabric and 550 million garments annually, with a workforce of approximately 97,000 employees [9] 2. Client Demand and Market Trends - The global sportswear market is experiencing growth, particularly in emerging markets, which is expected to continue [15] - The report highlights that the replenishment cycle for inventory among downstream brands is contributing positively to order volumes [15] 3. Competitive Advantages - Shenzhou International's scale and efficiency place it at the forefront of the industry, with high employee productivity and a strong return on equity (ROE) [2][4][25] - The company has maintained a stable gross margin and net profit margin, indicating effective cost management [12][28] 4. Financial Projections - Revenue is projected to increase from 27.954 billion RMB in 2024 to 34.665 billion RMB in 2026, with corresponding growth rates of 11.94%, 11.80%, and 10.90% [42][41] - The report anticipates that the company's sales and management expense ratios will improve, further enhancing profitability [41][39] 5. Valuation Comparison - Shenzhou International's price-to-earnings (P/E) ratio for 2024 is estimated at 15.7x, which is lower than the average P/E of comparable companies at 21.3x, indicating a favorable valuation [2][44]

Investment Rating - No explicit investment rating provided in the report [4] Core Views - Shenzhou International's revenue grew by 12.2% YoY in H1 2024, with net profit attributable to shareholders increasing by 37.8% YoY [1] - Gross margin improved significantly by 6.6 percentage points YoY, exceeding expectations [1][3] - Overseas capacity expansion and efficiency improvements are expected to drive further performance growth [1][3] Revenue Breakdown By Product Category - Sportswear revenue increased by 7.6% YoY to RMB 9.213 billion, accounting for 71% of total revenue, driven by rising demand in mainland China [2][6] - Casualwear revenue grew by 20% YoY to RMB 2.761 billion, accounting for 21.3% of total revenue, supported by demand from Japan, Europe, and other markets [2][6] - Underwear revenue surged by 47.4% YoY to RMB 903 million, accounting for 7% of total revenue, primarily due to increased demand in Japan [2][6] - Other knitwear revenue increased by 12.2% YoY to RMB 100 million, accounting for 0.8% of total revenue [2][6] By Region - China market revenue grew by 20% YoY to RMB 3.72 billion, accounting for 28.7% of total revenue, driven by sportswear demand [2][7] - Europe market revenue increased by 4.4% YoY to RMB 2.527 billion, accounting for 19.5% of total revenue, supported by casualwear orders [2][7] - Japan market revenue rose by 27% YoY to RMB 2.12 billion, accounting for 16.3% of total revenue, driven by casualwear and underwear demand [2][7] - US market revenue grew by 2.7% YoY to RMB 1.88 billion, accounting for 14.5% of total revenue, supported by sportswear orders [2][7] - Other markets revenue increased by 7.4% YoY to RMB 2.73 billion, accounting for 21% of total revenue, driven by casualwear demand in South Korea, Australia, and Southeast Asia [2][7] By Key Clients - Top four clients (Uniqlo, Nike, Adidas, Puma) contributed 79.5% of total revenue, with a YoY growth of 11.7% [2][7] - Uniqlo became the top contributor with revenue of RMB 3.4 billion (+33.8% YoY), driven by casualwear and underwear orders [2][7] - Nike revenue declined by 6.5% YoY to RMB 3.24 billion due to price reductions, though volume grew by 1-2% [2][7] - Adidas revenue increased by 23.8% YoY to RMB 2.33 billion, while Puma revenue remained stable at RMB 1.34 billion [2][7] - Domestic clients (Li-Ning, Anta, Xtep) accounted for 11.2% of total revenue, up 0.4 percentage points YoY [2][7] - Lululemon revenue grew by over 60% YoY, and the company added a new client, LACOSTE [2][7] Profitability and Margins - Gross margin reached 29% in H1 2024, up 6.6 percentage points YoY, driven by improved capacity utilization and overseas factory efficiency [3][8] - Net profit margin attributable to shareholders was 22.6%, up 4.2 percentage points YoY [3][8] - Core profit, excluding government subsidies and exchange gains, increased by 61.1% YoY to RMB 2.76 billion [3][8] Overseas Capacity Expansion - Vietnam's new factory increased fabric capacity from 400 tons/day to 600 tons/day [3][10] - A new factory in Cambodia with 12,000 employees is under construction and expected to partially operate by 2025 [3][10] - Total employee count reached 102,000 in H1 2024, with 10,000 new hires, including 2,200 in Vietnam and 18,000 in Cambodia [10] Dividend Policy - The company maintains a stable dividend payout ratio of 50-60%, with an interim dividend of HKD 1.25 per share, representing a payout ratio of 58.5% [9] Inventory and Raw Materials - Inventory turnover days remained stable at 127 days in H1 2024, with higher inventory levels in the first half due to pre-stocking for future production [9] - The company's main raw material is cotton yarn, with inventory levels reflecting raw material stock [9]

Investment Rating - Buy (maintained) [1] Core Views - Strong profit growth driven by order recovery in H1 2024 [2] - Revenue increased by 12.2% YoY to RMB 12.976 billion, with net profit attributable to shareholders rising by 37.8% YoY to RMB 2.931 billion [2] - Sales net margin improved to 22.6%, up 4.2 percentage points YoY, and gross margin increased to 29.0%, up 6.6 percentage points YoY [2] - Significant growth in domestic and Japanese markets, with domestic revenue up 20.0% and Japanese revenue up 27.0% [2] - The company's market share among major clients has further increased, particularly in the domestic and Japanese markets [2] Business Breakdown By Product Category - Sportswear: RMB 9.213 billion, up 7.6%, accounting for 71.0% of total revenue [2] - Casualwear: RMB 2.761 billion, up 20.0%, accounting for 19.9% of total revenue [2] - Underwear: RMB 903 million, up 47.4%, accounting for 7.0% of total revenue [2] - Other knitwear: RMB 99.5 million, up 12.2%, accounting for 0.7% of total revenue [2] By Region - Europe: RMB 2.527 billion, up 4.4%, accounting for 19.5% of total revenue [2] - USA: RMB 1.881 billion, up 2.7%, accounting for 14.5% of total revenue [2] - Japan: RMB 2.116 billion, up 27.0%, accounting for 16.3% of total revenue [2] - Other markets: RMB 2.728 billion, up 7.4%, accounting for 21.0% of total revenue [2] - Domestic market: RMB 3.724 billion, up 20.0%, accounting for 28.7% of total revenue [2] Operational Highlights - Improved capacity utilization and increased efficiency in overseas factories contributed to the significant improvement in gross margin [3] - Sales/management/financial expense ratios were 0.7%/7.3%/1.5%, with management expenses decreasing by 0.6 percentage points YoY [3] - Operating cash flow was RMB 2.310 billion, down 14.6% YoY, with cash and cash equivalents at RMB 10.082 billion, down RMB 1.514 billion from the end of 2023 [3] Future Outlook - Revenue is expected to grow by 11%/12%/12% in 2024/2025/2026, reaching RMB 27.641 billion, RMB 31.045 billion, and RMB 34.701 billion respectively [5] - Net profit attributable to shareholders is projected to grow by 29%/14%/12% in 2024/2025/2026, reaching RMB 5.863 billion, RMB 6.672 billion, and RMB 7.444 billion respectively [5] - The company plans to expand overseas production capacity, particularly in Vietnam, and enhance employee incentives and talent development programs [5] Valuation - As of August 30, 2024, the stock price was HKD 64.40, with a P/E ratio of 15/13/12X for 2024/2025/2026 [5] - The company's ROE is expected to be 15.4%/15.1%/14.6% in 2024/2025/2026, with a gross margin of 29.2%/29.5%/30.2% [6]

Investment Rating - The report maintains a "Buy" rating for the company with a target price set at 64.4 HKD [7] Core Insights - The company reported a revenue of 12.2% growth year-on-year in 24H1, reaching 12.98 billion RMB, driven by increased market share among major clients and significant demand growth in mainland China and Japan [1] - The net profit attributable to shareholders increased by 37.8% year-on-year to 2.93 billion RMB, primarily due to higher capacity utilization and the expansion of overseas factories [1] - The company declared an interim dividend of 1.25 HKD per share, a 31.6% increase year-on-year, totaling approximately 1.71 billion RMB, which represents 58.5% of the net profit for 24H1 [1] Revenue Breakdown - Revenue from major clients shows significant variation: Client A contributed 3.4 billion RMB (34% growth), Client B 3.2 billion RMB (6% decline), Client C 2.3 billion RMB (24% growth), and Client D 1.3 billion RMB (stable) [2] - By product category, sportswear revenue was 9.21 billion RMB (8% growth), leisurewear 2.76 billion RMB (20% growth), underwear 0.9 billion RMB (47% growth), and other knitted products nearly 0.1 billion RMB (12% growth) [2] - Geographically, revenue from mainland China was 3.7 billion RMB (20% growth), EU 2.5 billion RMB (4% growth), Japan 2.1 billion RMB (27% growth), and the US 1.9 billion RMB (3% growth) [2] Profitability Metrics - The company's gross margin improved to 29%, an increase of 6.6 percentage points, while the net profit margin rose to 22.6%, up by 4.2 percentage points [3] - Selling and distribution expenses remained stable at 0.7% of revenue, while administrative expenses decreased by 0.6 percentage points to 7.3% of revenue [3] Capacity Expansion and Workforce - As of the end of 24H1, the company employed 18,000 staff at its new garment factory in Cambodia, with ongoing improvements in production efficiency [4] - The company is actively recruiting, having added approximately 2,200 employees at its Vietnam factory in the first half of the year [4] - The company is expanding its capacity in Vietnam and has acquired full ownership of a subsidiary in Vietnam to enhance fabric production capacity [4] Financial Forecast - The company expects continued growth in the second half of the year, with capacity utilization projected to remain at ideal levels [5] - Revenue forecasts for 2024-2026 are 28.76 billion RMB, 32.98 billion RMB, and 37.70 billion RMB, with net profits of 5.62 billion RMB, 6.51 billion RMB, and 7.32 billion RMB respectively [5]

Investment Rating - The report maintains a "Buy" rating for the company [1] Core Views - The company reported a significant recovery in revenue and net profit for 2024H1, driven by structural improvements in order demand and a substantial increase in gross margin [3] - The company is a leading vertically integrated knitwear manufacturer, with a notable increase in production efficiency and capacity utilization [3] Revenue and Profit Forecast - Total revenue for 2024E is projected at 27,521 million, with a year-on-year growth of 10.22% [2] - Net profit attributable to shareholders for 2024E is forecasted at 5,831 million, reflecting a year-on-year increase of 27.95% [2] - The earnings per share (EPS) for 2024E is estimated at 3.88 [2] Performance Highlights - The company achieved a revenue of 12.976 billion with a year-on-year increase of 12.2% and a net profit of 2.931 billion, up 37.8% [3] - The gross margin improved significantly to 29%, an increase of 6.6 percentage points year-on-year, due to enhanced production efficiency and capacity utilization [3] - The company declared an interim dividend of 1.25 HKD per share, with a payout ratio of 58.3% [3] Product and Market Analysis - The company experienced a volume increase of 20% in 2024H1, with a decline in average selling price (ASP) due to a shift in product mix towards lower-priced categories like underwear and casual wear [3] - Revenue growth by product category showed sportswear, casual wear, and underwear increasing by 7.6%, 20%, and 47.4% respectively [3] - Key clients include Uniqlo, Nike, Adidas, and Puma, with revenues of 3.4 billion, 3.24 billion, 2.33 billion, and 1.34 billion respectively [3] Capacity Expansion and Strategic Moves - The company is steadily ramping up production capacity in new factories in Cambodia and Vietnam, with a total workforce of 102,000 as of 2024H1 [3] - The acquisition of a fabric factory in Vietnam is expected to enhance fabric supply for overseas garment factories [3] Adjusted Profit Forecast - The net profit forecasts for 2024-2026 have been adjusted to 58.3 billion, 64.8 billion, and 71.9 billion respectively, with corresponding P/E ratios of 15, 14, and 12 [3]