Core Viewpoint - Shenzhou International is expected to experience a recovery in 2024, with a projected revenue increase of 14.8% compared to the previous year, despite facing challenges in 2023 [1] Group 1: Financial Performance - In 2024, the gross profit margin is anticipated to rebound to 28.1%, supported by effective cost control and a focus on leading downstream clients [1] - The company has demonstrated strong financial performance and cost management, which enhances profitability stability amid industry fluctuations [1] Group 2: Strategic Advantages - The company has established significant competitive barriers through vertical integration, covering the entire production chain from weaving to finished garments, resulting in a high fabric self-sufficiency rate and reduced delivery times [2] - Continuous technological innovation has allowed Shenzhou to maintain high gross profit margins, with high-tech products driving the overall gross margin recovery [2] - Deep partnerships with major clients such as Uniqlo, Nike, Adidas, and Puma have been cultivated, with these four clients contributing 80.75% of revenue in 2024, ensuring efficient capacity utilization [2] Group 3: Global Layout and Risk Mitigation - Shenzhou's production layout features a "China R&D + Southeast Asia manufacturing" model, reducing risks associated with international trade and leveraging lower labor costs in Southeast Asia [2] - By 2023, the proportion of production capacity in China decreased to 47%, while Vietnam's capacity increased to 27%, with a new base in Cambodia expected to add 10% capacity by 2025 [2] Group 4: Future Growth Drivers - The company is diversifying its client base, reducing reliance on major clients, with new customer revenue share expected to increase by 6.6 percentage points to 16.2% over three years [3] - The product structure is shifting towards high-value categories, with sports products sales increasing by 9.8% and leisure products by 27.1% in 2024, driven by innovative materials [3] - Digital supply chain improvements have enhanced operational efficiency by nearly 90%, with a focus on local sourcing strategies to shorten delivery times [3] Group 5: Earnings Forecast - Revenue projections for 2025, 2026, and 2027 are estimated at 31.227 billion, 34.131 billion, and 37.671 billion yuan respectively, with corresponding EPS of 4.45, 4.96, and 5.42 yuan [4]

Investment Rating - The report assigns a "Buy" investment rating for the company, marking it as the first recommendation [5]. Core Insights - The company is expected to experience a positive turning point in 2024, with a projected revenue increase of 14.8% compared to the previous year, driven by recovering domestic consumption and a rebound in orders from key international clients [5][16]. - The company's financial performance is robust, with a forecasted gross margin recovery to 28.1% in 2024, showcasing excellent cost control and risk management capabilities [5][21]. - The strategic advantages include vertical integration, technological innovation, deep client relationships, and a global production layout that mitigates risks [6][9][34]. Summary by Sections 1. Operational Resilience - Short-term recovery is confirmed, with a solid operational foundation as the company rebounds from a challenging 2023, where revenue was pressured by reduced orders from key clients [16]. - Financial performance remains stable, demonstrating strong risk resilience with a historical average ROE of 15.94% and a cash flow management ratio significantly above industry averages [21][25]. 2. Strategic Advantages - Vertical integration in production provides significant cost advantages and efficiency, with a high self-sufficiency rate in fabric production [26]. - Continuous technological innovation has led to high-margin products, with a total of 585 patents authorized by 2024, enhancing the company's competitive edge [30]. - The company maintains deep ties with major clients like Uniqlo, Nike, Adidas, and Puma, which collectively contribute approximately 80% of revenue, ensuring stable order flows [31][36]. - A global production strategy, characterized by a shift towards Southeast Asia, helps mitigate risks associated with international trade and labor costs [34]. 3. Future Growth Drivers - The client structure is diversifying, reducing dependency on major clients while increasing revenue from emerging brands [37]. - The digital supply chain initiatives have improved operational efficiency by nearly 90%, enhancing responsiveness and delivery capabilities [41]. - Governance stability, with significant ownership by the founding family and a highly experienced management team, supports long-term strategic consistency [45]. 4. Earnings Forecast - Revenue projections for 2025-2027 are estimated at 312.27 billion, 341.31 billion, and 376.71 billion respectively, with corresponding EPS of 4.45, 4.96, and 5.42 [9][53].

Group 1: Market Expansion and Revenue Growth - The company is implementing a ROW (rest of the world) strategy to actively develop global markets outside North America, with non-North American market revenue reaching nearly 10% by the end of 2024 [2][3] - In 2024, the company's revenue grew by 45.05%, and net profit increased by 44.94%, driven by product and market expansion [2][3] - The North American pneumatic tools market is recovering, with major clients increasing procurement, contributing to the company's growth [3] Group 2: Financial Performance - In Q1 2025, the company's revenue increased by 61.33% year-on-year, while net profit rose by 43.84% [3] - The gross margin of key products such as vacuum cleaners and air compressors showed limited year-on-year variation, with plans to optimize product structure and increase high-margin products [4][5] Group 3: Product Development and R&D Focus - Future R&D will focus on upgrading small air compressors and wet/dry vacuum cleaners, as well as developing new air power technology products [4][5] - The company plans to enhance its nursing robot technology, ensuring stable growth in R&D investment and developing more functionalities [5][6] Group 4: Sales Models and Profit Contribution - The main sales models are ODM and brand authorization, each contributing over 45% to total sales [4][5] - The company aims to promote the OBM (own brand) model while enhancing high-end and high-margin products within ODM and brand authorization [5] Group 5: Cost Management and Risk Mitigation - The company employs vertical integration in production to control costs and improve product quality, with plans to continue this model [5][6] - To address raw material price fluctuations, the company has established long-term agreements with suppliers and employs flexible pricing strategies [6][7] Group 6: Operational Updates and Future Outlook - The new factory in Malaysia is expected to start large-scale production in May 2025, which will mitigate the impact of U.S. tariffs on exports [7] - The company anticipates stable production and shipping operations despite recent tariff changes [7]