Shenzhou International's stock price bucked the trend, a hidden opportunity for the Hong Kong stock market

Shenzhou International (02313.HK), as a large-scale vertically integrated knitting manufacturer in China, has always won the favor of internationally renowned brands including NIKE, UNIQLO, ADIDAS and PUMA with its stable production capacity and high-quality products. These brands are highly recognized for Shenzhou International's supply chain responsiveness and product quality, making them one of their main foundries.

Shenzhou International focuses on the production and sale of various knitwear products. The company is famous for its vertically integrated production model, which covers all production links from fabric research and development, weaving, dyeing and finishing, printing and embroidery, cutting to sewing. One of the company's core competencies is its efficiently integrated supply chain. This enabled the company to respond quickly to market demand and quickly produce high-quality products, making it the number one knitwear exporter in China for several years in a row.

It is worth mentioning that Shenzhou International has a global market layout. Its core markets include China, Europe, the United States, and Japan. The advantages of this layout are that it is less dependent on a single market, a stable sales environment, and low risk. Currently, the company is still actively considering further expanding its overseas production capacity layout.

Faced with fluctuations in the global economy and continuous changes in the consumer market, how to find new growth points in the face of challenges has become the focus of investors' attention.

By the end of December 2023, Shenzhou International's revenue was RMB 24.97 billion, down 10.1% from the previous year, and net profit fell slightly by 0.1% to RMB 4.557 billion.

In particular, this is due to reduced demand for sportswear orders in the European and US markets, as well as brand inventory removal.

Shenzhou International has maintained long-term and stable cooperative relationships with major international customers such as Nike, Adi, Uniqlo and Puma. Currently, orders from these customers are generally showing a steady growth trend. Although some brand customers are under inventory pressure, Shenzhou International can maintain high customer satisfaction and order growth expectations with its high-quality supply chain management and customer service capabilities. The best proof is that despite the decline in revenue due to pressure from brands to remove inventory, the company still achieved net profit of 4.6 billion yuan to mother, which is basically the same as the previous year.

Shenzhou International's gross profit margin in 2023 was 24.3%, and net interest income was $440 million. Among them, there was a year-on-year increase of 4.3 percentage points in the second half of the year, an increase of 3.4 percentage points over the first half of the year, and a steady increase in profits. To a certain extent, this showed the market the improvement in the company's capacity utilization rate, the improvement in the operating efficiency of overseas factories, and cost control during the pandemic.

Overall, although Shenzhou International's financial situation faced the challenge of falling revenue in 2023, it maintained a relatively steady profitability through effective cost control and improved operational efficiency. In the future, with the gradual recovery of global market demand, the company is expected to achieve better financial performance.

Shenzhou International's main products include sportswear, casual wear, underwear, etc., with a diversified layout on commercial products.

Sales of sports products fell 13.6% in 2023, mainly due to weak demand in the European and US markets and brand inventory removal. Sales of casual products fell 1.4%, but sales of underwear products increased sharply by 30.2%, thanks to increased demand for underwear purchases in Japan and other markets.

Overall, although sales declined in some categories, the growth in underwear products partially offset the decline in other categories, reflecting the company's success in diversifying its product portfolio.

In addition to diversifying the product portfolio, the global market layout designed by the company also played a role, and sales performance in different regional markets varied significantly.

The European and US markets declined by 19.1% and 20.4%, respectively, and the weak economic recovery in these regions had an impact on the company's sales. In contrast, revenue in the Chinese market increased 0.7% year over year, which shows the market's relative soundness and growth potential. This regional difference reflects changes in the company's needs in different markets, and also provides a basis for adjusting its future market strategy.

In summary, despite facing the challenges of fluctuating global market demand, Shenzhou International has shown strong market competitiveness and development potential with its strong customer base and flexible market response strategies.

As of December 2023, Shenzhou International's stock price fluctuations were mainly affected by its financial situation and market performance.

The company's revenue in 2023 was RMB 25 billion, down 10% year on year, but net profit to mother remained at RMB 4.6 billion, showing strong profitability. The gross margin increased to 24.3%, reflecting effective cost control and operational efficiency, and this financial performance supported the stock price to a certain extent.

On the market side, the decline in demand in Europe and the US affected overall revenue, but the Chinese market was relatively stable. With flexible market response strategies, the company cleverly stabilized overall revenue in the face of weak demand in some markets. Predictably, as global market demand picks up, the company is expected to drive sales growth by improving capacity utilization and optimizing resource allocation.

From an investor's perspective, Shenzhou International has shown strong market competitiveness and sustainable development potential.

The stock price is expected to grow steadily given the recovery of the global economy and the company's strong customer base. Investors are advised to increase their holdings appropriately during stock price adjustments to obtain long-term returns. Overall, Shenzhou International has good long-term investment value.

Currently, Shenzhou International has shown a positive attitude in increasing overseas production capacity and developing new markets.

In terms of the future market, demand for sportswear is expected to be boosted with the 2024 Olympics, which provides new growth opportunities for Shenzhou International. Furthermore, the gradual recovery of the global economy has also made clothing consumer demand in the European and American markets expected to pick up, providing basic conditions for the company to recover its performance.

The recovery in market conditions will inevitably put some pressure on production capacity. The company is currently implementing the recovery plan in stages. The first step is to focus on improving capacity utilization. As production bottlenecks approach, the Group expects to optimize the product structure and recruit employees. In view of last year's low base, the company's recruitment activities in China and Vietnam are being carried out intensively, with the goal of returning the total number of employees to 99,000 by the end of the year.

As brand customers' demand for restocking increases, Shenzhou International expects a significant increase in production capacity and more stable revenue growth in the first half of this year, which will have a positive impact on profit margins.

Macquarie Bank is optimistic about the future of Shenzhou International. Based on the expected acceleration in revenue growth, it raised its profit forecast for the 2024-2025 fiscal year by 2%. The target share price was raised from HK$89 to HK$91, and the rating is “outperforming the market”!

Overall, with its sound financial management and efficient operation capabilities, Shenzhou International has shown strong competitiveness and development potential in the market. Despite a decline in revenue in 2023, the company maintained steady profitability by optimizing costs and global market layout.

In the future, with the gradual recovery of the global economy and the recovery in demand for sportswear, Shenzhou International is expected to make significant progress in expanding new markets and increasing production capacity. Macquarie released a research report stating that with Shenzhou International's “outperforming the market” rating, investors can appropriately increase their holdings during stock price adjustments to obtain long-term returns.