Comprehensive Analysis of Shenzhou International Group Holdings
Date of Report: Thursday, 23 January 2025
Broker Name: UOB Kay Hian
Overview of Shenzhou International Group Holdings
Shenzhou International Group Holdings, a leading global apparel manufacturer, specializes in activewear, athleisure, and casual wear. The company supplies some of the world’s largest apparel brands, including Uniqlo, Nike, Adidas, and Puma. With its strong market presence and innovative production capabilities, Shenzhou continues to hold a prominent position in the apparel sector.
Stock Performance and Target Price
The stock is currently traded at HK\$57.65 with a target price of HK\$96.30, representing a potential upside of 67.0%. The target price has been slightly revised downward from the previous HK\$96.50 due to adjustments in growth and margin projections. Despite this minor revision, the recommendation to BUY remains unchanged.
Key Financial Metrics
| Year |
Net Turnover (Rmbm) |
EBITDA (Rmbm) |
Net Profit (Rmbm) |
EPS (Fen) |
PE (x) |
Dividend Yield (%) |
| 2023 |
24,970 |
6,413 |
4,557 |
247.1 |
21.8 |
3.2 |
| 2024F |
27,887 |
7,908 |
5,862 |
343.4 |
15.7 |
4.1 |
| 2025F |
30,930 |
8,830 |
6,617 |
398.4 |
13.5 |
4.6 |
| 2026F |
34,444 |
9,930 |
7,500 |
454.2 |
11.9 |
5.2 |
Growth Drivers and Projections
Shenzhou’s revenue growth in the second half of 2024 is anticipated to exceed expectations, driven by a projected 15% year-on-year (YoY) increase in order volume. This growth is attributed to enhanced productivity and strong demand from key clients like Adidas and Uniqlo.
While the average selling price (ASP) in RMB terms is expected to decline YoY in 2024, the decline is projected to moderate compared to the 7% drop in the first half of the year. By 2025, ASP is expected to show a slight YoY increase, further bolstered by a more than 10% rise in order volume.
Production Capacity Expansion
Shenzhou is actively expanding its production capacity across its overseas facilities. In 2024, the company plans to hire 5,000–6,000 workers for its new factory in Cambodia, which has a designed capacity of 12,000 workers. Additionally, Vietnam’s existing factory is set to add 800–1,000 workers, with efficiency improvements also contributing to capacity growth. Indonesia’s new factory will commence hiring in late 2025, with an initial phase involving over 3,000 workers out of a total designed capacity of 10,000.
Financial Adjustments and Risks
Shenzhou’s 2024 and 2025 earnings forecasts have been adjusted downward by 7% and 8%, respectively. This revision reflects a shift in the product mix towards casual wear and lingerie, as well as the impact of domestic workers’ wage hikes in the second half of 2024. The gross margin estimates for both years have been lowered by 1.8ppt and 1.7ppt, accompanied by slight increases in selling and distribution expense ratios.
Potential risks include slower-than-expected order growth and an unfavorable ASP trend, which could impact overall performance.
Capital Expenditure and Dividend Policy
Capital expenditure (capex) is expected to increase to RMB 2 billion annually in 2024 and 2025 due to the construction of new factories. From 2026 onwards, capex is projected to normalize at RMB 1.4 billion. Despite abundant cash reserves, Shenzhou’s dividend payout ratio stands at 60%, lower than other apparel OEM peers. Management is yet to decide on whether to raise the dividend payout ratio.
Valuation and Recommendation
The stock is currently trading at 13.5x its 2025F price-to-earnings ratio (PE) and offers a dividend yield of 4.6% for 2025. The revised target price of HK\$96.30, based on a discounted cash flow (DCF) model, implies a 19.4x 2025F PE. The recommendation to BUY remains firmly in place, given the strong growth potential and attractive valuation.
