Analyst

Steve Zhou, CFA

Equity Bottom-Up

Shenzhou Intl Group Holdings / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/shenzhou-intl-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:10415:1" rel="noopener">Shenzhou Intl Group Holdings (2313 HK)</a> reported 2023 results yesterday.  2H23 continued to be weak, with sales down 6% yoy.  Net profit grew 10% yoy in 2H23.</li>
<li>Most importantly, the company sounded quite bullish on 2024 during the results briefing, which greatly improves the visibility in the order recovery thesis of the company.</li>
<li>I continue to believe that Shenzhou is the best proxy for gaining exposure to the global sportswear sector, especially given the improved visibility now. </li>
</ul>



Shenzhou Intl Group Holdings (2313 HK) reported 2023 results yesterday.  2H23 continued to be weak, with sales down 6% yoy.  Net profit grew 10% yoy in 2H23.
Most importantly, the company sounded quite bullish on 2024 during the results briefing, which greatly improves the visibility in the order recovery thesis of the company.
I continue to believe that Shenzhou is the best proxy for gaining exposure to the global sportswear sector, especially given the improved visibility now. 


Shenzhou Intl (2313 HK):  Higher Visibility Into Restocking Cycle

<ul>
<li>
<a href="https://www.smartkarma.com/entities/nike-inc-cl-b" target="_blank" data-smartkarma-citation="entities:6658:1" rel="noopener">Nike (NKE US)</a> reported better than expected 1Q24 results this morning, with the stock up 8% in after market trading. </li>
<li>Nike's inventories declined by 10% yoy during the quarter, which bodes well for <a href="https://www.smartkarma.com/entities/shenzhou-intl-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:10415:1" rel="noopener">Shenzhou Intl Group Holdings (2313 HK)</a>, as sales to Nike made up 30% of Shenzhou's sales. </li>
<li>Shenzhou is trading at 15x 2024E PE, compared to an average of 21x forward PE over the last decade. </li>
</ul>



Nike (NKE US) reported better than expected 1Q24 results this morning, with the stock up 8% in after market trading. 
Nike's inventories declined by 10% yoy during the quarter, which bodes well for Shenzhou Intl Group Holdings (2313 HK), as sales to Nike made up 30% of Shenzhou's sales. 
Shenzhou is trading at 15x 2024E PE, compared to an average of 21x forward PE over the last decade. 


Shenzhou Intl (2313 HK):  Nike's Inventories Declined By 10% Yoy in 1Q24

President, Vision Research

Robert C Prather Jr

President

Vision Research

Vision Research was formed in 2004 with the vision of generating the best possible fundamental analysis and investment research for smid cap US equities. In 2008, we broadened our coverage to include mid/large cap US stocks.  After researching a  few ideas outside the US each year for a number of years, we launched a dedicated non-US equity product at the end of 2015.  This was followed by the introduction of a product focused on IPOs in mid-2017.

Fundamental Insight

<ul>
<li>Key customers &amp; their retail partners battling excess inventory, waning consumer demand, and market share losses in certain geographies</li>
<li>Plans for capacity expansion amid demand uncertainties and alt data and macro picture may prove aggressive and along with risks of reshoring/nearshoring &amp; friend-shoring may prove margin dilutive</li>
<li>Consensus expectations for 2H23 and 2024 appear overly optimistic and valuation is not cheap given the growth profile</li>
</ul>


Key customers &amp; their retail partners battling excess inventory, waning consumer demand, and market share losses in certain geographies
Plans for capacity expansion amid demand uncertainties and alt data and macro picture may prove aggressive and along with risks of reshoring/nearshoring &amp; friend-shoring may prove margin dilutive
Consensus expectations for 2H23 and 2024 appear overly optimistic and valuation is not cheap given the growth profile


Shenzhou (2313 HK): Contract Mfr for Leading Sportswear Brands Facing Challenging Demand Outlook.

<ul>
<li>
<a href="https://www.smartkarma.com/entities/nike-inc-cl-b" target="_blank" data-smartkarma-citation="entities:6658:1" rel="noopener">Nike (NKE US)</a> reported 2QFY24 results last week with a guidance cut, as the company cut FY24 full-year sales guidance to around +1%, compared to +mid-single-digit in the previous guidance. </li>
<li>
<a href="https://www.smartkarma.com/entities/shenzhou-intl-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:10415:1" rel="noopener">Shenzhou Intl Group Holdings (2313 HK)</a> saw its stock drop by 8% the following day, given that Nike is Shenzhou's most important customer, making up 30% of Shenzhou's sales. </li>
<li>Nike's inventory is down another 14% yoy, and down high-single-digit compared to the previous quarter 1QFY24. </li>
</ul>



Nike (NKE US) reported 2QFY24 results last week with a guidance cut, as the company cut FY24 full-year sales guidance to around +1%, compared to +mid-single-digit in the previous guidance. 

Shenzhou Intl Group Holdings (2313 HK) saw its stock drop by 8% the following day, given that Nike is Shenzhou's most important customer, making up 30% of Shenzhou's sales. 
Nike's inventory is down another 14% yoy, and down high-single-digit compared to the previous quarter 1QFY24. 


Shenzhou Intl (2313 HK):  Nike Guidance Cut Presents An Opportunity

Asian Hedge Fund Manager, Long Short Equity, Macro

David Mudd

Hua Hong Semiconductor / Equity Bottom-Up

<ul>
<li>After hitting a low point in Q4 2023, Research on Hong Kong companies has been slow to pick up reflecting the ongoing skepticism from investors. </li>
<li>Reports on the large China tech companies dominated the top ten companies covered over the last couple of years and in the first half of 2024.</li>
<li>As China continues to dominate and make news in the global EV market, research in that sector has picked up.</li>
</ul>


After hitting a low point in Q4 2023, Research on Hong Kong companies has been slow to pick up reflecting the ongoing skepticism from investors. 
Reports on the large China tech companies dominated the top ten companies covered over the last couple of years and in the first half of 2024.
As China continues to dominate and make news in the global EV market, research in that sector has picked up.


BUY/SELL/HOLD: China/Hong Kong Stock Updates (July 8th)

China

HLA CORP., Ltd. manufactures and markets apparel, woolen fabrics, woolen yarns, and textile raw materials, as well as provides dyeing and processing services. Heilan Home distributes their product globally.

Li Ning Company Limited researches, designs, manufactures, distributes, and retails sports footwear, apparel and accessories for sport and leisure use.

Fujian Funeng Co., Ltd. manufactures a variety of textile including flannelette, cotton yarn, polyurethane synthetic leather, needling fabric, and water-jet bonding fabric.

Zhejiang Weixing Industrial Development Co., Ltd. manufactures buttons, zips, and other apparel accessories. The Company also provides electroplating services.

Lao Feng Xiang Co., Ltd. processes and sells gold and jewelry products.  Through its subsidiaries, the Company manufactures and sells wooden, mechanical and cosmetic pencils, as well as manufactures and sells pencil making machinery and paints, and general trading.

Zhejiang Semir Garment Company Limited designs, develops, outsources production, markets and distributes apparels.  The Company's main operation is casual wear and children's apparels.

Biem.L.Fdlkk Garment Co., Ltd. is an apparel designer. The Company designs, markets, and distributes a variety of golf apparels. Biem.L.Fdlkk Garment serves customers throughout China.

Billion Industrial Holdings Ltd. manufactures polyester filament yarn.  The Company produces drawn textured yarn and fully drawn yarn, which are used in apparel, footwear and home furnishings.

Xtep International Holdings Ltd. designs, manufactures, and markets sportwear. The Company produces footwear, apparel, and accessories.

Sichuan Zhenjing Corporation Limited manufactures and distributes leather products. The Company produces and sells leather cases, leather car seats, decoration leather, and other products. Sichuan Zhenjing markets its products throughout China.

Prada S.p.A. is an Italian fashion company that designs, manufactures, promotes and sells high-end leather goods, ready-to-wear and footwear through various brands.

Skechers U.S.A., Inc. designs and markets branded contemporary casual, active, rugged, and lifestyle footwear for men, women, and children.  The Company sells its products to department stores and specialty retailers.  Skechers also sells its products internationally through distributors and directly to consumers through its own retail stores.

SRF Limited is a multi-business Indian multinational engaging in the manufacture of chemical based industrial intermediates. The Company has a business portfolio that encompasses technical textiles, chemicals, packaging films and engineering plastics.

Ralph Lauren Corporation designs, markets, and distributes men's, women's and children's apparel, accessories, fragrances, and home furnishings. The Company's products are sold under a wide range of brands. Ralph Lauren's operations include wholesale, retail, and licensing.

Crocs, Inc. designs and manufactures shoes.  The Company produces soft, lightweight, non-marking, slip- and odor-resistant shoes made of closed-cell resin material.  Crocs manufactures men's, women's, and children's shoes and markets them to retail chains.

Tapestry, Inc. designs and markets clothes and accessories. The Company offers handbags, leather goods, footwear, fragrance, jewelry, outer wear, ready-to-wear, scarves, sunwear, travel accessories, and watches. Tapestry serves customers in the United States.

VF Corporation is an international apparel company. The Company owns a broad portfolio of brands in the jeanswear, outerwear, packs, footwear, sportswear and occupational apparel categories. VF Corp's products are marketed to consumers shopping in specialty stores, upscale and traditional department stores, national chains and mass merchants.

ASICS CORPORATION manufactures general sporting goods and equipment.  The Company's products, such as athletic shoes and sportswear, are distributed in the United States, Europe, Australia, and Asia.

Brunello Cucinelli SpA is a luxury fashion company, known for its cashmere products as well as exclusive brands.  The Company designs, manufactures, and distributes clothing and accessories globally for men and women.

Moncler S.p.A. is a brand with a winter heritage. Known for its outerwear, Moncler today designs and produces clothing and accessories for women, men and children, directly distributed through Moncler boutiques, its online store, department stores and multibrand stores.

Shenzhou International Group Holdings Ltd manufactures and processes textiles.  The Company produces, dyes, finishes, prints, embroiders, cuts, and sews knitwear.

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Shenzhou Intl Group Holdings (2313 HK)

Shenzhou Intl (2313 HK): Higher Visibility Into Restocking Cycle

Major brokerage firms are upgrading the company recently, due to upbeat order expectations. I continue to like the name and believe the visibility...

Steve Zhou, CFA

Shenzhou Intl (2313 HK): Nike's Inventories Declined By 10% Yoy in 1Q24

Note the strong share price momentum. Shenzhou (2313 HK) remains the best proxy for gaining exposure to the global sportswear sector.

Steve Zhou, CFA

Shenzhou (2313 HK): Contract Mfr for Leading Sportswear Brands Facing Challenging Demand Outlook.

Consensus estimates do not account for customer, retailer, Asian market share shift, macro, alt data and geopolitical risks.

Robert C Prather Jr

Shenzhou Intl (2313 HK): Nike Guidance Cut Presents An Opportunity

What the market seemed to ignore is that Nike's inventory is down another 14% yoy, and down high-single-digit compared to the previous quarter 1QFY24.

Steve Zhou, CFA

BUY/SELL/HOLD: China/Hong Kong Stock Updates (July 8th)

Tech NEV companies continue to dominate the research landscape for Hong Kong coverage. Bosideng, China Water Affairs, Topsports, BYD and Xiaomi...

David Mudd

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