Shenzhou Stock Drops on Weak Guidance; Long-Term Growth Intact; FVE Unchanged

As already anticipated in a previous profit warning, narrow-moat Shenzhou reported weak second-half results. The company also lowered its revenue guidance for 2022, affected by an ongoing hiring freeze that was put in place to prevent new workers from bringing the COVID-19 virus into the factory bubble. Nevertheless, we think this guidance is on the conservative side, considering Cambodia's ramp-up, efficiency improvement, and low base from last year. Therefore, we see slight upside to management's guidance and believe the current share price weakness provides opportunistic entry points for long-term investors. Our forecasts assume that suspensions in Southeast Asian plants do not repeat in 2022, and China plants will resume hiring in the second half—leading to higher capacity utilization and better margins.