Shenzhou Earnings: Sales and Margin Recovery in Full Gear

Narrow-moat Shenzhou’s first-half results were below our and Refinitiv consensus expectations, but the improving gross margin is an encouraging sign for a return to long-term earnings growth. Management struck a cautious tone for growth in the fourth quarter and beyond, supporting our forecast for double-digit sales growth and a return to normalized profitability in 2024. We keep the bulk of our assumptions unchanged and maintain our fair value estimate of HKD 140. We continue to be of the view that the current share price presents an attractive buying opportunity for long-term investors.