Shenzhou International: Lowering Our Fair Value to HKD 115 From HKD 140 on a Weaker Sales Outlook

We lower our fair value estimate for Shenzhou International by 18% to HKD 115 from HKD 140 to account for a weaker sales outlook. We expect Nike and Adidas, two of Shenzhou’s largest clients, to replenish inventory at a slower pace, translating to more moderate revenue growth for Shenzhou. While we have reduced Shenzhou’s long-term revenue growth assumption, we expect Shenzhou's outlook to brighten following a challenging 2023, which was pressured by issues such as inventory surpluses, an intensified promotional climate, and clients shifting production away from China. We anticipate the sportswear market will work through excess inventory in 2024 and this is supported by strong January sales data reported by manufacturing peers. We believe that Shenzhou's current share price represents an attractive investment opportunity for investors.