Shenzhou International: Strong Outlook; Inventory Concerns Ease; Valuation Upside Remains

We expect Shenzhou International to deliver 21% year-over-year revenue growth and 47% net profit growth for the first half of 2024, rebounding from a weak first-half 2023. Despite challenges faced by a key customer, Nike, orders from other clients such as Adidas, Puma, and Uniqlo are anticipated to counterbalance any hits. Additionally, higher capacity utilization rates, nearing 100% at Shenzhou International’s factories, should translate into margin improvements. Therefore, we expect Shenzhou International to clock in a gross margin of 27.8% for the first half of 2024, a significant rise from 22.4% in the corresponding period last year.