Shenzhou International Shares Gain on 2024 Outlook
By Tracy Qu
Shenzhou International's shares rose Wednesday, with investors betting on a better year for a key supplier of Nike, Uniqlo, Adidas and other brands after it said it reached full production domestic capacity in the first quarter.
Shares of the Chinese sportswear and apparel maker were up 12% at HK$73.70 (US$9.42) in mid-morning trade, trimming losses this year to 8.3%. The rise would be the company's biggest one-day percentage gain since late 2022.
The move comes despite a revenue miss on Tuesday, with a 10% drop in 2023 sales coming in well short of expectations as demand fell in U.S. and European markets and purchase orders fell amid retail brand destocking. Net profit was largely in line, helped by better gross margins.
Shenzhou also said that it thinks brand owners have nearly finished clearing out inventory, and that it expects consumer demand for apparel in overseas markets to pick up this year.
Citi analysts said market expectations for Shenzhou are too low given a "good 2024 outlook," adding that it expects Shenzhou will grow due this year to the "restocking pace of most customers." They kept a buy rating and raised their stock target price to HK$108 from HK$102, saying they are more confident now that Shenzhou can reach double-digit volume growth this year due to a low base in 2023 and expectations for double-digit order growth from major global and domestic brands.
"We believe Shenzhou has resumed positive revenue growth since 4Q23 and will likely sustain it in 1Q24 with almost full utilization rate in overseas and China plants," Citi analysts Eric Lau and Alice Cai said in a research note.
Nomura called the 2023 results "mixed," but they kept a buy rating, citing "encouraging recovery" of capacity utilization after the company said utilization in China had hit a bottom in 2023 and reached full production in the first quarter. Analysts Jizhou Dong and Cathy Xiao lifted their forecasts for sales growth and gross profit margin, and raised their target price to HK$104.30 from HK$101.00.
Jefferies analysts were more downbeat, flagging the company's decision to cease providing capacity growth guidance was likely to due to recent order cuts. They note that the company's outlook in the second half of 2024 faces significant risks, for example, many of Shenzhou's clients are cutting their winter core procurement plans in 2024. They add that heavy spending on new products also puts margins at risk. They kept a hold rating and trimmed their target price to HK$67 from HK$80.
Write to Tracy Qu at tracy.qu@wsj.com
(END) Dow Jones Newswires
March 27, 2024 01:11 ET (05:11 GMT)
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