UOB Kay Hian
Date of Report: Friday, 23 May 2025

Shenzhou International Group: 2025 Outlook – Strong Order Growth, Margin Recovery, and Expansion Plans

Overview: Shenzhou International Group Poised for Robust Growth in 2025

Shenzhou International Group Holdings (2313 HK), a global leader in apparel manufacturing serving major brands like Uniqlo, Nike, Adidas, and Puma, continues to showcase resilience and growth potential despite tariff uncertainties and macroeconomic headwinds. UOB Kay Hian maintains a BUY rating, with an unchanged target price of HK\$85.60, representing a 50.40% upside from the current share price of HK\$56.90.

Key Investment Highlights

• Order Volumes Remain Intact: Shenzhou’s order flows for 1Q-3Q25 are unaffected by recent tariff discussions. Momentum for 4Q25 remains strong, with no evidence of order reductions or front-loaded shipments during the 90-day pause.
• 10% Volume Growth Expected in 2025: The company is on track for a 10% year-on-year increase in production output, supported by a 6% rise in workforce, mainly in Cambodia, and ongoing efficiency improvements.
• Gross Margin Expansion on the Horizon: Gross margin recovery is expected to accelerate in 2H25 as wage hike impacts diminish and increased costs are passed on via pricing in new orders.
• Strong Brand Partnerships: Order volumes from Adidas, Puma, and Uniqlo are projected to rise by 20%, 10%, and 10%, respectively, while Nike’s orders are expected to remain stable. New customers like Ralph Lauren and Lululemon are forecasted to see high-teens growth.
• Strategic Expansion in Cambodia: Shenzhou is committed to expanding its production capacity in Cambodia, planning to hire 6,000 additional workers this year.

Stock Data Snapshot

• Ticker: 2313 HK
• Market Cap (HKD): 85,533.4 million
• Market Cap (USD): 10,929.5 million
• 3-Month Avg. Daily Turnover (USD): 70.5 million
• 52-Week High/Low (HKD): 85.95 / 42.60
• Major Shareholders: Ma Jiangrong (44.8%), Ma Renhe (5.0%)
• FY25 NAV/Share (RMB): 25.77
• FY25 Net Cash/Share (RMB): 9.10

Order and Pricing Dynamics: Navigating Tariff Uncertainties

Despite recent tariff uncertainties, Shenzhou’s key customers have not asked the company to absorb additional tariff burdens. If tariffs are applied in Vietnam or Cambodia, retail prices for these customers would need only a modest 5-6% increase to offset costs, given their high mark-ups. This limited impact underscores Shenzhou’s pricing power and the stickiness of its customer relationships.

2025 Outlook: Volume Growth, ASP Trends, and Gross Margin Recovery

• Order Volume: Total production output expected to grow by 10% year-on-year in 2025.
• Workforce: 6% expansion, largely in Cambodia, alongside improved production efficiency.
• By Customer:
  • Adidas: ~20% order volume growth
  • Puma & Uniqlo: ~10% order volume growth each
  • Nike: Flat order volume
  • Ralph Lauren & Lululemon: High-teens order volume growth
• Average Selling Price (ASP): Expected to remain flat or increase slightly in 2025; 1H25 to see a slight uptick, 2H25 to be stable.
• Gross Margin: Some pressure in 1H25 due to wage increases for the Chinese workforce in July 2024, but recovery is anticipated to accelerate in 2H25 as the cost impact fades and higher prices can be negotiated in new orders.

Production Expansion: Cambodia and Indonesia

Shenzhou remains steadfast in its plan to expand garment production in Cambodia, with a goal to add 6,000 workers in 2025. Progress on a new factory in Indonesia, however, may be delayed due to political conditions, shifting the partial production commencement from late 2025 to 1Q26-2Q26. Garment production will begin first, with fabric production still under review.

Financial Performance and Forecasts

Below is a summary of Shenzhou’s key financial metrics and projections through 2027:

Profit & Loss, Balance Sheet, and Cash Flow Highlights

Profitability and Growth Metrics (2024-2027):

• EBITDA margin: 25.4%–25.7%
• Pre-tax margin: 23.9%–25.0%
• Net margin: 20.8%–21.8%
• ROA: 12.3%–13.7%
• ROE: 17.7%–18.3%
• Turnover growth: 9.6%–14.8% annually
• Net profit growth: 6.1%–10.4% annually

Leverage:

• Debt to total capital: Reducing from 27.4% (2024) to 17.5% (2027)
• Debt to equity: Declining from 37.3% to 21.1%
• Net cash position strengthening (net debt to equity improving from -35.2% to -40.1%)

Cash Flow:

• Operating cash flow rising from RMB 5,273 million (2024) to RMB 8,371.9 million (2027)
• Capex remains stable around RMB 1,863.6 million annually
• Dividend payments steadily increasing in line with profit growth

Risks and Earnings Sensitivities

• Risks: Slower-than-expected order growth and unfavorable tariff negotiations remain key downside risks.
• Earnings Forecast: 2025/26 earnings forecasts are maintained, with projected net profits of RMB 6,620 million (2025F) and RMB 7,201 million (2026F).

Valuation and Recommendation

• Target Price: HK\$85.60 (DCF-based), implying a 2025F PE of 18.2x and 2026F PE of 16.7x.
• Current Valuation: Stock trades at 11.9x 2025F PE and 10.9x 2026F PE, offering significant upside potential.
• Recommendation: BUY maintained, supported by robust fundamentals, strong client relationships, and ongoing expansion strategies.

Conclusion: Shenzhou International – Well-Positioned for Growth Amid Global Challenges

Shenzhou International Group’s resilient order book, margin recovery potential, and strategic capacity expansion underscore its status as a leading apparel manufacturer. The company’s diversified customer base, prudent financial management, and commitment to growth in Cambodia position it for continued outperformance. Investors seeking exposure to the global apparel supply chain should keep Shenzhou on their radar for 2025 and beyond.