FIRST SHANGHAI: Maintain a "Buy" rating on SHENZHOU INTL (02313) with a target price of HK$79.80.

FIRST SHANGHAI issued a research report stating that it maintains a "buy" rating on SHENZHOU INTL (02313) with a target price of 79.80 Hong Kong dollars. Despite fluctuations in the sportswear brand and macro performance, Shenzhou is still able to achieve leading performance. Looking ahead, the bank expects the group to maintain a good growth momentum and anticipates a gradual increase in gross margin. The bank continues to be optimistic about the company's development as an industry leader, with its excellent management execution and product innovation capabilities, as well as its irreplaceable advantages in vertical integration and balanced layout both domestically and internationally. Key points from FIRST SHANGHAI: Overview of performance in the first half of 2025 Company revenue increased by 15.3% year-on-year to 14.97 billion yuan (unchanged). In terms of volume and price breakdown, volume was the main growth driver, with prices (in USD) falling by about 0.8%, while there was a slight increase in prices (in RMB). Gross margin fell by 1.9 percentage points to 27.1%, mainly due to the increase in staff salaries in the second half of last year. Operating expense ratio decreased by 0.3 percentage points to 9.1%. The company recorded a growth of 8.4% in net profit attributable to shareholders to 3.18 billion yuan. Overall revenue growth exceeded expectations. The company plans to issue an interim dividend of 1.38 Hong Kong dollars; dividend payout will remain stable at 60%. Stable growth in sportswear performance Leisurewear and overseas markets are the main drivers of growth: in terms of products, sportswear/leisurewear/underwear/other categories recorded changes of +9.9%/+37.4%/+4.1%/+6.0%. The growth of sportswear is mainly driven by the US and European markets, while the performance of leisurewear benefits from the demand in Japan, Europe, and other markets. In terms of regional distribution, Europe/USA/Japan/Other regions/domestic market recorded changes of +19.9%/+35.8%/+18.1%/+18.7%/-2.1%. The growth of Nike/Adidas/Uniqlo/Puma was +6.0%/+28.2%/+27.4%/+14.7%; their combined share was 82.1% (an increase of 2.7%). The group's growth exceeds that of customer reports, demonstrating the group's competitive advantage and its ability to increase market share among customers. Other points It is expected that there will be high single-digit growth in volume in the second half of the year, and gross margin will improve compared to the first half (benefiting from the rapid growth of sportswear). In terms of production capacity: the company has recruited 4,000 employees in Cambodia in the first half of the year, with a total expected recruitment of 6,000 employees for the year. The acquisition of a factory in Vietnam will increase daily production capacity by 200-300 tons. In terms of tariffs: the impact is expected to be minimal, and the FOB model will be maintained. Capital expenditure was 15 billion yuan in the first half of the year, and is expected to be around 23 billion yuan for the whole year.