The market value breaks 100 billion stock price innovation Gao Shenzhou depends on what wins the industry?

Shenzhou International (02313), the first apparel group in China with a market capitalization of over 100 billion, has reached a new high. The reporter learned that as of the close of November 9, Shenzhou closed at 73.55 Hong Kong dollars, up 3.23%, the highest intraday value of 74.95 Hong Kong dollars, the highest record since the listing.

From the long-term chart, the stock price has maintained a steady rise in high-growth bull stocks since its listing. Why has Shenzhou been able to get capital favored for many years? Recently, Southwest Securities issued a research report to give an overweight rating. The research report mentioned several key points of the company's outreach to the industry, and may be able to answer this question. The main contents of the Zhitong Finance APP excerpt report are as follows:

As the leading OEM company, Shenzhou International (02313) is the largest vertical integrated knitting manufacturer in China. Its products are diversified, and it has long-term and stable cooperative relations with several major sportswear brands all over the world, and the future continues to improve.

In the first half of this year, benefiting from the rapid growth of the sporting goods market, the company achieved revenue of 8.26 billion yuan (+18.9% year-on-year) and net profit of 1.80 billion yuan (+24.1% year-on-year).

Market demand continues to improve

The company is committed to creating a diversified business profile that is less dependent on a single category or market. From a product perspective, 2016 sports apparel, casual wear and underwear accounted for 65.0%, 25.7%, and 8.6%, respectively. .

According to Euromonitor's report, global apparel sales increased by 3.8% year-on-year in 2016, while sportswear grew at a rate of 7% for three consecutive years. In 2016, the market value of professional sportswear was $78 billion, including sports shoes and apparel. The growth rates are 10% and 6% respectively.

With the popularity of sports and sports and leisure, the global sportswear market is expected to continue to grow. Domestically, with the increase in the income of mainland Chinese residents and the rise of new shopping malls and online shopping, consumers' shopping is more convenient and will continue to promote the growth of domestic apparel consumption demand.

Shenzhou International's four core customers (Uniqlo, Nike, Adidas and Hummer) accounted for more than 80% of the revenue, three of which are sportswear companies. The stable growth of the global sportswear market in the future effectively guaranteed the company's future performance growth.

The company is a key supplier to these four core customers, and has established a long-term and stable relationship with these four customers, with orders accounting for approximately 12% of Nike's purchases, 12% of Adidas, 14% of Uniqlo and Hummer's 30%.

From the market share of domestic sportswear brands in 2016, Nike and Adi accounted for 36% of the market share. In the first half of 2017, orders from Nike and Hummer surged by 30.8% and 45.4% respectively. In addition, Uniqlo is actively expanding overseas markets, and Greater China and South Asia are key drivers of its growth.

In general, when international brands deploy production bases in different regions, local companies will be preferred according to local product needs. In recent years, Nike and Adidas are optimizing the supply chain, reducing the number of supply manufacturing plants and focusing on large-scale OEM enterprises. Shenzhou International, as a leading OEM company in China, will surely benefit from this trend.

Strong management ability and orderly expansion of overseas production capacity

In recent years, with its high-efficiency production capacity and strong independent research and development capabilities, the company has become a scarce foundry resource in the industry, with a high priority in the quality supplier list, which helps to continue to attract high-quality orders, and from the status quo In view of it, there is a slight shortage of supply.

Taking into account the recent increase in domestic labor costs and raw material prices, rising environmental costs, and limited resource supply, the company has adopted a strategy of coordinated development at home and abroad. Domestic factories increase production efficiency through automation equipment upgrades and production of molds. At the same time, due to low labor costs and low tax incentives, the company gradually invested in new capacity to Southeast Asian countries and continued to expand production bases.

The advantages of integrated production are obvious, and production efficiency is expected to increase.

The company adopts a unique vertical integrated production mode, which only needs to purchase a large number of standard raw material yarns supplied by suppliers from outside. The internal factory manufactures, dyes, cuts and sews the yarn fabrics and finally delivers them to the customer's store. At present, due to the seamless connection between fabric and garment manufacturing business, the company has reduced the delivery cycle from 2-3 months to 45 days in the industry, especially in the face of expedited orders, and can achieve 15-30 days of delivery.

This production mode will help to increase unit output, reduce unit fixed costs, and shorten production cycles. The improvement of production efficiency and the shortening of the supply cycle have effectively promoted the company's bargaining power and formed an important market competitiveness of the company. The integrated production mode also makes the company's product quality controllable, and the problems found in upstream and downstream can be communicated in a timely manner, which is more convenient for customers. Since the company and large customers have a certain proportion of flexible delivery (+/- 3% can be delivered), it can improve fabric utilization and save costs. In addition, the centralized layout of the production base can shorten the time between the fabric factory and the garment factory.

As China's population aging trend intensifies, it will bring cost pressure and difficulty in recruiting enterprises, and the company will continue to improve production efficiency. First of all, the company actively adopts measures such as upgrading existing production equipment, producing mold development and optimizing operation process, and gradually promotes automated production. The automation promotion has increased the per capita output rate by 10% in 2016 and 9% in the first half of 2017.

Second, actively carry out employee technical and educational training. In September 2012, the company established Shenzhou Management College, and strived to improve the management level of the team leader and above to improve the quality and efficiency of the production site products. Now it has become the cradle of developing company management talents. As of the end of 2016, the company has recorded 10,855 people participated in the training.

Finally, the company strengthened product development and increased product added value. The company actively introduces overseas engineers and domestic talents, strengthens R&D team building, and has established an automation innovation center. At the same time, it has established an information sharing mechanism with major raw material suppliers to understand the needs of customers' consumer markets and improve R&D efficiency. In recent years, the number of patent applications has continued to increase, and patent conversion rates have continued to increase.

In addition, the company selected high value-added orders, product structure continued to optimize, 2017H1 unit price increased by about 5%. At the same time, the company's cost control is effective. In recent years, the changes in sales expense ratio and management expense rate have been stable.

In the first half of 2017, the gross profit was 26.2 billion yuan (+18.1% yoy), the gross profit margin was 31.7%, a slight decrease of 0.2 percentage points year-on-year, and the performance was stable; the net profit reached 18.0 billion yuan (+24.1% yoy). With the further improvement of the company's production automation level and the increase in orders for high value-added products, the company's future profits will increase steadily.

profit prediction

The EPS of the company is expected to be 2.45/2.97/3.62 yuan in 2017-2019, corresponding to a dynamic price-earnings ratio of 24/20/16 times. Considering that the company is a leading enterprise in the vertical integration of textiles in the Mainland and the rapidly developing market demand, we give the company a price-earnings ratio of 22 times in 2018 with a target price of HK$76.87, which is covered for the first time and given an “overweight” rating.

Editor in charge: Wang Zhen