Company Coverage
Shenzhou International (2313 HK): 1H26 Profit Warning; Net Profit To Decline 38-43%; Weaker Than Expected
BUY (Maintained)
Current price:
Target price:
Upside:
Previous TP :
HK$42.80
HK$61.40
+43.5%
HK$72.50
Analyst
Analyst
Highlights
Shenzhou issued a profit warning on 7 August, expecting a 1H26 net profit decline of approximately 38-43% yoy. This guidance is 27-33% below the VA consensus.
Management attributed the decline mainly to: a) weak demand and tariff sharing, b) rising labour costs and raw materials costs, and c) appreciation of the renminbi against the US dollar.
The company will report its 1H26 results on 25 August. We believe the key focus will remain on: a) the order outlook for 2H26, and b) gross margin expansion pace. Maintain BUY, cut target price by 15% to HK$61.40.
Analysis
- Profit warning expects 1H26 net profit to decline 38-43% yoy. On 7 August, after market close, Shenzhou International (Shenzhou) issued a profit warning, expecting a 1H26 net profit decline of approximately 38-43% yoy to Rmb1,811m-1,970m, compared with Rmb3,177m in 1H25. This guidance is 27-33% below the visible alpha (VA) consensus of Rmb2,692m.
- Management attributed the profit decline to:
- Weak demand and tariff sharing. End-user restocking demand has been subdued and brand clients have adopted a more cautious approach to placing order. This has led to increased volatility in order demand, resulting in a decline in revenue, while tariff sharing has also had a negative impact.
- Rising labour costs and raw materials costs. Wage and pension costs increased across all regions. The capacity expansion in Vietnam and Cambodia enlarged the overall workforce, while the new facilities remain in the ramp-up phase, with room for improvement in production efficiency. In addition, raw material costs, mainly yarn, rose in line with international oil prices. Together, these factors drove up overall labour and manufacturing costs.
- Impact of the appreciation of the renminbi. Shenzhou's trade revenue is primarily denominated in US dollars while it reports in renminbi. The renminbi appreciated 4% yoy on average against the US dollar in 1H26, which had an adverse impact on its trading activities and on the revaluation of its US dollar net current assets, mainly bank balances and trade receivables. This, per our understanding, resulted in a significant forex loss in 1H26 (vs Rmb126m forex gain in 1H25).
- The company will report its 1H26 results on 25 August. We believe the key focus will remain on: a) the order outlook for 2H26, and b) gross margin expansion pace.
Highlights
Shenzhou issued a profit warning on 7 August, expecting a 1H26 net profit decline of approximately 38-43% yoy. This guidance is 27-33% below the VA consensus.
Management attributed the decline mainly to: a) weak demand and tariff sharing, b) rising labour costs and raw materials costs, and c) appreciation of the renminbi against the US dollar.
The company will report its 1H26 results on 25 August. We believe the key focus will remain on: a) the order outlook for 2H26, and b) gross margin expansion pace. Maintain BUY, cut target price by 15% to HK$61.40.
Analysis
- Profit warning expects 1H26 net profit to decline 38-43% yoy. On 7 August, after market close, Shenzhou International (Shenzhou) issued a profit warning, expecting a 1H26 net profit decline of approximately 38-43% yoy to Rmb1,811m-1,970m, compared with Rmb3,177m in 1H25. This guidance is 27-33% below the visible alpha (VA) consensus of Rmb2,692m.
- Management attributed the profit decline to:
- Weak demand and tariff sharing. End-user restocking demand has been subdued and brand clients have adopted a more cautious approach to placing order. This has led to increased volatility in order demand, resulting in a decline in revenue, while tariff sharing has also had a negative impact.
- Rising labour costs and raw materials costs. Wage and pension costs increased across all regions. The capacity expansion in Vietnam and Cambodia enlarged the overall workforce, while the new facilities remain in the ramp-up phase, with room for improvement in production efficiency. In addition, raw material costs, mainly yarn, rose in line with international oil prices. Together, these factors drove up overall labour and manufacturing costs.
- Impact of the appreciation of the renminbi. Shenzhou's trade revenue is primarily denominated in US dollars while it reports in renminbi. The renminbi appreciated 4% yoy on average against the US dollar in 1H26, which had an adverse impact on its trading activities and on the revaluation of its US dollar net current assets, mainly bank balances and trade receivables. This, per our understanding, resulted in a significant forex loss in 1H26 (vs Rmb126m forex gain in 1H25).
- The company will report its 1H26 results on 25 August. We believe the key focus will remain on: a) the order outlook for 2H26, and b) gross margin expansion pace.
BUY (Maintained)
Current price:
Target price:
Upside:
Previous TP :
HK$42.80
HK$61.40
+43.5%
HK$72.50
Analyst
Analyst
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