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Shenzhen International Group (2313 HK) Summary

Core Content

Shenzhen International Group is a vertically integrated apparel manufacturer with a target price of HKD44.30, representing a 11% increase from the current share price of HKD40.00. The company's market capitalization is HKD58.2B, and its average daily turnover is USD10M. The company has a strong presence in the apparel sector and is expected to benefit from industry consolidation.

Main Points

• Positive Outlook: The firm's positive outlook is reaffirmed after visiting its Vietnam and Cambodia plants. The capacity expansion is on track, with the Vietnam fabric factory already operational and the garment plant in Vietnam producing ahead of schedule.

• Capacity Expansion: The Vietnam garment plant's construction is ahead of schedule by 2-3 months. The plant has already reached 2,000 workers, surpassing the target of 1,500. The fabric factory in Vietnam is expected to contribute significantly to the group's production capacity.

• Order Flows: Strong order flows from Nike and Adidas are noted, with the company expecting a 20% and 12% increase in sales respectively. The Cambodia plant has extended working hours to meet increased demand, particularly for sportswear.

• Product Mix: Shenzhen is focusing on high-margin and high-volume orders, especially in the sportswear segment. It has developed synthetic fabrics and is increasing its synthetic production capacity in Vietnam to 70% in 2016.

• Financial Metrics: The company's core net profit is projected to grow significantly, with a forecasted growth rate of 23.5% for FY16. The core FD P/E is expected to decrease to 14.2x by FY16, which is lower than its peers. The company's net dividend yield is also expected to increase.

• Dividend Policy: The rising dividend payout could act as a potential catalyst for the stock, especially after the Vietnam expansion. The company is also increasing its localization rate of workers in Vietnam to 75% by 2018.

• Financial Performance: The company's revenue and EBITDA are expected to grow, with a 19.2% revenue growth and a 20.3% EBITDA growth in FY16. Its ROAE is projected to increase to 21.5% in FY16, showing improved profitability.

Key Information

• Key Financials:

  • Revenue is expected to grow from CNY10,047.2M in FY13A to CNY16,403.7M in FY17E.
  • EBITDA is projected to increase from CNY2,322.4M in FY13A to CNY4,015.5M in FY16E.
  • Core net profit is expected to grow from CNY1,803.0M in FY13A to CNY3,275.7M in FY17E.
  • Net DPS is projected to increase from CNY0.60 in FY13A to CNY1.13 in FY16E.

• Valuation Metrics:

  • The core FD P/E is projected to decrease from 24.3x in FY13A to 14.2x in FY17E.
  • The P/BV is expected to decrease from 4.2x in FY13A to 2.8x in FY17E.
  • The EV/EBITDA is projected to decrease from 12.2x in FY13A to 11.4x in FY17E.

• Shareholder Structure:

  • MA JIAN RONG holds 52.7% of the shares.
  • MA REN HE holds 19.2%.
  • Matthews International Capital Management holds 17.1%.

• Investor Relations:

  • The company has a team of researchers and analysts across various regions, including Singapore, Malaysia, Indonesia, the Philippines, Thailand, and Vietnam, covering a range of sectors such as retail, consumer, and industrial.

Summary Table

Additional Insights

• The company's ability to develop synthetic fabrics and its focus on high-margin products contribute to its above-average margins.
• The company is in a better position to handle raw material price volatility due to its vertically integrated model.
• The target PER is at the high end of HK-listed OEM peers, and the target is a 30% discount relative to its closest Taiwanese peers.
• The company is expected to maintain a strong dividend policy, with a potential increase in dividend payout in the future.

Conclusion

Shenzhen International Group is a vertically integrated apparel maker with strong growth potential. Its capacity expansion in Vietnam is ahead of schedule, and it is benefiting from strong order flows from Nike and Adidas. The company's financial performance is expected to improve, with projected increases in revenue, EBITDA, and net profit. Its valuation metrics are improving, and the company's dividend policy is expected to be a catalyst for its stock in the future.