CICC: Maintains outperform rating on SHENZHOU INTL (02313), lowers target price to 62.48 Hong Kong dollars.

CICC released a research report stating that considering the fluctuation of terminal demand and macro factors, it lowered SHENZHOU INTL's (02313) 2026 EPS forecast by 15% to 4.09 yuan and introduced a forecast of 4.38 yuan for 2027, currently corresponding to a 10/10 times 2026/27 P/E ratio, maintaining an outperform industry rating. The valuation switched to 2026, with the target price reduced by 15% to 62.48 Hong Kong dollars, corresponding to a 14 times 2026 P/E ratio, with 30% upside potential. Calculated at around 60% dividend payout ratio, the company's dividend yield for 2026 has reached 6%. CICC's main points are as follows: Performance in 2025 was lower than the bank's expectations The company's revenue in 2025 increased by 8% to 31 billion yuan, and net profit attributable to equity shareholders decreased by 7% to 5.8 billion yuan, excluding one-time gains from asset disposals in the same period of last year, the decrease was 1%. The performance was lower than the bank's expectations, mainly due to rising labor costs, tariff sharing, the drag of the appreciation of the RMB on gross profit margins, and increased exchange losses. Weak demand and customer order cycle dragged down revenue in the second half of 2025 The company's revenue in 2025 increased by 8%, with volume increasing by about 9% and RMB/USD ASP both decreasing by about 1%. In the second half of 2025, due to weak demand and the impact of the customer order cycle, revenue growth slowed to 2% year-on-year. In terms of brands, Adidas' revenue increased by 29%, showing positive performance, while Uniqlo/Nike increased by 4%/-1% year-on-year, with growth slowing down. By region, revenue in Europe and the United States increased by 21%/11%, while China/Japan decreased by 14%/3%. Management expects overall stability among core customers in 2026, with the leisure category performing well and new customers expected to contribute in the second half of 2026. Various cost disturbances in the short term, exchange losses, and one-time gains from last year led to a decline in profit in the second half of 2025 The company's gross profit margin decreased by 1.8 percentage points in the second half of 2025, mainly due to: 1) employee wage increases and Cambodia's capacity still in the climbing phase, 2) customer tariff sharing in the United States; 3) impact of RMB appreciation. Selling and administrative expense ratio decreased by 0.4 percentage points, other income decreased by 780 million yuan year-on-year, mainly due to a negative impact of 410 million yuan from exchange losses compared to the same period last year and a benefit of 330 million yuan from asset disposals in the same period last year, net profit decreased by 20% to 2.6 billion yuan. Short-term increase in raw material costs expected to have limited impact The company's raw materials are approximately 50% cotton and 40% chemical fiber. While maintaining some raw material and semi-finished product inventory, the company has also signed agreements with suppliers. The company also has the ability to pass on cost changes to customers. The bank believes that the short-term fluctuation in raw material prices will have a relatively limited impact on the company. Faced with fluctuations in demand and rising costs, management plans to leverage innovative driving and integrated short lead time capabilities to achieve a single-digit increase in order volume in 2026. Risk factors: downstream customer growth below expectations, fluctuation in raw material prices, fluctuation in RMB exchange rate.