How Can Shenzhou International Maintain Rapid Growth?

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China's largest vertical integration is known as Foxconn of the world.

Manufacturer, Ningbo Shenzhou Knitting Co., Ltd. (hereinafter referred to as "

On January 17th evening, it announced that the company would hold a board meeting in Hongkong in March 26th, when the company would approve the financial year's performance and issuance of the company and its Affiliated Companies as at December 31, 2017, and consider the declaration, recommendation or payment of the final dividend.

The industry believes that in recent years, overseas market demand is weak, domestic market growth is slowing down, labor costs are rising, and environmental pressures are tightening. Under these pressures, Shenzhou International accelerate pformation and upgrading, promote technological innovation, and achieve double-digit growth in both revenue and profit.

According to the world clothing and shoe net, in the first half of 2017, the results of China Daily reported that Shenzhou International realized 8 billion 264 million yuan of business revenue, an increase of 18.9% over the same period last year, a gross profit of 2 billion 616 million yuan, an increase of 18% over the same period last year, and net profit attributable to shareholders increased by 24.1% to 1 billion 799 million yuan over the same period last year.

From the earnings report, in the first half of 2017, Shenzhou International gross profit margin was 31.7%, and net profit margin was 21.8%. It is far ahead of other textile enterprises in the middle and lower reaches of Greater China. The strong bargaining power derived from its high quality products has endowed it with a high and stable profitability through the industry cycle.

In the view of the market people, Shenzhou International's short single undertaking capacity has gone beyond the unparalleled counterparts. Analysis shows that the disjointed fabric of the traditional garment industry chain and garment manufacturing are disjointed, and the garment suppliers need to wait for the brand merchants to make the production until the fabric comes to the factory. The ability to integrate the garment production of the shendau international fabric has greatly improved the ability of the rapid reaction of the supply chain. At the same time, the brand merchants selected the fabrics to the factory, and have a strong appeal to the clothing brand, especially the fast fashion.

The Shenzhou strong supply chain system is sufficient to support the product cycle of short to 15~20 days.

As for future growth, Guo Haiyan, an analyst at CICC, believes that Shenzhou International has achieved its own sustainable development through two wheel drive and automatic pformation. From the perspective of Shenzhou International, it established subsidiaries in Kampuchea and Vietnam in 2005 and 2013. Now it has gradually formed two sets of integrated industrial layout in mainland China and Southeast Asia. With the further improvement of overseas production layout, the two wheel drive format enables the group to allocate customer orders from regional advantages.

The company's production process automation is now in an orderly manner, and is expected to further promote standardization, efficiency and labor cost savings in production processes.

Under the strict environmental supervision at home and abroad, the company continues to invest in the environmental protection field, and comprehensively considers the capacity constraints, rationally decides the future volume of business with the customers, so as to ensure that the orders are produced on time and according to quality and quantity, while maintaining their reputation and ensuring long-term cooperation with brands.

At present, Shenzhou International relies on Vietnam and Ningbo production base to build a complete industrial chain layout at home and abroad. Guo Haiyan analysis shows that as of the first half of 2017, Vietnam's factory fabric output has reached the level of Ningbo plant 2/3, with capacity of about 185 tons / day as of the first half of 2017. It is expected to maintain this level in the second half of the year, or up to 230 tons / day in the first half of 2018: the original long-term capacity target is 200 tons / day, and now the outlook has increased to 360 tons / day.

Guo Haiyan said that at present Vietnam has more than 6000 textile and garment enterprises, attracting more than 3 million 500 thousand labor force.

In 2016, Vietnam's textile and clothing exports amounted to US $23 billion 800 million, accounting for 13% of the total export volume of the year, ranking second among all kinds of commodities.

On the whole, Vietnam has become the main destination country for the pfer of China's textile and garment industry. Vietnam is an important exporter of yarns and garments, but fabrics rely on imports. 70~80%'s fabric needs are provided by foreign suppliers.

Looking forward to the future, Shenzhou International is embarking on the planning of sewage targets.

Ningbo will not invest in large-scale capacity expansion, but with the completion of technical pformation, output and quality will be improved.

Overall, overseas fabric factories have more potential for expansion, because domestic sewage targets and other factors limit the increase in production, and at present, Vietnam's artificial efficiency is still rising. We believe that it will surpass Kampuchea in the future and close to the level of mainland China. In the future, domestic and overseas garment production capacity will be half, while the group level business arrangement will take into consideration the factors of customer location (including customs duties on exports) and product delivery (Comprehensive quick response capability is Ningbo's strong point).

Network reporters also learned that Shenzhou International currently mainly engaged in sportswear, casual wear, underwear and clothing three major categories, mainly sportswear, showing a diversified development trend, in the first half of 2017, Shenzhou International products, sportswear, casual wear, underwear clothing revenue accounted for 67%, 25%, 8%, respectively, of which sportswear products revenue increased 22.9% to 5 billion 520 million yuan, mainly due to the European and American market sports brand procurement demand increased.

According to the financial report, Shenzhou International downstream customers are mainly international sporting apparel brands, and the top four customers are Uniqlo, Adidas, Nike and Puma.

In the first half of 2017, the total revenue of four major customers accounted for 79%; Nike was the largest customer, and the revenue in the first half of 2017 increased by 30.8%, accounting for 29%.

Zhang Yi, a researcher at CITIC Securities, said that at present, Shenzhou International is the core supplier of the four big customers of Uniqlo, Adidas, Nike and Puma. Relying on the strong strength of fabric research and development, automation production efficiency and strict quality control, it embraces large customers in the medium and high environment of sportswear, and is driven by the downstream leaders, so as to ensure that the industry's growth bonus can be enjoyed to the maximum extent.

In addition, as the number of leading brands of these sports brands shrinks, Shenzhou International has always been the dominant supplier in the trend of integration.

Zhang Yi expects that with the expansion of overseas production capacity, automatic production equipment and fabric independent R & D investment, plus cost control and effective production efficiency, Shenzhou International expects to achieve net profit of 3 billion 710 million yuan and 4 billion 520 million yuan in 2017-2018 years, an increase of 25.9% and 21.9% over the same period.

Before the press release, Shenzhou International newspaper closed at 77.60 yuan / share, a decrease of 0.39%, and its market value was HK $116 billion 700 million.

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