CICC: Keeping Shenzhou International (02313) outperforming the industry rating and lowering the target price by 15% to HK$52.76

The Zhitong Finance App learned that CICC released a research report stating that considering demand fluctuations and macro factors, the 2026/27 EPS forecast for Shenzhou International (02313) was lowered by 23%/10% to 3.13/3.94 yuan. Currently, it corresponds to 12/9x 2026/27 P/E, maintaining an outperforming industry rating. Considering that 2H26 profit is expected to resume growth, the target price was lowered by 15% to HK$52.76, corresponding to 15/11x 2026/27 P/E, with 23% upside.

CICC's main views are as follows:

Forecast net profit to mother fell 38%-43% year on year

The company expects 1H26's net profit to fall by about 38%-43% year on year, corresponding to about 18.11-1,970 billion yuan. The 1H26 profit forecast was lower than the forecast. The decline in profit was mainly affected by factors such as weak demand, rising raw material and labor costs, and RMB appreciation.

Weak demand led to a slight decline in sales

Affected by macroeconomic uncertainty, tariff policies and inflation risks, terminal stocking requirements were more conservative, brand customers were more cautious in placing orders, and order fluctuations increased during the period. At the same time, the company undertakes some tariff concessions, compounded by exchange fluctuations, which also suppresses the RMB price to a certain extent.

Exchange fluctuations, rising labor and raw material costs, and tariff apportionment have a significant negative impact on profit margins

1) The average exchange rate of RMB 1H26 against the US dollar appreciated by about 4% year on year, affecting gross margin and causing exchange losses, while 1H25 recorded exchange revenue of 126 million yuan. 2) 1H26 Salaries and retirement benefits have risen in various regions, and the number of employees has also increased along with the expansion of production capacity in Vietnam and Cambodia; in addition, the cost of raw materials for yarn such as chemical fiber has risen along with the rise in international oil prices, which are jointly driving up labor and manufacturing costs, and it is difficult to transfer them to terminals in the short term. 3) The concession arrangements made to deal with tariffs have had a certain negative impact. At the same time, the bank believes that barriers to the textile manufacturing industry are lower than those for home appliances, automobiles, etc., and that orders are gradually being concentrated on lower-cost Southeast Asian production capacity. At the end of 2025, the company's domestic production capacity accounted for about 39%. Under weak domestic demand, insufficient capacity utilization will drag down gross profit margins, and it is difficult to pass on additional domestic costs when overseas production is full.

Looking ahead to 2H26, orders are expected to improve year over year and profit margins may stabilize

With the declining base (1H25/2H25 revenue increased 15%/2% year on year, respectively), the excellent performance of Adidas and Uniqlo (accounting for 50% of the company's revenue in 2025), and the steady growth of domestic brands, the bank expects the year-on-year growth rate of 2H26 orders to correct. Furthermore, as the year-on-year pressure on tariff costs eases further, the pressure on labor and raw material costs is also expected to be further transmitted to terminals. The bank also expects 2H26 gross margin to improve month-on-month. At the same time, the negative impact of 2H26 exchange losses is also expected to narrow.

Risk warning: Downstream customer growth falls short of expectations, fluctuating raw material prices, and fluctuating RMB exchange rates.