Morningstar | Shenzhou benefits from entrenched relationships to remain as the top supplier for sportswear giants.
We have strong conviction in Shenzhou’s ability to continue serving as the dominant supplier for apparel giants globally; the company is well-positioned for growth in the years to come.Shenzhou’s revenue and earnings growth over the next five years will benefit from the growth of the its key clients and the consolidation of their supplier bases. Growing efficiency and capacity in Shenzhou’s current manufacturing plants, along with the intention to add other plants in Southeast Asia, will enable the company to start taking orders from other apparel retailers.Shenzhou is the largest apparel manufacturer for wide-moat Nike, narrow-moat Adidas, narrow-moat Puma (Kering), and Uniqlo, where it contributes 12%, 12%, 30%, and 14% respectively to apparel giants’ total apparel lines. Our analysts expect revenue for Nike, Adidas, Puma, and Uniqlo to grow by 7.5%, 9.4%, 5.0%, and 10.5% CAGRs over the next five years. At the same time, the number of suppliers serving Nike and Adidas continues to contract. We believe Shenzhou will achieve strong revenue growth on the back of retailers’ solid revenue growth and increasing procurement share against the backdrop.Amid rising production costs, Shenzhou still managed to grow its bottom line at a five-year net profit CAGR of 13.6%. The company boosted sportswear category’s contribution to overall revenue from 56% to 66% from 2012 to 2017. Moreover, the company is the largest, and one of the few suppliers that produce Nike’s Flyknit product, which accounted for 10% of the group’s revenue in 2017. Given sportswear, especially the Flyknit line, is a high-margin category, the strategic shift to taking more sportswear orders has contributed to the firm’s rising margin. We believe this trend is poised to continue as apparel giants consolidate their supply chain and place larger percentage of orders with the best and largest suppliers like Shenzhou.Shenzhou International Group Holdings is an investment holding company. Through its subsidiaries, Co. is principally engaged in the manufacturing of knitwear on an Original Equipment Manufacturer basis. Co. focuses on producing sport wear and casual wear with major international clients including UNIQLO, ADIDAS NIKE, and PUMA. In addition, Co. is involved in property leasing in Hong Kong; import and export of commodities in China and Hong Kong; property management in China; trading company in Macau, Japan and China; and retail in China.
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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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