Shenzhou International Will Expand Its Military Force To 16 Thousand People In Vietnam, And Its Revenue Will Exceed 21 Billion In 2018.

With another knitting factory located in Anqing, Anhui, Shenzhou International Group Holdings Limited (hereinafter referred to as Shenzhou International) has ushered in a sustained explosion of growth. Shenzhou International has announced that the company will hold its board of directors in March 25th, and will approve and release the performance of the company and its Affiliated Companies for the financial year ended December 31, 2018.

According to public information, Shenzhou International is the largest vertically integrated knitting manufacturer in China, mainly manufacturing knitwear for downstream customers in the form of OEM.

The company has four complete processes including weaving, dyeing and finishing, printing, embroidery, tailoring and sewing. The products cover all knitted garments including sportswear, casual wear, underwear and so on. The main customers include UNIQLO, ADIDAS, NIKE and PUMA and other international famous brands, and their products are exported to Asia Pacific and European and American markets.

Shenzhou International's main production base is located in Ningbo and Vietnam, and has garment factories in Quzhou and Anqing, Vietnam, Hu Zhiming and Kampuchea, Phnom Penh, in mainland China, with sales offices or representative offices in Shanghai, Hongkong and Osaka.

By the end of 2017, the company had more than 77100 employees, with an area of more than 4 million 160 thousand square meters and a building area of over 3 million 260 thousand square meters, producing more than 350 million kinds of knitted garments every year.

In 2017, Shenzhou International Knitting Co., Ltd., Ningbo Shenzhou International Co., Ltd. exported nearly 1 billion 100 million US dollars, ranking first in China's garment export enterprises.

According to the financial report, in 2017, Shenzhou International business income reached 18 billion 90 million yuan, an increase of 19.8% over the same period last year.

In the first half of 2018, Shenzhou International business income increased to about 91.7 yuan, or 10.8%, relative to the 8 billion 260 million yuan in the first half of 2017.

Analysts believe that in the first half of 2018, the driving factors of Shenzhou International sales revenue growth mainly include: 1) the demand for main customer orders has maintained an ideal growth; 2) the capacity of the overseas production base of the company has been further improved; 3) the production efficiency of various departments of the company has been effectively improved during the period.

Most of the company's income is in US dollars, while the cost and ASP are RMB.

In the first half of the year, the average selling price of the company dropped by about 4%, which led to a slowdown in revenue growth in the first half of the year.

From the perspective of customer category, its income share is also relatively stable: the top four customers of Shenzhou International are Nike, Adidas, PUMA and UNIQLO, all of which are well-known enterprises in the industry and have strong market dominance.

Shen Zhou International established partnership with UNIQLO as early as 1997, and UNIQLO has become the main source of revenue for the company.

Subsequently, in 2006 and 2007, the company set up a special factory for Nike and Adidas respectively, and the proportion of orders from these two customers also increased gradually.

From 2012 to 2015, the proportion of revenue from the top four customers increased from 71% to 82%, although it has dropped slightly in the following three years, but it is still close to 80%.

In the first half of 2018, Shenzhou International Revenue from Nike, Adidas, UNIQLO and PUMA were 2 billion 720 million, 1 billion 770 million, 1 billion 740 million and 860 million yuan respectively, accounting for 77.4% of the total revenue from the top four customers.

Hu Xiangyu, an analyst with GF Securities, said that Shenzhou International has actively promoted the process of building factories in Southeast Asia in order to adapt to the uncertainty of the trade environment, make full use of the low cost production factors in Southeast Asia, and adapt to the industrial trend of major brands' pfer to Southeast Asia.

From the layout point of view, Shen Zhou International began to set up garment factories in Kampuchea in 2005, and in 2007 in Kampuchea, equipped with printing and embroidery production processes, then Shenzhou International built factories in Vietnam to expand production; in 2014, Shenzhou International Vietnam fabric factory's first phase project was put into operation; in 2015, the first phase of the Vietnamese garment manufacturing factory and the two phase of the fabric factory completed, and the overseas base of the company also formed a vertically integrated production mode; from 2016 to 2017, Shenzhou International Vietnam special fabric project was put into operation, and the fabric output of the company in Vietnam reached 185 tons / day.

In 2018, Shenzhou built a garment factory in Kampuchea and Vietnam.

So far, Shenzhou International production base has expanded from the initial Ningbo to Anhui Anqing, Zhejiang Quzhou, Kampuchea and Vietnam, and international employees (Kampuchea, Vietnam) account for more than 1/3.

Shenzhou International also plans to increase 5000 workers in Vietnam in the second half of 2019 (currently the total number of local workers is over 11000), which is slower than the previous years.

Shenzhou International will pay more attention to improving the efficiency of workers through continuous automation.

At present, Shenzhou International is building a new garment factory in Anqing, Anhui. The industry expects that the first phase of the plant is expected to contribute 1500 workers in the second half of 2019, and the next two phase is expected to contribute to the output of another 1500 workers.

Although the fast selling company of UNIQLO parent company has been negatively affected by the warm winter, it is not expected that this will affect the Shenzhou International Order. The new Anqing plant will focus on the needs of UNIQLO.

Hu Xiangyu believes that the main driving force for Shenzhou International capacity growth in 2017/18 is Vietnam's fabric and garment factory after its production in 2016, production and business gradually climbing, resulting in gradual increase in production.

At present, the per capita output of Vietnam's factories is still lower than that of Shenzhou's domestic factories, so there is still room for improvement in the future.

In addition, according to the plan, Shenzhou International garment production capacity in Vietnam and Kampuchea will be put into operation in 2019 and 2020 respectively, and the proportion of overseas production capacity will further increase.

Shenzhou International is expected to maintain its capacity growth of about 13% during 2019/2020.

Considering that the company's current orders are mainly limited by insufficient capacity, it is estimated that Shenzhou International capacity growth will be plated into an increase in orders.

Overall, the main revenue of Shenzhou International will remain double-digit growth in 2019/20.

The growth of revenue will mainly come from the contribution of Southeast Asian capacity expansion.

From the demand side, the growth of the performance of the downstream brand enterprises and the trend of the sourcing of the brand enterprises to the head suppliers will be favorable factors for the growth of the company's orders.

Hu Xiangyu predicts that Shenzhou International net interest rate will continue to rise in 19/20.

The increase in net interest rates will mainly come from the increase in operating leverage brought about by the increase in Southeast Asian capacity.

In the past few years, we have been affected by the construction of Vietnam's production base, while Shenzhou International's management fee rate and sales cost rate have increased. However, we expect that after the gradual increase in Southeast Asian capacity, this part of the management fee rate and the sales cost rate will decrease, which will be conducive to the improvement of net interest rates.