10 Years Up 60 Times.

Speaking of Shenzhou International, you may not be familiar with it.

But when it comes to his customers Nike, Adidas, UNIQLO, Puma, you will suddenly realize that many of the clothes and shoes that you used to wear are from this company.

What is even more unexpected is that it seems to be just a foundry factory with no technical content. Shenzhou International Stock market has risen more than 60 times in the past ten years (2009-2018), while the Hang Seng Index rose by less than 80% during the same period, and the Daniu Tencent holdings had only risen about 5 times.

Next, let's take a look at this factory's way of crossing the ox bear.

Leading garment manufacturers, steady growth in performance

Shenzhou group, founded in 1988 and listed in 2005, is currently the largest vertically integrated knitting garment manufacturer in China.

That is to say, Shenzhou International can provide fabric, dyeing, printing, embroidery, tailoring, sewing, packaging and logistics services to the clothing brand.

In recent years, Shenzhou International has maintained steady growth in revenue and profits.

In the 2012-2017 year, Shenzhou International business income rose from 89.4 billion to 18 billion 90 million, compound annual growth rate reached 15%, net profit doubled from 1 billion 620 million to 3 billion 760 million, and compound annual growth rate reached 18%.

In 2016, after the two phase of the Vietnam textile factory was put into operation, Shenzhou International capacity increased significantly, and the growth rate of revenue in 2016 and 2017 also increased.

Early positioning in the Japanese market, Shenzhou International in 1997 and UNIQLO established a cooperative relationship, mainly casual wear OEM.

Around 2004, the layout of sportswear with stronger functionality and higher added value began.

In the past 2005-2007 years, Nike, Adidas and Puma have taken orders from several major sports brands, and began to cooperate in depth. Sportswear has gradually become the main source of income.

In the first half of 2018, Shenzhou International Sports accounted for 67.9% of the total income, while leisure and underwear accounted for 23.6% and 7.8% respectively.

From the perspective of market distribution, the overseas markets such as Europe, Japan and the United States are the main positions of Shenzhou International. The proportion of income is over 70%, and the domestic market accounts for less than 30%.

Affected by the weakness of Europe and Japan, sales in Europe and Japan declined slightly in the first half of 2018, compared with the strong growth in the US and domestic markets, with sales rising by 25.3% and 32.4% respectively.

The deepest moat: vertically integrated industrial chain

Shenzhou International's deepest moat is a vertically integrated industrial chain that integrates fabrics and garments.

At present, the company's business has covered the middle and lower reaches of the apparel industry chain.

Simply speaking, Shenzhou International production processes are: purchase yarn, weaving fabric, printing and dyeing, and making garments according to customer's design.

The steady growth of Shenzhou's international performance is mainly due to stable demand for customer orders and strong capacity to meet demand.

The vertically integrated industry chain, on the one hand, provides guarantee for product quality and delivery cycle, and attracts more stable and high quality customers. On the other hand, it is conducive to increasing R & D investment and overseas construction and so on, so as to enhance production efficiency and expand production capacity.

It is worth noting that vertical integration of industrial chain improves production efficiency, and at the same time reduces operating costs and costs, and improves Shenzhou International's bargaining power for downstream clothing brands.

Coupled with the strong functionality and high added value of sports fabrics, Shenzhou International's gross margin and net interest rate are far ahead in the same industry.

In addition, Shenzhou International's profitability is not only far ahead of the foundry industry, but also better than the downstream clothing brand.

Because the foundries only need to focus on the production of fabrics and garments, and do not need to spend a lot of marketing and sales expenses, Shenzhou International net interest rate is significantly ahead of Nike, Anta, Hai Lan home and other clothing brands, and the net profit scale also surpasses Anta and Hai Lan's home.

Strong fabric innovation and R & D capability

Although garment foundry is a labor-intensive industry, R & D capability is also crucial, which is mainly reflected in fabric R & D and technological pformation.

According to previous media reports, Shenzhou International insisted on putting more than 60% of its annual profits into technological pformation before listing. After the listing, R & D investment was about 50% of profits.

According to the 2017 annual report, Shenzhou International has approximately 246 patents, including 90 patents on new material fabrics, and 156 patents related to the pformation of equipment and processes in the production process.

Every year, an average of 25 patents are converted into products, with about 625 new products.

Fabric quality is the core competitiveness of clothing products.

Shenzhou International has a strong ability of innovative research and development of fabrics. Since 2003, it has independently developed fabrics, and has already built a world-class fabric research and development center.

Shenzhou International fabric production uses ODM (Original DesignManufacturer, original design manufacturer) mode, that is, according to the requirements of customers, R & D and production of the corresponding fabrics and production of garments.

All the fabrics of Shenzhou International OEM are self developed, and are for internal use only.

For example, the sweat absorbing, breathable and soft functional fabrics Airism developed jointly with UNIQLO, the lightweight, warm and breathable fabrics developed jointly with Nike, TechFleece and knitted upper Flyknit, etc.

Construction of overseas factories has expanded capacity.

Shenzhou International adopts the production mode of "selling on behalf of production", that is, after receiving orders, it will be put into production again.

Therefore, capacity is the main factor limiting the scale of enterprises.

On the one hand, Shenzhou International has improved production efficiency through the pformation of domestic equipment and technology; on the other hand, construction of production bases in Kampuchea and Vietnam has not only expanded production capacity, but also reduced labor costs and effectively avoided exchange rate and tariff risks.

Shenzhou International Garment Factory was established in Kampuchea in 2005. In 2014 and 2015, fabric factories and garment factories were set up in Vietnam.

In 2016, the two phase of Vietnam's fabric factory was put into operation, and Shenzhou International's capacity increased significantly.

Because production capacity has not been disclosed publicly in the earnings report, we can see from the "property, plant and equipment" in the current assets that the assets, property and plant assets of Shenzhou International increased significantly in 2015 and 2016, reaching 7 billion 117 million yuan in 2017, double the figure in 2013.

The increase in capacity is accompanied by an increase in output and income.

Since 2015, Shenzhou International fabric production has increased significantly, reaching 156 thousand and 800 tons in 2017, an increase of nearly 20% compared to the same period last year, and the growth rate of revenue in 2016 and 2017 has also increased significantly.

Stable customer base to form competitive barriers

Vertically integrated industrial chain not only creates Shenzhou strong international R & D capability and huge capacity carrying capacity, but also helps to ensure product quality, shorten delivery cycle, and reduce uncertainty risk, making Shenzhou International become the first choice factory of many international garment brands.

In the first half of 2018, Shenzhou International accounted for 77.4% of the top four customers from Nike, Adidas, UNIQLO and Puma.

Because Shenzhou International covers most of the production processes such as yarn, fabric, printing and dyeing, and made into garments in the industrial chain, all the processes are concentrated, saving a lot of time and logistics costs, and highly standardized and automated production, which greatly shortens the delivery cycle.

In addition, for Nike, Adidas and other major brands, Shenzhou International has established specialized factories, greatly reducing the time cost of communication and improving operational efficiency, thus shortening the delivery cycle further.

Of course, it also takes into account the competitive relationship between several sportswear oligarchs.

The selection criteria of front-line clothing brands for foundries are exceptionally strict, including delivery cycle, product quality, environmental protection standards, social responsibility and so on.

However, in order to ensure the stability of garment quality and delivery cycle, the selected foundries will not normally be replaced in a short time.

Shenzhou International has formed a competitive barrier in the industry with its stable large customer base and its ample demand for orders.

In addition, Shenzhou international customer base has covered many sports and leisure brands, effectively avoiding the risk of declining performance caused by poor sales of single brand.

This is also one of the reasons for Shenzhou International's steady growth over the years and traversing Niu Xiong.

In the future, with the development of technology and equipment, the production efficiency and production capacity of the foundries will be higher and higher, and the concentration of the whole industry will be further improved.

Shenzhou International, which has strong innovation ability, skillful production technology and stable customer orders, has greater advantages in competition and is expected to be strong Heng Qiang.

Good fundamentals and vigilance against RMB appreciation pressure

The advantages of vertically integrated industrial chain are highlighting, continuously increasing production capacity, stable customer orders, and building moat and competition barriers for Shenzhou International.

Overall, Shenzhou International fundamentals remain good and are expected to maintain steady growth.

At the same time, the two risk factors should not be ignored.

On the one hand, more than 70% of the revenue comes from the international market, and the export oriented Shenzhou International may be hit by the appreciation of the renminbi.

On the other hand, the trend of global economic recovery is slowing down, and demand for downstream clothing brands may decline.