Guoyuan International has reiterated its "Buy" rating on SHENZHOU INTL (02313) and raised the target price to HK$91.9. The brokerage noted that previous valuation pressures stemmed from: (1) supply chain uncertainties amid tariff concerns and (2) weak performance from major clients. However, these headwinds are easing as tariff policies become clearer and the company’s "dual-circulation" strategy proves effective. SHENZHOU INTL is benefiting from supply chain relocation and is expected to improve market penetration, presenting valuation upside.

Key highlights from Guoyuan International’s report: - **H1 2025 Revenue Growth Driven by Key Clients**: Revenue rose 15.3% YoY to RMB 14.97 billion, with gross margin at 27.1% (-1.9 ppts). Net profit attributable to shareholders increased 8.4% to RMB 3.18 billion, with a net margin of 21.2% (-1.4 ppts). The largest (casualwear) and third-largest (sportswear) clients contributed revenue growth of 27% and 28%, respectively, while the second- and fourth-largest (both sportswear) grew 6% and 15%. - **Product Mix Shift**: Casualwear revenue surged 37%, accounting for 25% of total sales, while sportswear revenue grew 10% but saw its share decline to 68%. Innerwear and other knitwear rose 4% and 6%, making up 6% and 1% of revenue, respectively. - **Southeast Asia Capacity Benefits from Tariff Clarity**: Post-tariff implementation, rates for Vietnam and Cambodia settled at 20% and 19%—moderately low—complemented by lower labor costs, accelerating textile supply chain relocation to Southeast Asia. SHENZHOU INTL’s H1 revenue from top clients outpaced their own growth, reflecting higher penetration due to this shift. - **Enhanced Client Penetration & Product Expansion**: The brokerage attributes rising client penetration to SHENZHOU INTL’s alignment with brands’ supply chain risk preferences, reinforcing its position as a top-tier manufacturer with strong operational agility. New product launches, such as football jerseys for the second-largest sportswear client, underscore its ability to drive order volume and pricing power through innovation, sustaining margin advantages.