Guosheng Securities has maintained its "Buy" rating on SHENZHOU INTL (02313), citing the company's position as one of Asia's largest integrated knitted apparel manufacturers with solid fundamentals. As core client order demand normalizes, the firm anticipates SHENZHOU INTL will enter a phase of capacity shortage, healthy revenue growth, and improved profitability by 2026, suggesting potential valuation upside. Key insights include:

1) **Client Trends**: Recent improvements in Nike’s operations, normalized North American inventory levels, and strong demand from partners are expected to drive a recovery in SHENZHOU INTL’s orders by 2026. Fast Retailing (projecting 10.3% revenue growth in FY2026) and Adidas (showing robust regional growth) are also contributing to strong order momentum, while PUMA remains in adjustment with stable short-term orders. Other clients are expected to sustain healthy growth with long-term potential.

2) **Product Segments**: Casualwear is projected to grow rapidly in 2025, while sportswear orders may accelerate in 2026 due to major events like the Winter Olympics and World Cup, potentially reducing casualwear’s share compared to 2025.

**Long-Term Investments and Market Share Expansion**: Despite past demand volatility, SHENZHOU INTL has consistently invested in long-term capacity expansion and integrated supply chains, positioning it for market share gains. By 2026, recovering core client orders are expected to drive capacity-led growth, optimized factory utilization, and improved profitability.

- Workforce expansion (12% YoY to 103,000 employees by end-2024 and 9% YoY to 110,000 by mid-2025) will further enhance production capacity. - Overseas capacity (Vietnam and Cambodia now account for over 50% of apparel production) continues to grow, with potential expansion into Indonesia, while domestic facilities focus on R&D and efficiency for Asian markets.

**Industry Tailwinds**: As a key supplier to leading sportswear brands (e.g., Nike, Adidas, Puma, Anta, Li Ning, Lululemon, Xtep), SHENZHOU INTL stands to benefit from: 1) Rising global and Chinese sportswear penetration, supporting mid-to-long-term order growth. 2) Strong demand for functional apparel (e.g., breathability, moisture-wicking, insulation), where its advanced fabric development capabilities strengthen client partnerships and competitive edges.

**Risks**: Fluctuations in major client orders; slower new client acquisition; delays in overseas capacity expansion; interest rate and forex volatility.