SHENZHOU INTL (02313) has issued a profit warning, estimating that the profit attributable to the parent company's owners for the current period will decrease by approximately 38% to 43% compared to the profit of about RMB 3.177 billion for the same period in 2025.

According to available information, this decline is primarily due to multiple challenges in the group's operating environment, including rising raw material and labor costs, a significant appreciation of the Renminbi against the US dollar, and weak demand leading to a slight decrease in sales scale. These factors have negatively impacted the gross profit margin for the period and resulted in exchange losses, compared to exchange gains in the same period of 2025.

Key factors contributing to the profit decline

1. Impact of Renminbi appreciation against the US dollar: The average exchange rate of the Renminbi against the US dollar in the first half of 2026 rose by about 4% compared to the same period in 2025. The group's primary business is export-oriented, with the US dollar as the main revenue currency, while the financial statements are prepared in Renminbi. The rapid appreciation of the Renminbi during the period has negatively impacted both the group's trade and the revaluation of its net US dollar-denominated assets, primarily bank balances and accounts receivable.

2. Impact of rising labor, retirement benefits, and raw material costs: During the current period, the group's salaries and retirement benefit expenses increased across all locations. With the expansion of production capacity in Vietnam and Cambodia, the total number of workers has grown. These new capacities are still in the ramp-up phase, with room for improvement in production efficiency. Additionally, the cost of yarn raw materials has risen with international oil prices, combined with higher labor-related expenses, pushing up overall labor and manufacturing costs.

3. Impact of insufficient demand and external environment: Due to macroeconomic uncertainty, tariff policies, and inflation risks, end-demand for inventory has been conservative, with brand customers becoming more cautious in placing orders. This has led to increased volatility in order demand during the period, with the group's revenue declining compared to the same period last year. Tariff concessions have also had a negative impact. The group will continue to closely monitor changes in the global political and economic environment, maintain a rapid response as a core strategy, balance domestic and international capacity needs, and improve operational efficiency to address these challenges.