FIRST SHANGHAI issued a research report maintaining a "BUY" rating on SHENZHOU INTL (02313) with a target price of HK$79.80. Despite volatility in sports brands and macro performance, Shenzhou continues to achieve leading business results. Looking ahead, the firm expects the group to maintain solid growth momentum and anticipates gradual improvement in gross margins. The firm remains optimistic about the company's development as an industry leader, citing its excellent management execution and product innovation capabilities, as well as its irreplaceable advantages in vertical integration and balanced domestic and overseas operations.

FIRST SHANGHAI's main observations are as follows:

**H1 2025 Performance Overview** The company's revenue increased 15.3% year-on-year to RMB 14.97 billion. Breaking down by volume and price, volume was the primary growth driver, while prices declined approximately 0.8% in USD terms but showed slight improvement in RMB terms. Gross margin declined 1.9 percentage points to 27.1%, primarily affected by employee compensation increases in the second half of last year. Operating expense ratio decreased 0.3 percentage points to 9.1%. The company recorded attributable net profit growth of 8.4% to RMB 3.18 billion. Overall revenue growth exceeded expectations. The company proposed an interim dividend of HK$1.38, maintaining a stable payout ratio of 60%.

**Sports Category Maintains Stable Growth; Casual Category and Overseas Markets Drive Main Growth** By product category, sports/casual/underwear/others recorded changes of +9.9%/+37.4%/+4.1%/+6.0% respectively. Sports category growth was primarily driven by the US and European markets, while casual category performance benefited from rising demand in Japan, Europe and other markets. By regional distribution, Europe/US/Japan/other regions/domestic market recorded changes of +19.9%/+35.8%/+18.1%/+18.7%/-2.1% respectively. Nike/Adidas/Uniqlo/Puma grew by +6.0%/+28.2%/+27.4%/+14.7% respectively, with their combined share reaching 82.1% (up 2.7 percentage points). The group's growth outperformed client financial results, demonstrating the group's competitive advantages and market share gains with clients.

**Other Key Points** The second half is expected to see high single-digit volume growth, with gross margins improving compared to the first half (benefiting from faster growth in sports products). Regarding capacity: Cambodia recruited 4,000 employees in the first half, with plans to hire 6,000 employees for the full year. The acquisition of Vietnam fabric mills will increase daily capacity by 200-300 tons. On tariffs: Impact should be minimal, maintaining the FOB model. Capital expenditure: RMB 1.5 billion in the first half, approximately RMB 2.3 billion for the full year.