Bank of America has released a research report stating that SHENZHOU INTL (02313) issued a profit warning last Friday, expecting first-half earnings to decline by 38-43%. This is primarily attributed to the appreciation of the Renminbi, rising raw material, labor, and pension costs, as well as a slight decline in sales volumes. The bank has lowered its price target for SHENZHOU INTL by 6% to HK$50 while reiterating a "Buy" rating.

Bank of America noted that the first-half 2026 performance of SHENZHOU INTL falls short of the market's expected 30-35% decline. The bank believes most of the negative factors listed in the company's filing have already been priced in by the market, with currency fluctuations being the key reason for the performance miss. The bank's updated forecasts for SHENZHOU INTL's first-half performance include: 1) A projected 5% decline in revenue, driven by lower average selling prices (due to currency impacts) and a slight drop in sales volumes. 2) An estimated gross margin of 24% (compared to 27.1% in H1 2025 and 25.6% in H2 2025). Relative to the more comparable period of H2 2025 (influenced by tariff factors), the bank expects currency fluctuations to cause a margin loss of over 1%, with the remaining losses coming from higher raw material (mainly synthetic fibers) and labor costs (social security regulations are expected to contribute approximately 0.3%). 3) An anticipated currency loss of approximately RMB 600 million (compared to a RMB 383 million loss in H2 2025, with the RMB appreciating roughly 1.8% against the USD in H2 2025 and 3.1% in H1 2026, based on the People's Bank of China's parity rate). The bank also expects a reduction in government subsidies of about RMB 100 million due to lower 2025 earnings per share. 4) Consequently, the bank forecasts a net profit decline of -40%. Excluding currency losses and government subsidies, the bank estimates adjusted pre-tax profit would be -19%, which is better than the reported net profit. Bank of America has reduced its 2026 and 2027 EPS estimates for SHENZHOU INTL by 12% and 8%, respectively, to reflect higher foreign exchange losses and lower gross margins.