Edgen Stock·Apr 01 2026, 04:31Key Takeaways:
BOCOM International cut its price target for Shenzhou International to HKD74.1 after the apparel maker’s 2025 results missed expectations due to margin pressure.
The downgrade reflects a more conservative outlook, even as the bank maintained its “Buy” rating on the stock, according to a BOCOM research report.
Shenzhou’s net profit for 2025 fell 6.7% year-on-year to RMB5.83 billion, missing estimates. Revenue grew 8.1% to RMB31 billion, but the gross profit margin declined 1.8 percentage points to 26.3%, hit by rising labor costs and inefficiencies at a new Cambodian factory.
The bank has lowered its 2026-2027 earnings forecasts for Shenzhou by 15-18%, citing the company's cautious guidance for mid-single-digit capacity growth and continued uncertainty around profitability.
The primary driver for the earnings miss was a contraction in gross margin. BOCOM’s report highlighted several factors, including rising labor wages in its production bases. Additionally, the ramp-up of its new garment factory in Cambodia was less efficient than anticipated, weighing on profitability. The company also absorbed a portion of US import tariffs for customers in the second half of the year, further compressing margins.
Looking ahead, BOCOM has adopted a more cautious stance. The bank’s analysts noted they now expect Shenzhou’s gross profit margin to remain largely flat in 2026. This led to a 6-9% reduction in their revenue forecasts for the 2026-2027 period. The new HKD74.1 target price is based on a 16 times price-to-earnings ratio for 2026.
The downgrade signals that while Shenzhou's top-line growth remains, its profitability faces significant near-term challenges. Investors will be closely watching the company's ability to manage costs and improve factory efficiency in the upcoming quarters.
This article is for informational purposes only and does not constitute investment advice.
