By Clarence Leong
Shares of Shenzhou International Group Holdings Ltd. fell sharply in Hong Kong, after its first-half profit margins declined and the apparel manufacturer warned of weaker demand in the second half.
Shenzhou International lost 8.9% to HK$78.40 in Friday morning trade, extending year-to-date losses to 48%. It led laggards among blue chips, with the city's benchmark Hang Seng Index recently up 0.6%.
The company on Thursday posted a net profit of 2.37 billion yuan (US$346.0 million) for the first half, up 6.3% from a year earlier, while revenue increased 20% to CNY13.59 billion. But its gross profit margin for the period fell 7.1 percentage points to 22.6% from a year earlier, which it said was due to significantly higher raw-material and energy costs, as well as a pandemic-driven production halt in January in Ningbo, Zhejiang province, where it is headquartered.
Shenzhou also said it isn't optimistic about export prospects, as high inflation levels in major economies are "suppressing the growth in consumption demand." Shenzhou expects lower capacity utilization through the first half of next year, due to insufficient demand in the textile and apparel industry.
Citi analysts said in a note that the company appears "cautious over end-demand amid excessive inventory among global customers," leading them to reduce their earnings estimates for Shenzhou by 6%-7% in 2022-24. The U.S. bank also lowered its target price on the stock to HK$113 from HK$120, while maintaining its buy rating.
Write to Clarence Leong at clarence.leong@wsj.com
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August 26, 2022 at 09:33AM
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