While the name Shenzhou International Group Holdings Limited (SEHK:2313) may sound unfamiliar to you, but the company has a very simple to understand business – in that it focuses on producing sports wear, casual wear, as well as lingerie wear for major international renowned brands including Nike, Uniqlo, Adidas, as well as Puma. Apparels which the company produces are being sold in China, Japan, Asia Pacific , Europe, as well as in the United States – as such, if you happen to have apparels from these international brands in your wardrobe, chances are it is produced by the Hong Kong-listed company.

Adidas - one of the Clients of Garment Manufacturing Company Shenzhou International Group Holdings Limited - Photo by Camilla Carvalho on Unsplash
Adidas – one of the Clients of Garment Manufacturing Company Shenzhou International Group Holdings Limited – Photo by Camilla Carvalho on Unsplash

Another thing to note is that Shenzhou International Group Holdings is also one of the largest vertically integrated clothing manufacturers in the world. The company is headquartered in Ningbo, Zhejiang Province, Shenzhou, with garment factories in Anqing City, as well as in Xining province, as well as in Ho Chi Minh City (Vietnam), in Phnom Penh (Cambodia), as well as sales offices or representative offices in Shanghai, Hong Kong and Osaka (Japan.)

Just like how I have structured my company review posts, in this post about garment manufacturer, you will read about its financial performance, debt profile, along with dividend payout over the past 5 years (i.e. between FY2016 and FY2020.)

Let’s begin…

Financial Performance

Total Revenue & Net Profit (RMB’mil):

FY2016FY2017FY2018FY2019FY2020
Total
Revenue
(RMB’mil)
RMB
15,099m
RMB
18,085m
RMB
20,950m
RMB
22,665m
RMB
23,031m
Net Profit
(RMB’mil)
RMB
2,948m
RMB
3,763m
RMB
4,540m
RMB
5,095m
RMB
5,107m

Shenzhou International Group Holdings Limited's Revenue and Net Profit between FY2016 and FY2020

As you can see from the table and chart above, both the company’s total revenue and net profit have saw year-on-year (y-o-y) improvements every single year over the past 5 years – with the former growing at a CAGR of 8.8% and the latter at 11.6%.

Gross & Net Profit Margin (%):

The following table is the company’s gross and net profit margin over the past 5 years which I have computed:

FY2016FY2017FY2018FY2019FY2020
Gross Profit
Margin (%)
32.5%31.4%31.6%30.3%31.2%
Net Profit
Margin (%)
19.5%20.8%21.7%22.5%22.2%

Shenzhou International Group Holdings Limited's Gross and Net Profit Margin between FY2016 and FY2020

Its gross profit margin been more or less been hoovering between 30.0% and 32.0% over the last 5 years – which is quite consistent in my personal opinion.

Looking at the company’s net profit margin, I like the fact that the company have manage to record growth in this particular statistic in a total of 4 out of 5 years (the only year which saw its net profit margin dipping slightly was in the latest financial year 2020.)

Return on Equity (%):

For the benefit of those who are coming cross this term, ‘Return on Equity’ for the first time, basically, it is a measure of profitability (in percentage terms) the company is able to generate for every dollar of shareholders’ money it uses in its business/es. As such, if the company can record growth its Return on Equity over the year, it’ll be very much desirable.

So, how is Shenzhou International Group Holdings Limited’s Return on Equity like over the past 5 years? The following table is its Return on Equity which I have computed:

FY2016FY2017FY2018FY2019FY2020
Return on
Equity (%)
19.5%19.2%20.4%20.2%18.7%

Shenzhou International Group Holdings Limited's Return on Equity between FY2016 and FY2020

Since peaking at 20.4% in FY2018, the company’s Return on Equity has slipped in the 2 years immediately after. Another thing to note here is that its Return on Equity at 18.7% for FY2020 is also the lowest in 5 years. As such, I will continue to keep track on this particular statistic in the coming financial year ahead to find out whether or not the company is able to halt the slide.

Debt Profile

Apart from its financial performance, another area I normally focus my attention on when I study about a company is its debt profile – where my preference is in companies with minimal or no debt, as well as one that is in a net cash position.

The following table is Shenzhou International Group Holdings Limited’s debt profile I have compiled over the past 5 years:

FY2016FY2017FY2018FY2019FY2020
Cash & Cash
Equivalent
(RMB’mil)
RMB
2,105m
RMB
2,471m
RMB
3,566m
RMB
5,061m
RMB
8,227m
Total
Borrowings
(RMB’mil)
RMB
1,241m
RMB
2,130m
RMB
2,516m
RMB
3,968m
RMB
6,608m
Net Cash/
Debt
(RMB’mil)
RMB
+864m
RMB
+341m
RMB
+1,050m
RMB
+1,093m
RMB
+1,619m

While its total borrowings have gone up over the years, so too has its cash and cash equivalents over the same time period. As such, the company is in a net cash position over the last 5 financial years I have looked at – and this passes my selection criteria.

Dividend Payout

The company’s management declares a dividend payout to its shareholders on a semi-annual basis, and the following table is its payout to shareholders over the past 5 years, along with its dividend payout ratio:

FY2016FY2017FY2018FY2019FY2020
Dividend Per
Share
(HKD/share)
HKD
1.20
HKD
1.45
HKD
1.75
HKD
1.90
HKD
2.00
Dividend
Payout Ratio (%)
51.2%46.9%50.9%50.2%49.4%

Shenzhou International Group Holdings Limited's Dividend Payout to Shareholders between FY2016 and FY2020

With its net profit recording improvements over the last 5 years, so too is its dividend payouts to shareholders – which also went up every single year, and growing at a CAGR of 10.8% over a 5-year period – pretty much in-line with the growth in its net profit.

Looking at its dividend payout ratio, it seems that the company pays out about 50.0% of its profits back to shareholders as dividends; as such, looking ahead, should the company manage to continue to record improvements in its net profits, shareholders can also expect to receive more in terms of dividend payouts declared.

Closing Thoughts

An improving set of financial results over the years (in terms of its revenue and net profit), a resilient debt profile (where the company is in a net cash position in all of the 5 years I have looked at), along with growing dividend payouts to shareholders are reason why garment manufacturing company caught my investment eye.

If there’s one slight negative to note, it would be its Return on Equity, which went down slightly over the past 2 years (in FY2019 as well as in FY2020) – as mentioned earlier in this post, I will continue to keep track on this particular statistic in the financial year ahead to find out if the company manage to halt the decline.

That said, everything you have just read above is by no means any recommendation to buy or sell shares of the company. As always, please do your own due diligence before you make any investment decisions.

Disclaimer: At the time of writing, I am not a shareholder of Shenzhou International Group Holdings Limited.