Shenzhou plans 700m yuan capacity ramp-up

PUBLISHED : Tuesday, 08 August, 2006, 12:00am
UPDATED : Tuesday, 08 August, 2006, 12:00am

Garment producer surpasses analysts' profit projections on robust orders

Garment producer Shenzhou International Group Holdings will spend more than 700 million yuan this year and next to achieve double-digit growth in production capacity annually in anticipation of strong orders from international brands such as Adidas and Nike.

The Hong-Kong-listed manufacturer's capital expenditure would exceed 400 million yuan this year and 300 million yuan next year, Shenzhou's head of finance, Wang Cunbo, said in a press conference yesterday to explain the company's better than expected interim results.

Most of the capital expenditure would be spent on buying machinery to expand and upgrade production, he said.

This year, the company's production capacity would grow 20 per cent, chairman Ma Jianrong said.

Shenzhou's share price rose 5.26 per cent to $3.40 yesterday, the first day of trading since the firm released its interim results on Friday.

The company announced that in the first half to June, turnover rose 28.5 per cent to 1.39 billion yuan over the same period last year, while net profit grew 30.2 per cent to 190.59 million yuan.

This exceeded BNP Paribas Peregrine's forecasts of 1.32 billion yuan of turnover and 176 million yuan of net profit for the half.

'We believe Shenzhou's growth for the second half will be stronger, thanks to the improving utilisation rate at its Cambodian plant and the installation of additional capacity in its production base in Ningbo city [Zhejiang province],' BNP Paribas analyst Raymond Ma wrote in a report.

Shenzhou has seen a big increase in orders for sportswear - which in the first half contributed 13.2 per cent of its revenue - and expects this to continue.

Mr Wang predicted that sportswear sales would double year on year in the second half to account for 15 per cent of total revenue.

Mr Ma wrote that he expected orders from US sports giant Nike to leap to US$20 million this year from US$3.7 million last year and those from German sports brand Puma to more than double to US$7 million this year from US$3.2 million last year.

He said orders from Adidas should rise as much as 50 per cent to US$15 million this year.

In the first half, revenue from sportswear jumped 150.5 per cent to 183.17 million yuan.

Sales of casual wear, which account for 82.5 per cent of Shenzhou's revenue, rose 22.6 per cent in the first half.

Mr Ma projects that Shenzhou's total garments sales will rise 28 per cent to 94 million pieces for the whole of this year.