Tianfeng Securities released a research report maintaining a "BUY" rating on STELLA HOLDINGS (01836). Based on H1 2025 performance, considering the high base effect from last year and operational efficiency following new capacity deployment, the firm has adjusted profit forecasts. Net profit is expected to reach $160 million, $180 million, and $190 million for 2025-2027 respectively (previously $180 million, $200 million, and $220 million); EPS is forecasted at $0.20, $0.21, and $0.23 respectively (previously $0.22, $0.24, and $0.26).
The company's current solid position is a direct result of its three-year plan (2023-2025), under which the company has improved its product category mix, diversified and expanded its customer base, and optimized its manufacturing base layout. According to this plan, the company set two major profitability targets: achieving a 10% operating margin throughout the three-year period and achieving low double-digit annual growth in after-tax profit. Given that the company has exceeded these targets in 2023 and 2024, management is confident of achieving these goals by the end of 2025.
Nevertheless, the company faced short-term profitability challenges in the first half, mainly due to two factors. First, due to customers rushing to capitalize on last year's surge in European summer tourism demand before the Paris Olympics, approximately one million pairs of orders were shipped early in H1 2024, creating a high base effect. Second, short-term operational efficiency issues related to capacity expansion in Indonesia and the Philippines, where local labor productivity has not yet reached optimal levels. To meet demand and ensure important customer targets were met, the company shifted some production to its Vietnam shoe factories, resulting in increased costs, including overtime expenses.
Although the initial situation encountered is not ideal, the company expects conditions to gradually improve in the second half. Importantly, as the company is about to finalize its next three-year plan (2026-2028), it remains on a sustained growth trajectory. Part of this plan includes the company's intention to expand total capacity by an additional 20 million pairs starting this year. This will be achieved through further enhancing capacity at the company's new factory in Solo, Indonesia, commencing operations at the second factory in Bangladesh, and accelerating construction of a dedicated factory in Indonesia for the company's largest sports customer.
Another focus of the company's next three-year plan is developing the handbag and accessories manufacturing business, which the company plans to build into an important long-term growth driver. The company has recently completed the acquisition of a small but experienced handbag factory in Vietnam. The company will leverage its expertise to enhance product quality and production efficiency across its overall handbag business.
Once finalized, the company's next three-year plan will enable it to capitalize on brand customers' cross-category demands. As more companies reassess their supply chains and consolidate suppliers, the company aims to become the ideal partner to meet their needs—combining high quality standards with added value.
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