GF Securities released a research report forecasting that YUE YUEN IND's (00551) earnings per share for FY25-27 will be $0.23/$0.26/$0.28, respectively. Based on a sum-of-the-parts valuation method, this corresponds to a fair value of HK$19.99 per share. Initiating coverage, the firm assigned a "Buy" rating. The company is the world's largest sports footwear manufacturer, with its business driven by a dual engine of footwear manufacturing and retail. Its manufacturing operations maintain deep partnerships with both Nike and adidas, and its FY2024 footwear shipment volume ranked first globally. Its listed subsidiary, Pou Sheng International (03813), is one of the largest integrated sports, outdoor, and leisure product retail platforms in Greater China. The main views of GF Securities are as follows:
Manufacturing Business: Volume and Price Increases Expected to Drive Sustained Improvement in Revenue and Profitability. (1) Looking ahead to 2026, the performance of the sports footwear and apparel OEM industry is expected to improve: ① As US tariff policies become clearer, the order placement rhythm of brand customers is expected to normalize; ② 2026 is a "super year for sporting events," which is anticipated to boost downstream demand; ③ If Nike concludes its destocking in FY26 and brand sales recover, related OEM companies are poised to benefit; ④ The trend of supplier consolidation on the brand side is favorable, supporting leading manufacturers in continuing to gain market share. (2) The company is actively implementing various measures to enhance its superior manufacturing capabilities, which should drive sustained improvement in the manufacturing business's revenue and profitability: ① With the ramp-up of new capacity and the release of economies of scale, capacity utilization is expected to remain high, and uneven capacity loading should improve; ② Guided by the core principle of rapid response, digital lean management capabilities are being enhanced; ③ Focusing on high-quality orders from major clients, increasing the proportion of high-end shoe styles, and improving the product mix.
Retail Business: Actively Advancing Omni-channel and Refined Operations, Poised for an Earnings Reversal. (1) Looking ahead to 2026, demand in China's sports footwear and apparel retail industry is expected to recover: ① Supported by sporting events, China's policies to boost domestic demand and develop sports, the related consumer environment is likely to improve; ② The gradual sell-through of Nike's older products and an accelerating proportion of new products are expected to enhance Pou Sheng's sell-through rates and improve discount rates. (2) Pou Sheng is actively promoting refined operations: ① Implementing refined retailing and dynamically deploying its omni-channel retail footprint; ② Continuously enriching its brand and product category matrix; ③ Under the mechanism of inventory sharing and product sharing platforms with brand partners, the inventory structure is expected to be optimized.
Risk warnings: Customer sales decline, capacity expansion falling short of expectations, and escalation of trade friction.
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