CICC has released a research report stating that Yue Yuen Ind (00551) is a global leader in sports footwear manufacturing, while also operating sports footwear and apparel retail businesses in Greater China. The company is at the forefront of capacity relocation overseas and boasts a diversified global production base layout. CICC initiates coverage with an Outperform rating and a target price of HK$19.46, corresponding to a 2026 P/E ratio of 10.5x. CICC's main views are as follows.
The sports footwear industry offers vast space and features a concentrated competitive landscape. Yue Yuen Ind is the leading sports footwear manufacturer and also manages a sports footwear and apparel retail business. According to Euromonitor, the global sports footwear market reached $167.7 billion in 2024 and is expected to maintain mid-single-digit growth over the next five years. Global sports footwear brand market share is concentrated, with the CR10 reaching 57% in 2025. The footwear manufacturing industry also exhibits a concentrated structure, with Yue Yuen Ind being the world's largest sports footwear manufacturer; the bank estimates its shipment share exceeds 10%. Its subsidiary, Pou Sheng International, is a leading sports footwear and apparel retailer in Greater China. In 2024, Yue Yuen Ind's revenue/attributable net profit were $8.18 billion/$390 million, respectively, with the manufacturing business accounting for 69%/89% and the retail business for 31%/11% of revenue/net profit.
The company leverages its development capabilities to secure partnerships with high-quality growth clients and leads in capacity with a globalized layout. The company possesses strong development capabilities for mid-to-high-end footwear styles, enabling deep relationships with the top two international brands, Nike and adidas, alongside long-term cooperation with globally renowned brands such as Asics, New Balance, Salomon, and Arc'teryx. The bank estimates that the company's top 5 customers consistently account for a high proportion of 80-90% of manufacturing revenue. Furthermore, the company is a frontrunner in relocating production capacity overseas, with a diversified global production base footprint.
With overseas brand inventories at manageable levels and accelerated product innovation, the manufacturing business's performance is expected to return to stable growth. Potential tariff disruptions in 2026 may lessen. The inventory levels of Yue Yuen Ind's major brand customers are currently controllable. Brands, exemplified by Nike, are accelerating product innovation, coupled with growth from several other high-quality brands. The bank anticipates that the manufacturing business's revenue can achieve stable growth in 2026. Concurrently, with the resolution of issues related to the ramp-up of newly built capacity and uneven capacity utilization, the bank expects the manufacturing business's performance to recover.
Differing from the market consensus, the bank is more optimistic about the company's growth restart following its proactive optimization of customer quantity and structure. It also highlights the earnings certainty derived from securing partnerships with quality brands through its development capabilities and global production layout. Furthermore, the bank forecasts a 2026 dividend yield of 8.2%, providing a margin of safety. Potential catalysts include a faster-than-expected customer recovery and order uptake, and better-than-expected improvements in production efficiency.
For its profit forecast and valuation, the bank expects the company's EPS to be $0.23 and $0.24 for 2025 and 2026, respectively, with a CAGR of -0.4% from 2024 to 2026. The current share price corresponds to a 2026 P/E of 8.6x. Based on a 2026 P/E multiple of 10.5x, the target price is set at HK$19.46, implying a 23% upside potential from the current price. Coverage is initiated with an Outperform rating.
Risk warnings include customer orders falling short of expectations, slower-than-expected capacity expansion and ramp-up, and the risk of recurring tariff issues.
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