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Shenzhou International Group Holdings Ltd (SEHK: 2313) is a Chinese clothing manufacturer with its headquarters in Ningbo, China. It is China’s largest vertically-integrated knitwear manufacturer and exports a variety of apparel to large, reputable customers such as Nike, Adidas and Uniqlo, a brand owned by Fast Retailing.
Being vertically integrated means that Shenzhou has the upper hand over smaller knitwear manufacturers who only occupy one small section of the supply chain. This advantage comes primarily through scale. Its impressive execution over the years has also seen it consistently produce profits and hike dividends over the years.
Investors may wonder if Shenzhou still makes for a great business to own over the long term. Let’s have a look at some historical numbers for the group in order to determine this.
Steady financial growth
Source: Shenzhou International 2018 annual report
In the table above, you can see that Shenzhou has managed to grow its revenue from RMB 11.1 billion (US$1.55 billion) to RMB 20.9 billion in the last four years. This is an impressive feat as revenue nearly doubled, which demonstrates the strong demand that Shenzhou has for its products.
Profit attributable to shareholders more than doubled from RMB 2.06 billion in 2014 to RMB 4.54 billion in 2018, which implies that net profit margins have also improved during this time.
For Shenzhou’s recent H1 2019 earnings report, revenue continued its upward climb, rising 12.2% year-on-year to RMB 10.3 billion, while net profit rose 10.9% year-on-year to RMB 2.41 billion. Those are solid growth numbers in what is widely-recognised as a more subdued growth environment for the overall global economy.
Consistent free cash flow generation
Elsewhere, Shenzhou also has a great track record of generating free cash flow (FCF), as can be seen above. Though FCF was below the RMB 1 billion mark from 2014-2016, this ramped up significantly in 2017 and 2018 when FCF hit the RMB 2.5 billion mark.
When it comes to rewarding shareholders, the group has not disappointed over the years with a steadily increasing dividend. In 2014, the group paid out a total dividend per share of HK$1.0, and this has been rising steadily year-on-year to HK$1.75 in 2018 – giving investors a total increase of 75% in just the last four years.
Investors should also note that Shenzhou has started paying out an interim dividend from 2017 onwards while discontinuing the special dividend. Both the interim and final dividends have seen a year-on-year rise from 2017 to 2018.
For H1 2019, Shenzhou increased its interim dividend further by 5.9% year-on-year from HK$0.85 to HK$0.90.
Should you own it?
From the above, I believe that Shenzhou is a great business to own. It has shown steady growth in both revenue and net profits, displays a trend of consistent FCF generation, and has also been increasing its annual dividends in line with improved performance. Shenzhou’s 12-month trailing dividend yield currently stands at 1.7%.
The group’s share price performance has also been nothing short of stellar. Five years ago, in September 2014, Shenzhou was trading around HK$24.35. Since then, its shares have risen 340% to hit HK$108. Investors who held on to their shares over this period of time would have been well-rewarded in terms of both capital appreciation and dividends.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Royston Yang does not own shares in any of the companies mentioned.