Stock Price Soars 13% on High Volume

On October 28th, Yue Yuen Group (00551.HK) experienced a gap-up and a significant volume increase, soaring by 13.07%, with its stock price directly hitting a new high for the phase.

From the perspective of news, the surge in Yue Yuen Group's stock price is related to a recent announcement.

The company released a profit warning, with performance exceeding expectations.

It is reported that Yue Yuen Group is a subsidiary of Pou Chen Group responsible for shoe and clothing OEM business. Its main business is the production and wholesale of casual sports shoes, clothing, and accessories, providing design, manufacturing, and production services for many internationally renowned brands such as Nike (Nike), Adidas (Adidas), Reebok (Reebok), New Balance, Asics (Asics), among others, with a deep binding to Nike (Nike) and Adidas (Adidas).

In addition, the independent retail company under Yue Yuen Group - Bao Sheng International (03813.HK) is one of the largest integrated sports, outdoor, and leisure goods retailers and distributors in the Greater China region.

Overall, the manufacturing and retail businesses under Yue Yuen Group are the global leader in sports shoe manufacturers and the top 2 sportswear retailers in China, respectively.

After the market on October 25th, Yue Yuen Group issued a positive profit warning, stating that the group expects a year-on-year increase of 140-145% in net profit attributable to the parent company for the first three quarters of 2024, reaching $330 million to $340 million; the performance exceeded expectations.

Advertisement

Combining the semi-annual report, it can be inferred that for the third quarter of 2024, Yue Yuen Group's net profit attributable to the parent company is expected to be between $147 million and $154 million, a year-on-year increase of 173% to 185%, and the performance also exceeded market expectations.

In the announcement, Yue Yuen Group stated that the profit growth during the period was mainly due to the further normalization of the global footwear market, a significant increase in demand for footwear products supplied by the group from brand customers, and the full load of orders for the group's manufacturing business, which has been getting stronger quarter by quarter, driving a steady increase in the group's manufacturing business gross margin.

In addition, there were no capacity adjustment-related costs during the group's period, while a one-time cost of about $30.5 million was incurred in the same period of the previous year. Moreover, the sale of part of the equity in an associated company generated a one-time gain of $24.1 million, which also contributed to the profit.Yu Yuan Group also stated that to further support profit growth, the group continues to balance demand with order scheduling, flexibly allocates production capacity, and implements orderly overtime plans. In addition, with the steady increase in new production capacity this year, it continuously promotes the improvement of overall capacity utilization and production efficiency.

Adidas raises full-year performance guidance, is the demand side recovery certain?

Looking at the prospects, the future performance of Yu Yuan Group is closely related to the sales of key customers, especially Nike and Adidas.

On October 8th, Nike released its financial report for the first quarter of the fiscal year 2025 (ending August 31st). The data shows that Nike achieved revenue of $11.589 billion, a year-on-year decrease of 10.43%; it achieved a net profit attributable to the parent company of $1.051 billion, a year-on-year decrease of 27.52%; however, the diluted earnings per share were $0.70 per share, exceeding market expectations of $0.52 per share.

Among them, sales in Greater China were $1.666 billion, a year-on-year decrease of 3%.

On October 16th, Adidas announced its preliminary financial report for the third quarter, with revenue of €6.438 billion, slightly below expectations, and operating profit of €598 million, a year-on-year increase of 46.2%, exceeding market expectations.

Based on the better-than-expected third-quarter performance and the strong momentum of brand development, Adidas has once again raised its full-year performance guidance. Adidas expects that, on a currency-neutral basis, the revenue growth rate for 2024 will reach 10% (previously expected to grow at a high single-digit rate), and operating profit will reach around €1.2 billion (previously expected to be around €1 billion).

It is evident that while Nike encounters setbacks, Adidas' operational situation is quite good. In addition, the customer ASICS also significantly raised its expectations for the full year of 2024 on August 16th.

From an institutional perspective, after the release of positive earnings forecasts, Yu Yuan Group has been看好 by institutions such as Tianfeng Securities, Huaxiang Securities, and Goldman Sachs.

Among them, researchers from Huaxiang Securities stated that as a global leader in sports shoe manufacturing, Yu Yuan Group has the advantage of market share among the world's top sports brands, and through vertical integration, it can effectively control the upstream and downstream of the industry chain, achieving high product quality control and fast delivery. 1) In the short term, as the brand's inventory reduction ends in 2024, the certainty of full-year order improvement is strong, capacity utilization gradually recovers, and with cost control taking effect, positive operating leverage is expected to bring net profit elasticity; 2) In the medium to long term, Yu Yuan Group is expected to enjoy the first-mover advantage and scale advantage of overseas production capacity layout, as well as refocus on manufacturing operations to further increase the share of old customers. 3) At the same time, as overseas brands recover in the Chinese market and retail business operational efficiency continues to improve, the retail business is expected to gradually improve.Tianfeng Securities also stated that Adidas has shown a reversal in momentum, with this round of guidance increases reinforcing direction, clarifying the operational cycle of the giant, and regaining the rhythm of growth. Adidas' upward revision directly benefits the expectations for related supply chain orders; as one of Adidas' footwear supply chains, Yue Yuen is expected to actively benefit, with order performance potentially exceeding short-term brand sales.

Conclusion

It is worth mentioning that footwear and apparel manufacturers Jiuxing Holdings (01836.HK) and Shenzhou International (02313.HK) have both previously been included in the "Hong Kong Stock Connect 100" list, as has Yue Yuen Group.

According to the official website of the Hong Kong Stock Connect 100, the 2024 Hong Kong Listed Companies Development Summit Forum and the 11th "Hong Kong Stock Connect 100" Awards Ceremony, hosted by the Hong Kong Stock Connect 100 Research Center, co-organized by Caihua Community and Futu AnYi, and supported by media organizations such as the Hong Kong Takungpao Group, will be held on the afternoon of November 11, 2024, at the Hong Kong Convention and Exhibition Center. This event will deeply discuss how to further consolidate Hong Kong's position as a global wealth management hub and capital market fundraising center, as well as how to enrich the financial technology ecosystem in the context of the new era.

Currently, Yue Yuen Group's prosperity is high, and it may once again be included in the latest "Hong Kong Stock Connect 100" list, achieving an excellent ranking.