Textiles and apparel have a huge manufacturing system, and the OEM field is a relatively low-profit area in the apparel industry. The market once believed that the barriers to the foundry industry were not high, related companies had no competitive advantages, and long-term performance stability and ceilings were low, so it was difficult to give high valuations.
Original giant in the apparel industry: Shenzhou International
But Shenzhou International has created a capital myth with a hundredfold increase in market value in ten years. It has grown steadily from a small garment foundry to become my country’s leading garment export enterprise. If we analyze the clothing OEM giant Shenzhou International, we find that these giants have accumulated strong R&D advantages, scale advantages and established long-term and stable cooperation with high-quality customers during their development, thereby achieving more stable performance growth than the brands. As the competitive advantages of the foundry giants continue to be recognized by the market, the company’s valuation has also increased several times.
Shenzhou International has grown steadily for 15 years. The highlighted competitive advantage drove the PE valuation to increase from 5 times to 30 times+. When Shenzhou was listed, it focused on low-value-added casual wear OEM business. The market did not realize the company’s competitiveness, so the PE center was 5-10 times.
After 2008, the industry faced impact. The company focused on developing high value-added sportswear business and extended fabric ODM to share sportswear dividends with giants such as NIKE, ADIDAS, and PUMA. The company has grown against the trend and continuously strengthened its R&D capabilities and efficiency advantages. The market has gradually recognized the company’s competitiveness, and its PE has also increased from 10 times to 20 times.
Since 2014, the company has accelerated its production capacity layout in Southeast Asia, demonstrating the superiority and replicability of the integrated model. Overseas low-cost labor has further improved the company’s production efficiency and profitability, and its PE valuation has also increased from 20 times to 30 times. More than times.
01 The leading clothing OEM company has grown sixty-fold in ten years
1. The world’s leading knitting manufacturer has experienced steady growth through the cycle
Shenzhou International is one of the world’s largest vertically integrated knitting manufacturers and has experienced steady growth through the cycle for decades. The company was founded in 1990. In its early stages, the company focused on the casual apparel OEM (OEM) business in the Japanese market. In 1997, the company established a cooperative relationship with Uniqlo, one of its key customers, which continues to this day.
In 2006, with the rise of global sportswear, the company timely deepened cooperation with head sports brands such as NIKE, ADIDAS, and PUMA to share the dividends of the sportswear market, and gradually developed an outsourced design (ODM) business. The company insists on the research and development of new materials and fabrics and the introduction of advanced equipment to continuously strengthen its competitive advantages.
After 2013, in order to cope with the pressure of rising domestic costs and promote globalization, the company began to focus on overseas production capacity layout and accelerate expansion to further improve production efficiency.
In 2018, the company further proposed to transform towards automation and informatization. Benefiting from stable cooperation with major customers and continued expansion of production capacity, the company’s performance has achieved steady growth through bulls and bears. From 2005 to 2019, the company’s revenue and net profit compound growth rates reached 17% and 21% respectively.
At present, the company has more than 82,700 employees and a factory covering an area of more than 5.25 million square meters. It produces about 400 million pieces of various knitted garments every year, with annual revenue of 22.7 billion yuan. Its products are distributed in mainland China and Japan. , Asia Pacific and European and American markets.
Shenzhou International has significant scale advantages and its revenue far exceeds that of its peers.
We selected three apparel OEM companies currently listed on A-shares and Hong Kong stocks for comparison with Shenzhou International. They are Lutai A, an international first-line brand shirt manufacturer, and Lutai A, which has the world’s largest wool textile and apparel industry. Ruyi Group, a chain enterprise, and Chiu Ying International Holdings, the world’s largest manufacturer of women’s underwear materials. In 2018, the total revenue of Shenzhou International, Luthai A, Chiu Ying International Holdings, and Ruyi Group were 20.97 billion yuan (+15.8%), 6.88 billion yuan (+7.3%), and 2.83 billion yuan (+20.1%) respectively. , 1.33 billion yuan (+11.3%), Shenzhou International’s scale is more than three times that of the second largest company in the industry, with obvious scale advantages.
2. Core advantages: R&D advantages + cost advantages + customer advantages all in one
Shenzhou International’s vertical integration model effectively shortens production and delivery cycles and is favored by brand owners.
By promoting the vertical integration model of four processes including weaving, dyeing and finishing, printing and embroidery, cutting and sewing, the company not only provides complete and comprehensive services to brand owners, but also saves the cost from one production process. The lead time and logistics costs of moving to another production process are favored by brand owners.
The delivery cycle of general clothing OEM companies is more than 3 months. The leading delivery time reference standard for international clothing OEM companies is 30 days. The company can achieve 15 days from delivery at the fastest with its vertical integration model. The entire order-to-delivery process, and the overseas factory delivery period is also within 45 days and attempts to deliver within 35 days, which is twice as long as the international standard.
02 Continuous research�Innovation to increase the added value of products
The company has continuously consolidated its fabric research and development and process innovation capabilities and improved its technical barriers over the years. The company has developed ultra-fine acrylic and ultra-fine polyester thermal fabrics , knitted simulation fabrics, functional sports fabrics, fabrics treated with various functional additives.
The company’s R&D achievements are mainly reflected in patent reserves. From 2016 to 2018, the number of authorized patents increased from 163 to 308, of which new material and fabric patents increased from 69. to 104, and patents for equipment, process transformation and innovation and garment-making templates increased from 94 to 204.
The number of new products transformed through independent research and development projects is also rising. As of 2018, the company has transformed an average of 33 series of patents into products every year, with an average of 25 varieties in each series. , so the average annual new products is about 825 pieces.
03 Lay out overseas production capacity to strengthen cost advantages
The company has been building garment factories in Cambodia since 2005. Affected by the gradual increase in domestic labor costs and environmental protection requirements, some low-value-added businesses in China’s textile industry began to accelerate their transfer to Southeast Asia around 2012. The company started in 2014 Increase production capacity deployment in Vietnam and Cambodia to reduce trade risks while ensuring cost advantages.
From 2015 to 2018, the company’s fabric output increased from 113,600 tons to 186,000 tons, with a three-year compound growth rate of 17.9%, laying a good foundation for the company’s business growth. Thanks to the continuous optimization of production capacity layout and improvement of production efficiency, Shenzhou International’s per capita profit has increased year by year, with a compound growth rate of 16.2% from 2015 to 2018, reaching 55,000 yuan in 2018, which is much higher than Lutai A (33,000 yuan) , Chiu Ying International Holdings (36,000 yuan), Ruyi Group (28,000 yuan).
Shenzhou International’s profitability continues to strengthen and is far ahead in the industry. With the partial transfer of the textile industry chain, leading domestic garment manufacturers have deployed production capacity overseas. However, Shenzhou International has significant advantages in scale and operational efficiency, and leads the industry in profitability. From the perspective of gross profit margin, Shenzhou International and Chiu Ying International Holdings were 69.6% and 75.2% respectively in 2019, and Lutai A and Ruyi Group were 69.5% and 72.2% respectively in 2019Q3. It can be seen that Shenzhou International’s production costs remain at a low level. In addition, Shenzhou International has more effective cost control, and its net profit margin is far ahead, reaching 22.5% in 2019, which is much higher than Luthai A (12.6%), Chiu Ying International Holdings (8.2%), and Ruyi Group (8.5%).
04 Product categories are gradually diversified and the structure is continuously optimized
In the early days of the company’s establishment, most of its revenue came from Japanese clothing brands and retailers such as UNIQLO, Ito Nishiki, and Ito-Yokado. In 2006, the company began to accelerate the development of customer cooperation outside Japan. From 2006 to 2019, the share of revenue from the Japanese market in the company’s revenue structure dropped from 75.5% to 15.6%. The proportions of the world’s five largest markets became more balanced, effectively resisting single market risks. From a category perspective, the company has also shifted from focusing on casual clothing to focusing on sportswear, and has added underwear categories. From 2006 to 2019, the company’s sportswear revenue share increased from 15.6% to 72%.
05 Long-term and close cooperation with internationally renowned brands
The company has maintained a close cooperative relationship with UNIQLO, a well-known Japanese leisure brand, for more than 20 years. The cooperation with the three major sports giants NIKE, ADIDAS and PUMA is also very stable. In order to further bind high-quality customers With long-term cooperation, the company even built dedicated factories and design studios for NIKE and ADIDAS from 2006 to 2007.
In 2012, when the company’s major customer NIKE launched the Flyknit Racer, the originator of knitted running shoes, and needed suppliers to produce Flyknit uppers for it, there were suppliers She chose to give up, but Shenzhou decisively decided to invest heavily in purchasing multiple new production equipment for NIKE. This move not only strengthened the cooperative relationship between the company and NIKE, but also became an important driving force for the company’s subsequent performance growth.
NIKE, ADIDAS, UNIQLO and PUMA have always been the company’s top four customers, accounting for about 80% of the company’s revenue in recent years, which is the key to the company’s steady growth over the years. support.
In the development strategies of OEM companies, there will always be voices of establishing independent brands to cultivate the core competition of the company. force. However, Shenzhou International is not in a hurry to build its own brand. It prefers to first establish itself in the current market and then improve itself.
Shenzhou insists on innovation and continuously improves its production level and capabilities. While increasing product added value and profitability, it also reduces fabric use and production emissions through environmentally friendly design. Make the company a sustainable operator.
Shenzhou has reached today’s size, but it is still committed to its own continuous upgrading and pursuing excellence on the road to excellence. Such an enterprise is worth learning from all of us.
�First establish yourself in the current market and then improve yourself.
Shenzhou insists on innovation and continuously improves its production level and capabilities. While increasing product added value and profitability, it also reduces fabric use and production emissions through environmentally friendly design. Make the company a sustainable operator.
Shenzhou has reached today’s size, but it is still committed to its own continuous upgrading and pursuing excellence on the road to excellence. Such an enterprise is worth learning from all of us. </p
