On January 1, less than a week after the three medium-risk areas in Zhenhai, Ningbo were adjusted to low-risk, a new round of epidemic broke out in Ningbo. From 00:00 to 24:00 on January 2, 2022, Ningbo City had 9 new confirmed cases of local new coronavirus pneumonia. Since January 1, 2022, a total of 16 cases have been reported in Ningbo.
It is understood that the genetic sequencing of the specimen from the first case of this round of epidemic in Ningbo belongs to the evolutionary branch of the Delta variant strain AY.57, which can rule out the connection with the recent epidemics in Hangzhou, Ningbo and Shaoshan, and declare it to be an independent epidemic.
At a press conference on January 2 (at that time, Ningbo had a total of 10 confirmed cases of the current epidemic), Wang Cheng, deputy secretary of the Beilun District Committee and acting district chief of Ningbo City, said that the new cases in Beilun were all in the closed and controlled areas. Active screening in the district found that they were all employees of Shenzhou Garment Department 3. In addition, the case activity track released by Ningbo shows that cases 2-9 are clearly employees of Shenzhou Company.
The “Shenzhou Company” involved in the epidemic is a well-known domestic textile OEM giant, which provides OEM services for well-known domestic and foreign brands such as Uniqlo, Nike, Adidas, etc. Shenzhou Group also owns Shenzhou International (02313. HK). As of January 3, Shenzhou International’s market value exceeded HK$200 billion.
On January 3, Shenzhou International announced that the group is actively cooperating with the local government’s lockdown and isolation measures. It is expected that some production bases in Beilun District, Ningbo City will be affected by short-term production suspensions.
How long will it take for the epidemic to be brought under control? Will the shutdown of some Shenzhou International production bases cause a chain reaction in the upstream and downstream of the industrial chain and the capital market? As of the close of trading on January 3, Shenzhou International reported HK$138.20 per share, down 7.81%.
The epidemic is highly concentrated in Shenzhou Company
On the morning of January 3, Shenzhou International issued an announcement disclosing that in view of the recent epidemic in the area where the group’s Ningbo production base is located, in order to prevent the spread and aggravation of the epidemic, the local government immediately adopted epidemic control measures and announced that the group’s Ningbo production base will be affected. Some production areas in Beilun District of the city have been sealed and controlled. As of 3 pm on January 2, ten positive cases involving the AY.57 evolutionary branch of the Delta variant strain have been confirmed in Beilun District, Ningbo City. The local government has launched large-scale nucleic acid testing in Beilun District, Ningbo City. The Group is actively cooperating with the lockdown and isolation measures implemented by the local government, and it is expected that some of its production bases in Beilun District, Ningbo City will be affected by short-term production suspensions.
Shenzhou International also stated that in the face of the latest developments in the epidemic, the group will take protecting the health and safety of its employees as its top priority and has provided assistance to affected employees. The company will fully cooperate with the local government’s various epidemic prevention measures, pay close attention to the development of the situation, and actively assess the impact of the epidemic on the group’s operations. The extent of the impact on the group will be assessed after the local government further announces the closure measures in relevant areas. Further announcements will be made in due course.
According to the Ningbo City New Crown Pneumonia Epidemic Prevention and Control Press Conference on the evening of January 1, the genome sequencing results of the strains of confirmed cases of the current epidemic in Ningbo were the evolutionary branch of the Delta AY.57 strain. After comparison and analysis, the virus strain is inconsistent with the evolutionary branch of the epidemic in Zhenhai District and Shangyu District, excluding the suspicion that it comes from the above-mentioned areas, and is genetically similar to cases recently discovered in Vietnam.
Sun Liming, deputy director of the Zhejiang Provincial Health Commission, informed that the epidemic is highly concentrated in Shenzhou Company, Beilun District, Ningbo, and no positive infections have been found in other areas of the province. The traceability work is currently ongoing, and further results will be announced in a timely manner.
At a press conference on January 2, Wang Cheng, deputy secretary of the Beilun District Party Committee and acting head of Beilun District, said that the new cases in Beilun were all discovered through active screening in the containment and control areas, and they were all manufactured by Shenzhou. Employees of the Third Department of Clothing. There are 3,405 employees in the third garment department of Shenzhou Company, all of whom are managed according to close contact personnel. 3,305 people have been transferred to centralized quarantine outside the area. It is understood that Shenzhou Company’s third factory area and dormitory area have been designated as medium-risk areas.
Revenue and gross profit hit new high in first half of 2021
After the circulation trajectory of a confirmed case in Ningbo was announced on January 1, many netizens lamented that “it is not easy for adults”: 13 days of work out of 14 days, 10 of which were 7 a.m. and 9 a.m. on the day off, and the day off was for medical treatment.
Although the investigation track did not disclose the name of the employee’s unit, Ningbo’s public account issued an article on January 2 stating that “the cases discovered so far are all employees of Shenzhou Company,” which shows that the employee is also an employee of Shenzhou Company.
Shenzhou Company is a well-known textile OEM giant in China. The official website of Shenzhou International disclosed that the group’s main production base is located in the Ningbo Economic and Technological Development Zone. It also has a fabric base in Xining Province, Vietnam, and strategically located in Anqing City in central China. There are garment factories in Ho Chi Minh City and Tay Ninh Province in Vietnam and Phnom Penh in Cambodia. It has more than 90,000 employees worldwide, produces more than 200,000 tons of high-end knitted fabrics for its own use and about 500 million pieces of knitted garments annually.
Shenzhou Group also owns Shenzhou International, a Hong Kong-listed company. The financial report disclosed that Shenzhou International is an OEM manufacturer for internationally renowned brands Uniqlo, Nike, and Adidas. Data from the 2021 interim report show that in the first half of 2021, the group achieved sales revenue of�11.369 billion, an increase of approximately 11.1% over the same period last year, and a gross profit of approximately 3.372 billion yuan, an increase of approximately 6.8% over the same period last year. Both revenue and gross profit were the highest in the same period in history.
Shenzhou International said that there are two main reasons for the growth of the group’s sales revenue: first, the impact of the new crown epidemic on global consumer demand has weakened, and the group’s order demand has increased significantly; second, the group’s production capacity has expanded and its capacity utilization rate has increased compared with the same period. There is a significant improvement.
It is understood that the products manufactured by Shenzhou International are mainly divided into four categories: sports, leisure, underwear and other knitted products. In the first half of 2021, sports sales accounted for 71% of revenue.
Judging from the layout of Shenzhou International, it not only has production bases in China, but also has layouts in Vietnam, Cambodia and other places. The impact of the uncertainty of the global epidemic situation on Shenzhou International is also reflected in gross profit.
Shenzhou International disclosed that the group’s gross sales profit margin from January to June 2021 was approximately 29.7%, a decrease of 1.2 percentage points from 30.90% in the same period last year. The decrease in gross profit margin was mainly due to the appreciation of the average exchange rate of RMB against the US dollar and the suspension of production in Cambodia for about one month due to the epidemic. However, Shenzhou International also mentioned that the increase in output of domestic bases has effectively alleviated the pressure on overseas factories’ production capacity caused by the epidemic.
According to the official website of Shenzhou International, Shenzhou International has developed a vertically integrated business model that concentrates all production processes, from fabric weaving, dyeing and finishing, printing and embroidery, cutting and sewing, in the same industrial zone, effectively improving process technology and manufacturing level and strategically provide customers with one-stop quality services. And extended this business model to overseas production bases.
Shenzhou International stated that the vertically integrated business model has brought many advantages to the group. It not only effectively reduces the connection time and logistics costs from one production process to another, but also helps the group reduce unit fixed production costs, while persisting in the implementation of Strict quality control measures have earned the group good reputation.
What is worrying is that in this round of epidemic, Shenzhou International, which has a vertically integrated business model, has suspended part of its production capacity. How will the impact of employee diagnosis on its upstream and downstream industry chains be affected?
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