Shenzhou Earnings: Raising Fair Value by 8% on Rapid Profitability Recovery

Shenzhou International's revenue for the second half of 2023 fell slightly behind our expectations, but operating profit was broadly in line. Even with a revenue downturn, the company still managed to improve profitability, suggesting effective cost-control measures and operational resilience that could bode well for future financial performance. There is no exact guidance for 2024, but management conveyed a positive outlook, saying "We are very optimistic for 2024." This optimism leads us to anticipate that revenue growth could very well hit the midteens percentages in 2024, and profitability recovery could come faster than we previously expected. As a result, we raise our fair value estimate by 8% to HKD 124, and view shares as materially undervalued.