超级泡沫力量，为阿迪达斯订单而战；以持有方式启动

Super Foam Powerhouse to Fight for AdidasOrders; Initiate with Hold Huali's new midsole technologies (in-house high-performance foam) areexpected to drive market share gain. Its investment in dedicated factoriesfor Adidas positions it to replace Ching Luh as a major Adidas supplier.We prefer Huali to Yue Yuen for its better business model, client mix, From cost leader to super foam powerhouse.Huali is one of the top 2 sports shoemakersin the world (by capacity in 2026E). In the next five years, we expect Huali to enjoy higherearnings growth, thanks to super foam. New foam materials (e.g. A-TPU, dual-density singlemold) remain the key driver of running, outdoor, and training footwear innovation. We believe Adidas and other potential super foam clients are key growth drivers.We expect Huali to fillthe void left by Ching Luh exiting the Adidas supply chain. We estimate the Adidas businessto account for 10% of Huali's sales in 2028E (vs. 1% in 2025). In our view, Huali is likely tobuild more production clusters dedicated to Adidas. These new compounds may include R&D,data analytics, and advanced production capabilities (mesh, foam, smart cell assembly, etc.), Key risks are demand, raw material shortages, and trade tensions.Despite structuralgrowth opportunities, we are concerned about macro demand-and-supply dynamics. Slowingeconomic growth and possibly unsustainable FIFA World Cup orders may dampen demand.The sharp increase in sports footwear capacity is also a concern. In addition, the ongoing Prefer Huali to Yue Yuen. In our view, Huali's volume-driven business model is likely tooutperform Yue Yuen (Underperform), which prioritizes high ASP. We also expect Huali tocatch up on super foam technologies. Furthermore, Huali's client mix (less reliant on Nike andAdidas) could lead to higher earnings growth. Hence, we expect Huali's margin and growth Valuation and risks.Our DCF-based PT implies 11x 12-month forward PER, in line withthe average PER of Huali's two closest peers, Yue Yuen and Shenzhou. Upside/downsiderisks: faster/slower client adoption of new technology, and smoother/slower ramp-up of new John Chou * | Equity Analyst852 3743 8792 | john.chou@jefferies.comBoya Zhen * | Equity Analyst852 3743 8774 | bzhen@jefferies.com Anne Ling * | Equity Analyst852 3743 8783 | aling@jefferies.com The Long View: Huali Investment Thesis We view Huali's equity story as a cost leader transforming into a technologyleader, as well as a balance between client-dedicated production capacityand multi-client capacity. We expect Huali's focus on value-for-money and Compared to consensus, we are more positive on Huali's long-term marketshare potential, as well as the sustainability of its premium margins. Havingsaid that, we will closely monitor macro demand, industry supply, and trade Base Case,CNY33, +3% Upside Scenario,CNY58, +81% Downside Scenario,CNY20, -37% •Huali successfully upgrades technology to •Huali's new technology(especially,foam) •Huali's technology upgrades face the hurdle of gain wallet share.•Huali's new capacity gradually ramps up.•NewcapacityenhancesHuali'scostcompetitiveness. intensified competition from other OEMs.•Huali's new capacity sees low capacityutilization due to weak demand.•Lengthyindustrydemandheadwinds,possiblydriven by the lack of product gains wallet share and attracts new clients.•Huali's new capacity ramps up rapidly to reachfull utilization.•NewcapacityenhancesHuali'scost Catalysts Sustainability Matters •Taiwan textile and footwear PMI.•Other OEMs' monthly sales.•Financial results, especially those of Nike and Top Material Issues: 1. Supply chain: What minimum material or process thresholds must a sustainable product meet to 2. Corporate governance: What specific KPIs are tied to pay, and what are the weightings; are there Company Targets: 1. Climate: Scope 1&2 (market-based) emissions are down 21% since 2022, but the near-term Science-Based Targets initiative (SBTi) requires cuts of 50.4% by 2032, and Scope 1 requirements have risenevery single year. What's the year-by-year roadmap to close that gap, and which interventions will do 2. Labor: For Vietnam T1 factory workers, what are mgmt's targets for the share of workers currentlyto meet a recognized living wage benchmark? What are the plans and timeline to fill any gap(s)? 3. Macro: What due diligence framework governs operations, and have any concerns been identified Becoming a Super Foam Powerhouse Hualiis one of the world's largestshoemakers, with robust capacity growth. Huali is one of the world's largest sports footwear OEMs Huali and Yue Yuen are the world's two largest sports footwear OEMs by capacity. We estimatethey each have capacity of over 250mn pairs per year in 2026E. Huali accounts for 10-12% of the Huali: Robust capacity growth Over the past few years, Huali has gradually increased its footwear capacity. This is in contrast toYue Yuen's declining capacity. By 2026E, we estimate Huali's