Stella International Holdings Ltd

HKEX:1836

Q2-2025 Earnings Call

[Operator]

Good evening, everyone. Sorry for the late start. Thank you for joining us for the presentation of Stella International Holdings Limited's 2025 Interim Results. This webinar is being recorded. With us today is Mr. Stephen Chi, CEO and Executive Director; Mr. Andy Tam, Group Chief Financial Officer; and Ms. Macy Leung, Head of Investor Relations.

Andy will first present a summary of the group's financial performance for the 6 months ended 30th of June 2025, after which Stephen will present the business review of the group's manufacturing business. Andy will then return to present the group's outlook. Following the presentation, we will be taking voice questions in English from the audience. [Operator Instructions] I will now hand it over to Andy to discuss the group's financial performance.

[Siu Ming Tam, executive]

Thank you, Matt. Good evening, everyone. Sorry for the late start, some technical issues. Let me start with Slide 4 with the highlights. Our group revenue was pretty much flat for the first half, which we preannounced back in the Q2 update. Our volumes rose 3.8% to 27.5 million pairs. This was driven mainly by Sports segment despite a high base effect from a higher shipment volume in the first half last year of about 1 million pair [ ahead of schedule ]. Our ASP is down 3.2% due to higher proportion of sports products [ which have lower ] ASP.

Our operating profit margin is 10.9%, [ down ] 200 basis points. We faced some temporary gross margin pressure during the period, mainly due to short-term efficiency issues and some of the ramp-up of our expanded production capacity in Indonesia and Philippines. So as a result, our net profit for the first half fell 14.6% to $78 million. We still continue a solid net cash level of $291 million, which is down a little bit as we pay out our final dividend for 2024 as well as an additional $60 million under the cash return program that we paid in May. And today, we declared a $0.52 interim dividend, which is a 71% payout ratio.

Moving to Slide 5. I will talk a little bit more about the P&L. Our margin, our gross profit margin -- our gross profit decreased by 11.9% and our margin -- gross margin fell 22% compared to 25.8% last year. And, we talked a lot about this before with a high base effect from the same period last year because the 1 million pairs that we shipped early fell outside the normal seasonality, and there's a relatively high-margin product.

Secondly, there's a temporary gross margin pressure caused by, I say, in the Indonesian and Philippine factory, where we train newly hired workers in that area, but did not -- we were not able to fully attain the efficiency levels required to meet production. Subsequently, we also slowly ramp up of the new factory in Indonesia, which led the group to redirect production in Vietnam and we saw the higher production cost and [indiscernible]. Meanwhile, our net profit was $78 million, which becomes $77.9 million on an adjusted basis if there is a $200,000 gain on the net value of the [ investment ]. And our net profit margin was still at 10.1%.

Now turning to our cash flow statement. Our net cash flow from operation was $3.9 million, mainly due to changes in our working capital. Our cash outflow in investing was $25.3 million. CapEx was $33 million. We will finish -- have more CapEx in the second half and probably Q1 next year to finish the Indonesian factory for our sports customer. And our cash flow from financing activity is $48.9 million [ with ] dividend we pay in $113 million total.

Going to our balance sheet position. [indiscernible] net cash balance of $291 million [indiscernible] that is reserved for cash return program to be returned in '25 and '26 [ which is ] through either a combination of share repurchases or special dividends on top of our regular dividend payout.

Going to the next page on our valuation and dividend yield. We paid $0.56 special dividend in 2024 to fulfill our promise of the $60 million cash [ return program, ] which made our total payout to be 87% last year, including our normal dividend. This represent a 9.4% dividend yield at the time. Right now, we've declared a $0.52 dividend for the interim, which is above a 70% payout ratio. And based on the last 12 months calculation, our dividend yield is about 10%.

Going to next page on our cost structure. As you can see in the first half of this year, our gross profit margin was pressured by high labor costs and overheads in our factories. Raw material costs continue to [ make up ] a large component of cost of goods sold. And the long-term trend on volume and ASP. Again, this shows you that since COVID 2020, we have kind of steady [ enhancing ] our product portfolio, really building up that luxury and higher-end package side our business. And because of the longer cycle time, our volume has been relatively flat over the last few years. And we don't have the volume figures also on the right-hand side for interim comparison as well.

At the same time, ASP has been falling as our sports business recovered this year, and we also added new customers in this segment as well. Looking at the operating profit and the margin, our operating profit between '21 and '24, since COVID, has been growing by 21% CAGR, which means we will probably meet our [ sales ] targets of 10% operating margin and low teens annualized growth, profit after tax under the [indiscernible] margin pressure we talked about earlier. And this is really attributed to our strategy of enhancing our customer mix to better align to our unique capability and expanding really diversifying our manufacturing capacity [ same ] our cost base. And really optimizing our management effectiveness and efficiency and kind of really focused on changing and improving our working capital.

All right. Next page on net cash balance. You see a net cash balance in the first half of $291 million. We did actually pull some debt actually, [ $50 ] million outstanding in the first half. That's mainly because when we paid the cash return $60 million, we were going to liquidate some of our short-term U.S. dollar investment, but we decided to not do that as we earn a higher interest income. And while short-term interest rate in the Hong Kong dollar market is less than almost about 1%. So we arbitrage in the market for a little bit. But all of that [ $50 ] million loan has been paid out subsequent [ to right now ].

Let me go to the next page. This is our seasonality, just to remind everyone, we have a high base effect for the 1 million pair that has shipped in first half in 2024 [indiscernible] showing that as a comparison if you move that back what the volume revenue GP and net profit look like. Let me turn to, the business review, over to Stephen.

[Lo-Jen Chi, executive]

Thank you, Andy. Good evening, everyone. So Slide 15 provides an overview of customer portfolio we will work with. We basically separate our portfolio into 4 different categories. Sports, well-known sports brands, including limited edition and cross-brand collaboration. Luxury, which are mostly [indiscernible] developed and commercialized for luxury and high fashion brands by working closely with their fashion, most high-end fashion brand that sells best-in-class footwear, including [indiscernible] casual, mostly long-term customers.

We have commenced shipments to Under Armour during the first half of this year as we now supply to the premium product line called [ Halo. ] And in the second half of this year, we just shipped a new -- for a new customer in the fashion and sports category. It's called SKYLRK, it's Justin Bieber's personal brand. And then another major sports brand was shipped in [ September ].

For Slide 16, is a breakdown of manufacturing revenue by product category. Going by category, sales in our sports increased by 8.2%, accounting for 48.5% of total manufacturing revenue. And this was driven by higher shipments to our largest sports customer and other existing sports customers as well and obviously, the successful ramp-up of Under Armour new premium [ series ]. Revenue attributed to our fashion and luxury category together reported a net decrease of 3.5%, a decrease of 2.6% and 6.2%, respectively, and it accounted for 25.4% and 7.8% of our total manufacturing.

Revenue attributed to our casual category declined by 9.2%, accounting for 18.3% of total manufacturing revenue as we continue to reallocate capacity to grow our other categories in line with our [indiscernible] plan.

Slide 17 contains a breakdown of revenue by region. North America and Europe are our 2 largest markets, accounting for 48.7% and 23.4% of our total revenue. And this is followed by PRC, the rest of Asia and other geographic regions, which contributes to 15.5%, 9% and 3.4% respectively.

Turning to Slide 18. In the first half of this year, China accounted for 25% of our manufacturing capacity, Vietnam 52% and Bangladesh, Indonesia and Philippines accounting for 23%. By the end of '25, we estimate that China will account for 25% of our manufacturing capacity, Vietnam 52% and other parts 23%.

Turning to Page 19. We remain on track for sustained growth as we are starting to finalize our next 3-year plan. Part of this plan includes intention to scale up total capacity by additional 21 million to 26 million pairs. And this will be achieved through further ramp-up of our new factory in Solo, Indonesia. And that will deliver around 7 to 8 million pairs. Launching and [indiscernible] manufacturing facility in Bangladesh, which will deliver 3 million.

And accelerating the construction of dedicated factory to our largest customer in Indonesia, and that will deliver around 10 million to 12 million pairs. And also, Andy mentioned earlier, the capital required for the expansion are fully funded within our CapEx [ plan ].

[indiscernible] on the downside in our branded business. Our retail and wholesale business in Europe has already been entirely locked out. And in the first half of this year, we closed 12 points of sale and 8 are still remaining up-to-date. The revenue from distributed channels [indiscernible] overall performance as we're continuing to wind down the business by end of this year.

Finally, on Slide 21, I'm pleased to share that [indiscernible] operating MSCI ESG rating of AA, up from its previous A rating, marking the second back-to-back [indiscernible]. The MSCI rating upgrade recognized our progress in environmental performance, particularly in raw material sourcing and product [indiscernible] Stella score across all [ 6 ] ESG issues in textile, apparel and luxury goods sector now exceeds the industry average.

I will now hand it back to Andy to discuss our [ outlook ].

[Siu Ming Tam, executive]

Thank you, Stephen. As we near the end of our 3-year plan, [ '23-'25 ], we got [ 4 more ] months left, we're confident that [indiscernible] our target of 10% operating margin and low teens CAGR over that 3-year period. Turning to outlook, next page. For the full year, we expect a moderate increase in shipping [indiscernible] compared to 2024. Our profit will remain constrained as we continue implementing our [indiscernible] progressive efficiency improvement at our [indiscernible] especially in Indonesia and Philippines in the second half.

We may also see further margin pressure as we see in partnerships with our key U.S. customers to optimize production operations and this will allow to reinforce our long-term strategic relationship with them. We continue to optimize allocation of production capacity, of course, across all the various categories focused on what drives the profitability [indiscernible] expected to be full during the second half as we commence shipments to new customers [indiscernible] both category in the second half.

Despite all the underlying market uncertainties, demand for our product development, skill set and manufacturing capacity still remains strong as we continue to win new customers. Increasingly, more and more brands are actually visiting their supply chain needs and consolidating the strategic vendors that offer differentiation, high quality and value. We are also looking towards [indiscernible] has already discussed 20 million pairs capacity, we plan to definitely bring online. We're also currently committed to establish [indiscernible] factory in business as a core growth driver with the aim of introducing to more of our high-end customer base.

We completed the acquisition of small handbag factory in Vietnam, and this is really a great team with right expertise and experience that can really help us improve our quality level and take us to the next level. Finally, we remain committed to our [ return ] additional cash up to [ $6 million ] per year to shareholders in both '25 and '26 through a combination of repurchase and special dividend. And this, of course, on top of our regular dividend payout. This ends the session. I look forward to answering your questions.

[Operator]

Thank you, Andy and Stephen. We are now ready to answer your questions. [Operator Instructions] We'll take our first question from Alice Cai of Citi.

[Yijing Cai, analyst]

I have several questions. First, I'd like to understand the handbag business better. Could you please share some information about the current P&L situation? And how long before we recover the investment? And what's your target for the revenue needs by [ 2028 ] and the time line for the meaningful profit?

And my second question is, see if any update to your full year outlook or guidance you can share with us. And my last question is about the margin recovery. I'm wondering if we can back to normalized margin next year?

[Technical Difficulty]

[Lo-Jen Chi, executive]

I answered the handbag question. I think that's your question number one. We recently made acquisition of Meraki factory, is a very small factory that produces around 1 million pieces, what their specialty expertise with handcraft and also great management. Obviously, this year, we have done a great job in terms of the handbag. I think acquiring a small manufacturer like that with expertise and know-how will definitely be the road map to expand the handbag business because handbag business in terms of the people is not as easy just saying compared to the shoes.

So the main reason why we're able to and also the reason why we want to obtain this factory is for their capability in craftsmanship and also their management to expand our handbag business into the proper business model. So the second one, I'll pass to Andy in terms of the full year outlook.

[Siu Ming Tam, executive]

In terms of the full year outlook, Alice, there's not much change than what we talked about in Q2. I think we talked briefly about the issues in the Philippines, Indonesia, which kind of snowball in Vietnam on the efficiency side and the teams worked on. And we really just went through an operational kind of turnaround and action plan even with our management team and the Board as well. So we have the plan is in place and people are in execution mode. Hopefully, that will get better in the second half.

And that we guided about $7 million -- $6 million to $7 million, that's still the case. Second thing we talked about in the second half, we have about $6 million to $7 million of tariff impact -- sorry, $7 million to $8 million about tariff impact that will be helping some of our strategic customers for this time period, and that's still the same. So not much change in terms of our guidance really.

[Yijing Cai, analyst]

I have the third question, is about the margin recovery. Can we expect [ to be ] back to normalized margin next year?

[Siu Ming Tam, executive]

In the next year, in 2026, excuse me.

[Yijing Cai, analyst]

Yes.

[Siu Ming Tam, executive]

Yes. So we aim to get to our margin [indiscernible] back to normal by -- at least by Q4, if not sooner in Q2, depending on the factory. So next year, we aim to be on normal efficiency that we have always targeted. So of course, we learned a lot this year from expanding probably too quickly we maybe not enough right support, but we are looking to kind of eradicate all that and kind of have a learning lesson for next year and also future growth as well.

[Operator]

[Operator Instructions] We'll take our next question from Kai Sheng of Gai Haitong Securities.

[Kai Sheng, analyst]

I've got a couple. The first is about the regional growth because we're just seeing the revenue in China actually decreased around 8% to 9%. And in Europe, it declined about 4%. So may I understand that in Europe, it's more because of the preorder due to the Olympics last year? And may I also know the reasons behind in China?

And another question is about -- may I dig into more details about the margin driver next year, will be more about the recovery of efficiency in Philippines factory -- sorry, in the Indonesia factory and also maybe the low-margin casual segment, the contribution will also be lower next year? And the third question is about we know more visibility of the order for next year?

[Siu Ming Tam, executive]

Just on the geographic breakdown of revenue, to be honest, we don't really control that. We basically -- our customers dictate where they want to ship, where they allocate the orders should be up. While some of our customers in the luxury and high-end fashion are exclusive, not all of our customers are exclusive. They do have multiple vendors, and they have their kind of sourcing strategy and where to ship from? Where to [ work? ] And given this, I would say, 2025, the tariffs and uncertainty, this is like a whole bunch of changes and things like that. So harder for us to explain exactly why, say Europe is down, it's really because of our customers making that decision actually.

On the margin driver for 2026, okay, we -- number one, at least we hope that we get to get our efficiency back to a normalized level, especially in Philippines, Indonesia and Vietnam as well. Then that's really the kind of #1 key margin driver back to normal. Secondly, we, of course, we're looking at our next year and also our 3-year plan -- next 3-year plan as well, looking at what category of customers, how we mix and what kind of customers are winning. And obviously, we got to make a change, a debate between among like all the customers we have existingly and also new ones that we're trying to win or have won. And we have to look at the capacity we have.

Overall, that will make up a kind of portfolio mix, okay? And you see at least in the first half, as Stephen alluded to, our casual as a percent of revenue has gone down. That will probably continue in the longer -- long-term. So by definition, in a way, margins should slightly go up a little bit because the casual margin is actually slightly lower.

[Kai Sheng, analyst]

Okay. I understand. And also maybe no more visibility for next year, maybe by segment about orders?

[Unknown Executive]

I think in terms of visibility, it's actually okay, we hear -- I mean for luxury, sports and casual and also fashion, we're quite clear about the visibility. But I think for us -- from our side, we'll make maybe tough decision within the next 2 to 3 months in terms of the allocation of capacity to who and what. Obviously, with the support of tariff and this and that, we'll make decisions on reallocating our capacity, especially we have other new brands and customers coming in. So I think in order to give you a very clear guidance of what we are going to do, probably takes another month or two.

[Operator]

[Operator Instructions] We'll take our next question from Carlton Lai of Daiwa.

[Carlton Lai, analyst]

Just 2 quick ones, one for Andy. Can you just quantify the one-offs in the first half in terms of the extra freight expenses and overtime expenses that -- due to the inefficiencies? And then the second question for Stephen is just kind of wondering what kind of conversations you're currently having with brand customers? Are they still kind of still relatively cautious? Are they still talking about like kind of consolidating their suppliers? Like what kind of things are on their minds?

And also, we've been hearing from some other OEM peers that they're actually talking about ending some of the pricing support in 4Q of this year. So I was wondering like are we close to that? Or we starting to see a kind of turnaround in terms of, say, the potential price support and all that and just kind of normalizing for 2026?

[Siu Ming Tam, executive]

Yes. Thank you, Carlton. On the inefficiency related to the Philippines and the factories, we talked about in Q2 investor update, that's going to be about $7 million profit after tax equivalent. Let me turn to Stephen for [indiscernible] conversation.

[Lo-Jen Chi, executive]

In terms of conversation about brands, obviously, depending on the brands you're talking about, I think luxury in general, overall segment is not great, but they're okay. And they're not being cautious. Actually, they're being a little bit more aggressive, I would say, trying to develop new things and trying to recapture the desire for the market.

Fashion, overall, they're a bit more cautious. Tariff is coming into effect, I think, now into the market. So I think everybody is waiting for the holiday season to see what happen, especially, I would say that whether it's fashion or casual, same thing. As for the sports, some are doing well, some are doing okay. I think most important thing right now is about innovation, having something that is new, having something that's great. I think sports is probably not as affected as much. It's more about putting the right thing into the market.

In terms of a consolidation, we do see that a little bit. When this is not good, we want to focus on the key partners, the key vendors. And obviously, it also depends on the capacity and where geographically you have factory located at. As tariff comes into place, people are jumping around. And I'm sure you're aware, given today, the tariff is like 20% here and there, it might change next month. So some of the customers right now are just waiting and seeing exactly what might happen in the next month or 2.

And they're used to all these new announcements, new news. And I think in general, most of the customers are quite calm, and they're more looking for next year, how to attract customer -- consumer, how to innovate. I think that's what most of the conversation I have right now with the customers. And as for the tariff support, most of the support will end by end of this year. I think right now, there's only one client that we have right now is asking for extension beyond that.

[Operator]

[Operator Instructions] We'll take our next question from Darren Yuen of Chartwell Capital.

[Darren K. Yuen, analyst]

So I have a couple of questions. The first one is on the situation in Indonesia and the Philippines. So you guys highlighted that as a main reason for the lower gross margin, right? I was curious about the effect of the mix as well because we do have a higher sports mix. Was that not much of an effect on our margin during this period. Wondering whether kind of like the new sports orders perhaps have a margin higher to some of the other higher-end categories? Is that kind of why we didn't cite that as a reason for the gross margin going down? So that's my first question first.

[Lo-Jen Chi, executive]

Okay. Let me answer the first question for you. I think for both [ Indonesia ] and Philippines, they basically face the same issue. I would say, Philippines, last year, we did about 1.8. This year, we're planning to do 2.8. The incremental increase is probably too much for the team. We recruited a lot of workforce early. The training was not done properly. So it's snowball the effect that happened. So that's basically [indiscernible].

Indonesia, pretty much the same thing or similar, but Indonesia has a little different issue. The factory we're talking about right now actually is a solar factory. We did 1.2. This year, we're supposed to do, I would say, 2.5. What happened with that factory is that factory consists both casual and sports. And in the road map of moving all the casual out of the factory, there was a deficit in terms of the know-how and the skill set for the sports. So it's not because of the margin on the shoes that we're taking, it's more on the change of styles and change of, I would say, a bit of know-how and skill set. And that basically was the cost behind the margin drop and inefficiency, especially.

[Darren K. Yuen, analyst]

Okay. Cool. And then I have another question about the free cash flow. So as you guys highlighted, it's down quite a bit mainly because of the investments in the working capital, right? So could you maybe address some of the reasons for the outsized investments? And any comments on the size or any timing considerations behind those working capital investments?

[Siu Ming Tam, executive]

Yes. Just 2 things there. One is the inventory is definitely higher this June versus, say, like seasonally June last year. We have about probably $20 million incremental inventory on products that have -- that were more timing different than we ship on June 30, we ship in July. A lot of that is because bottleneck issues we have in Philippines and [ leading ] factory that delayed some of those shipments. And also because they're behind, there's extra raw material and width in that inventory number as well. So that's a big part.

The second part is on the account receivable side, we have -- as you know, we have a new customer Under Armour. I don't know if you guys know, but we were doing the business with them quite -- for a while. And then we're actually exiting them as a customer back in 2024, okay? So back in December, I would say, 31, 2023, we still have a much bigger AR balance with them. But by the end of December 31 last year in 2024, it's close to 0. And then the new shipments that we have now shipped for June, that kind of bounce back to where our AR balance used to be, but it's going to go up higher as we grow that business. But then you get this kind of -- we were saying rather factory is busy that customer went kind of round trip, went down and then went back up as we build the AR as we ship, but then it is not reflected in that kind of cash flow.

And third thing is there's a timing difference. It's a little bit weird. This is a common place. Back in December 31, 2023, December 31 is actually a Sunday. So typically, our customers pay on a Monday and Thursday and Monday is a holiday, January 1, so they didn't pay us until like the following few days when they got back to work. Whereas in December 21 -- 31, 2024, 31 is actually Tuesday. So everyone pay on Monday on time. So it looked like our AR was lower. And when you compare June, the June AR versus 2025 and 2024 is probably the same. So season was not any different. It's more like just a timing difference from the public holiday.

[Darren K. Yuen, analyst]

Okay. Cool. And then I just have one last question, which is about the -- our largest customer. So if I heard correctly, they were the main exports mix during the period, right? So firstly, could I get maybe like the latest utilization rate for the dedicated facility? And then second of all, I think they recently guided kind of like a healthy destocking outlook kind of looking for the end of the year to kind of complete that. So it might be a bit early, I guess, but do we have any rough guess or feeling as to what our utilization could be with them for the next year?

[Siu Ming Tam, executive]

Yes. For them, a large one, we can't quote their specific utilization, but they are basically on par. We guided the customer to be flat year-on-year, basically meaning utilization is flat. So it's basically similar, okay? And sports did go up because of them, but also Under Armour's new customers too. So it's not just them as well. And Darren, what was the second question?

[Darren K. Yuen, analyst]

Kind of the outlook with our largest customer going into '26 because I think destocking is kind of going as planned for them. I think that might ease up going into the end of the year, right? So whether we have any expectation about where utilization on the sports side could land in 2026?

[Lo-Jen Chi, executive]

No, we're looking at utilization [indiscernible] this year for one of our largest [indiscernible]. The only thing I would put in mind is that because of tariff, for sure, our utilization in Vietnam is going to be over 100%. That's where they want to move things. Also because of that, they're asking us to speed up our Indonesia new facility. So that will go online during the second half of '26. China, that's thing we need to watch just a bit because the tariff might not be what it is today. So that is the only thing we'll continue to monitor.

[Operator]

We'll take our next question from [ Lee Chang Yang of Felix ] Securities.

[Unknown Analyst]

I have a few questions. My first question is about capacity. I noticed that our Nike factories in Indonesia, which is expect to contribute an additional 10 million to 15 million pairs of shoes in the future. This seems to be a little more than the original plan. So could you please explain the driving force behind this? And will it affect our future capacity -- the CapEx plans?

And the second question is about the tariff. Do you think about the impact of tariffs will be still occur next year? And how does looking forward this influence in the future?

[Lo-Jen Chi, executive]

I'll do the tariff first, and then I'll pass it over to Andy for the CapEx. I think the tariff mostly to me in terms of price negotiation and talking to customers. By end of this year, I think, obviously, everything is going to be back on track. What both us and also the customers worry about is the effect on the consumers. And that we will not know until probably the holiday season. It really affect, is actually the overall business might go down a bit. But that is why I think most of the customers are looking forward as to developing new product to be innovative because if you see right now, things do sell, good products still sell. So at the end of the day, it's having the right product in the market.

[Siu Ming Tam, executive]

And then on the capacity side, our new facility in Indonesia, originally [ slide for ] $10 million, but of course, that optionality expanded to $15 million. So that's kind of what we're looking at. And most of the CapEx is already on the balance sheet that we earmarked for, for a long time. And most of that will -- remaining part of that will be spent second half this year and a lot of it first half next year so that the plant can be operational by second half of 2026.

[Operator]

We'll take our next question from [ Daniel Ruf ] of Pathway Capital.

[Unknown Analyst]

Just another couple of questions on the expansion. When you say on Slide 19, total 20 million to 25 million pairs and you're talking about additional capacity, are you -- are there any assumptions for capacity closures, like, say, in China or something? Like -- is this like a gross capacity add? Or is this a net capacity add?

[Siu Ming Tam, executive]

It's more net capacity add. We have no plans right now to close in China. We have one China factory for luxury and then, of course, lastly is [indiscernible] and that's dedicated factory for them.

[Unknown Analyst]

And then the -- for the ramp-up of the second factory in Indonesia, so that's currently underway. But can you give us some more clarity as to when we expect to complete the 7 million pair ramp-up?

[Siu Ming Tam, executive]

The solar factory?

[Unknown Analyst]

Yes, the solar factory.

[Siu Ming Tam, executive]

Within the next 4 years.

[Unknown Analyst]

So that's a 4-year ramp.

[Lo-Jen Chi, executive]

Yes, that's a 3- to 4-year ramp. Each year, we'll do about -- starting from next year, 1.5 million to 2 million ramp-up, that's the speed.

[Unknown Analyst]

Okay. And then how about for the Bangladesh factory?

[Lo-Jen Chi, executive]

Bangladesh, that factory will start probably the year after at about 1.5 million pair as well.

[Unknown Analyst]

So that's starting in 2027?

[Lo-Jen Chi, executive]

Yes, late '26 and beginning of '27.

[Unknown Analyst]

Okay. And then for the ramp-up for the large factory, the 10 million to 15 million pair factory?

[Lo-Jen Chi, executive]

That one will start second half of next year.

[Unknown Analyst]

Okay. And so that will take a few years to get ramped up, I assume.

[Lo-Jen Chi, executive]

I think that factory will be basically around 2 million per pair -- 2 million pairs per year.

[Unknown Analyst]

Got it. Okay. And then I guess the -- for the 3-year plan that we're currently under, that's through, I guess, FY '25? I mean maybe it's too early to talk about, but are we considering another 3-year plan like this?

[Lo-Jen Chi, executive]

Yes, of course. We're just talking about that to the Board today. We have finalized the numbers. So I'm sure we can share some guidance in September, October [ plan ] right now. But in terms of the actual numbers, I think it's better for maybe Andy to disclose that by October.

[Operator]

We have a follow-up question from Alice Cai of Citi.

[Yijing Cai, analyst]

I have a follow-up question on the largest customer. Is the shipment increased due to the low base? Or are you actually seeing quarter-on-quarter momentum?

[Siu Ming Tam, executive]

No. First half last year, our largest customer was just, I would say, recovering, rebounding. And so definitely for the first half, a lot of it is obviously a lower base in the first half last year because of the lower utilization. So that's why the sports category went up because this large customer was mainly because of that. Again, when we have to -- just so when we quote efficiency utilization for the full year for this customer to be flat year-on-year, we're taking into account that. And it's basically according to almost exactly to the plan that they've given us.

[Operator]

[Operator Instructions] We'll take our next question from [ Robert Holmes of North and South Capital ].

[Unknown Analyst]

I actually joined the call late. So apologies if you already covered this in your initial comments. But just how is all this influencing the dividends payments and the buyback strategy? Is there any change in terms of the capital return orientation of the company?

[Siu Ming Tam, executive]

Thank you, Robert. Absolutely not. First, our dividend payout policy is 70%. And then additionally, what you talked about the excess cash return program of $180 million, we paid $60 million worth of it already. The remaining $120 million will be used this year either through share buyback. If we don't use it, we'll pay out as a special dividend next year as well, as for final dividend and same thing for the last remaining $60 million for 2026. So no change in that.

[Operator]

We have a follow-up question from Daniel [ Ruf ] of Par Pathway Capital.

[Unknown Analyst]

Yes. Sorry, just a quick one. In terms of the retail stores, I know there's not -- there aren't too many left, but have you taken kind of write-offs as you close those? And is there a risk if you were to close all the stores, it could be kind of a onetime large write-down or write-off?

[Lo-Jen Chi, executive]

No, I don't think there's any more write-off. We're closing by end of this year, all will be closed. So I think we've already taken all the write-off.

[Operator]

[Operator Instructions] We currently have no more questions. Management, did you have anything else you wanted to discuss or any final comments?

[Siu Ming Tam, executive]

No. Thank you, Matt. I think that's it for the day. Thank you very much for joining. We'll talk to you guys soon.

[Operator]

Yes. Thank you for joining us this evening. You may now disconnect. Good evening.