SHEIN (0625.HK): Compelling valuation amid a challenging backdrop; potential recovery into 2027E. Initiate at Buy

We initiate SHEIN with a Buy rating and 12m target price of HK$62 thanks to the strong cash balance, FCF generation capabilities, potential earnings recovery into 2027, market share upside, and compelling valuation. We believe SHEIN's current depressed valuation implies prolonged cash burn, with its US$18bn market cap representing only 118%/104% of its cash balance as of 1H26/2027E, which we view as overly pessimistic. While we forecast revenue to decline 1% yoy and adj net income to fall to US$1.4bn in 2026E (vs. US$1.8bn in 2025), we expect revenue growth to recover to 10% in 2027E-28E, with adj net income rising to US$1.9bn and US$2.3bn, respectively, as tariff impacts normalize, market share gains continue, freight pressures ease, and operating efficiency improves. We see upside in SHEIN's market share (1.9% in 2025) in the fragmented global fashion market. Our 12m TP of HK$62 is based on 18X 2027E P/E (8.7x ex-cash P/E).