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On Tuesday, Yue Yuen Industrial (Holdings) Limited (551:HK) (OTC: YUEIY) faced a downgrade by Macquarie from ’Outperform’ to ’Underperform’. Concurrently, the firm slashed its price target for Yue Yuen’s shares by more than half, setting it at HK$10.20, a steep decline from the previous HK$20.90 target. The stock has already declined 11.25% in the past week and is currently trading at a P/E ratio of 7, according to InvestingPro data.
The decision came after a thorough examination of the company’s financial health and market position. Macquarie analysts cited reduced visibility for Yue Yuen’s manufacturing business as the primary reason for the downgrade. Despite the company’s fourth-quarter results (excluding tax dispute expenses) aligning with expectations, with revenue reaching $8.18 billion and a gross profit margin of 24.35%, management’s conservative outlook for the first half of 2025 margins and the second half of 2025 order visibility prompted the firm to reassess the stock’s performance potential. InvestingPro analysis indicates the company maintains a strong financial health score, with 12 additional key insights available to subscribers.
The analysts at Macquarie expressed concerns regarding the OEM business’s thin margins, which they believe could lead to unpredictable earnings. This sentiment was reflected in their revised earnings per share (EPS) estimates. Macquarie now anticipates Yue Yuen’s future net profits to be significantly lower than the market consensus, with their forecast for the fiscal year 2025 net profit falling 31% below the FactSet consensus.
The downgrade and the new price target reflect Macquarie’s cautious stance on Yue Yuen’s ability to maintain stable earnings in the face of potential challenges within the manufacturing sector. The analysts’ comments underscore the uncertainties surrounding the company’s performance, suggesting that investors may need to brace for potential volatility in Yue Yuen’s earnings.
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