Futu: Yue Yuen Industrial and POU SHENG INT'L's second-quarter performance fell short of market expectations, both lowering target prices

Credit Suisse released a research report stating that YUE YUEN IND and POU SHENG INT'L's performance in the second quarter generally met the bank's expectations, but was more than 10% lower than the market's overall forecast, which is believed to be due to pressure on the profit margins of the OEM business. The bank has lowered the target prices for YUE YUEN and POU SHENG from HKD 8 and HKD 1 to HKD 7.4 and HKD 0.84, respectively, assigning "Underperform" and "Buy" ratings. Concerns about order conditions over the next six months may be weaker, leading to a 5% reduction in YUE YUEN's 2026 earnings per share forecast to RMB 0.18, and a 30% and 18% reduction in POU SHENG's earnings per share forecasts for this year and next year to RMB 0.07 and RMB 0.09, respectively. Management attributed the lower-than-expected OEM profit margins to uneven order allocation and rising labor costs, noting that capacity utilization has improved during the period. They are now more cautious about the order outlook for the second half of this year, indicating that the third quarter is traditionally a low season, with expected shipment volume declines reaching high single-digit percentages year-on-year, and a more significant decline in gross margins compared to the first half of the year. There is also uncertainty regarding fourth-quarter orders, mainly due to delays in orders from brand clients