JP Morgan cuts the target price of CHINA OVS PPT to 3.7 yuan and downgrades the rating to "Underweight."

JP Morgan pointed out that CHINA OVS PPT (02669.HK) issued a profit warning, expecting last year's net profit to decline by 9% to 10% year-on-year, compared to the bank's and market's expectations of a 5% year-on-year increase. This marks the third time the company has disappointed investors since it conducted related party transactions in the fourth quarter of 2023 and reported results below market expectations in the following quarter.

The bank noted that after CHINA OVS PPT announced the related transactions in the fourth quarter of 2023, its stock price fell 24% in a short period. Following the disappointing results in the next quarter, the stock price also dropped by 25%. Since mid-2024, the company's earnings growth has returned to the right track, and the bank has turned more positive on the company. However, the latest profit warning will further undermine investors' confidence in the management's execution capability.

The bank predicts that CHINA OVS PPT's net profit will decline by 10% year-on-year last year, and by 2% year-on-year in the next two years, affected by profit margin compression. The bank believes the company may raise its dividend payout ratio by 4 percentage points to 40% to maintain the annual per-share dividend flat year-on-year to compensate investors. However, the dividend yield of only 3.8 cents, compared to the industry average of 4.6 cents, remains unattractive. The bank downgraded its rating on CHINA OVS PPT from "Overweight" to "Underweight," and lowered the target price from 7 HKD to 3.7 HKD