Citi lowers the target price for CHINA LESSO to 6.2 yuan, concerned about the impact of soaring oil prices on gross margins

Citi published a research report indicating that it recently held an investor meeting with the management of CHINA LESSO (02128.HK). The group's performance in 2025 is expected to be below expectations, coupled with the recent surge in oil prices, leading the bank to adopt a more cautious outlook on its gross margin prospects. As a result, it has lowered its earnings forecasts for 2026 to 2027 by 30%, reducing the target price from HKD 7 to HKD 6.2, while maintaining a "Buy" rating. However, it prefers companies with higher yields or better profit growth prospects in China's infrastructure sector, such as: Zoomlion (01157.HK) > HANGCHA GROUP (603298.SH) > CHINA STATE CON (03311.HK).

The bank stated that despite the recent conflict between the U.S. and Iran causing oil prices to surge, management expects that due to raw material restocking, the gross margin in the first quarter of 2026 will be on par with the second half of 2025, as demand momentum has been recovering in the three months prior to the conflict (i.e., from last October to this January). The overseas pipeline business will be the main growth driver