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UBS Downgrades YUE YUEN IND (00551.HK) to Neutral, Cuts TP to HKD14.5
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UBS released a research report downgrading the investment rating of YUE YUEN IND (00551.HK) from Buy to Neutral, and cutting its target price from HKD17.6 to HKD14.5. This reflects a 14% to 19% reduction in its earnings forecasts for 2026 to 2028, citing order visibility uncertainty amid demand uncertainty, margin pressure from rising raw material costs, reduced production efficiency due to shorter delivery cycles required by clients, and intensifying competition among footwear suppliers. The bank expects that although the company has implemented measures to cope with rising oil prices - including directly passing on costs from designated suppliers to brand customers, repricing new orders, and building up inventory - elevated oil prices are still likely to pressure gross margin in the third quarter of 2026. This is because its low-cost inventory may be depleted by the end of June, while repricing negotiations with brands are still ongoing. In addition, the third quarter is typically a slack season, and capacity utilization will depend on whether fourth-quarter orders can be brought forward. Given uncertain prospects for certain brand customers, UBS believes this may be challenging. UBS noted that the footwear market is more concentrated than the apparel market, with significant overlap in customer bases among footwear OEM manufacturers. The uncertain outlook of certain major brands may prompt footwear OEMs to compete more aggressively for orders from brands with higher visibility, potentially weakening their ability to pass on higher tariffs and raw material costs. Moreover, broader brand product portfolios and shorter delivery lead times pose challenges to production management for OEM manufacturers, which may further dampen operating efficiency and suppress profitability. (da/u) Auto-translated by AI This article was automatically translated by AI, the original language version should be considered the authoritative version. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation. More Details
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