Damo: Maintaining Yuyuan Group's (00551) “In sync with the market” rating target price of HK$12.5

The Zhitong Finance App learned that Morgan Stanley released a research report stating that it maintains the “in sync with the market” rating of Yuyuan Group (00551), with a target price of HK$12.5. The bank pointed out that the company issued a profit warning, and the net profit for the first three quarters of this year is expected to drop by about 50% to 55% year on year, while net profit for the same period in 2025 is close to 279 million US dollars.

The bank believes that the decline in profits is mainly affected by fluctuating demand in the footwear manufacturing business, tariffs, macro-uncertainty, rising labor costs due to increased numbers of employees and salary increases, and unequal capacity utilization.

Morgan Stanley estimates that Yuyuan Group's net profit for the third quarter will be between US$53 million and US$67 million, which is equivalent to 47% to 59% of the bank's net profit forecast for the second half of the year and 45% to 57% of the market's forecast for the second half of the year. Net profit for the third quarter is expected to fall by 37% to 50% year on year, with a median decline of 44%. This is roughly in line with the bank's forecast of a 45% drop in net profit for the second half of the year and a 43% decline in the market. Considering that the third quarter's performance was in line with expectations and that the market has absorbed related negative factors, the bank believes that the short-term pressure on the company's stock price may be limited by the profit warning.