CICC has released a research report stating that, taking into account exchange rate fluctuations and rising costs, it has revised down its profit forecasts for Johnson Electric Holdings (00179) for FY27/FY28 by 42.3%/16.5% to US$123 million/US$188 million, corresponding to current P/E ratios of 13.2x/8.6x. At the same time, expectations of interest rate hikes have led to a decline in Hong Kong stock valuations, and the target price has been lowered by 33.6% to HK$20.25, corresponding to 19.8x/12.9x P/E for FY27/FY28, implying approximately 50% upside from the current share price, with the "outperform industry" rating maintained.
1H27 results preview falls short of market expectations
The company expects profit attributable to shareholders for the first half of FY27 to be US$50 million to US$58 million, a year-on-year decline of 56% to 62%, while revenue is expected to be broadly flat compared with the same period last year. Of the profit shortfall, approximately US$49 million to US$55 million comes from foreign exchange-related impacts. 1H27 revenue is in line with market expectations, while profit is below market expectations, mainly due to exchange losses.
Revenue performance outperforms the global automotive industry, while FX and cost pressures weigh on short-term profit
The company expects revenue to be broadly flat year on year, with revenue performance already outperforming the industry, mainly due to: 1) new orders from customers of independent brand vehicles in the Asia-Pacific region gradually converting into revenue; and 2) ramp-up of new businesses including liquid cooling pumps and SOFC products. In terms of profit, the year-on-year decline of more than 50% is largely attributable to foreign exchange. Restoring the median figure on a static basis and excluding this impact, profit still declined by approximately 15% to 26% year on year, mainly due to pricing pressure, customer deductions and warranty provisions, and rising costs for raw materials and labor. Looking ahead, with the ramp-up of new businesses and diversification of core business customers, revenue is expected to achieve steady growth, while profitability will remain under pressure.
In the past, automotive products accounted for more than 80% of the company's revenue. In Q1 of FY27, automotive business revenue grew only 2% year on year, reflecting that global automotive demand, changes in customer structure, and price competition continue to constrain growth in the core business. Looking ahead to the second half, automotive sentiment is expected to improve compared with the first half, driving a gradual stabilization in APG segment revenue, while new businesses are expected to bring additional incremental contributions. In terms of profitability, the recovery of core business profit mainly depends on the pace of implementation of price adjustments and the pass-through of raw material costs, as well as progress in customer structure transformation, and profitability may still come under pressure.
New businesses remain an important source of long-term value; focus on their long-term growth potential
In terms of SOFC, the company's Stackpole powder metal business has supplied key sintered metal components to a North American fuel cell energy platform, and is expected to benefit in the future from rising demand from AI data centers. In terms of liquid cooling, the company has leveraged its capabilities in motors, pumps, valves, and drive systems to enter data center liquid cooling, and liquid cooling projects have already contributed to volume ramp-up in the Asia-Pacific industrial and commercial business growth in the first quarter. In robotics, the company has established a joint venture platform with Shanghai Mechanical and Electrical, and further made a strategic investment in Wuxi Juxie Intelligent to strengthen the ecosystem for harmonic reducers, integrated joints, and drive technology.
Risk warnings
Exchange rate fluctuation risk; new business expansion falling short of expectations; rising raw material prices, among others.
Comments