Credit Suisse: Yue Yuen Industrial (00551) manufacturing business profits and free cash flow deteriorated this year. Rated "underperform" compared to the market.

Furui released a research report saying that it downgraded YUE YUEN IND (00551) to a "underperform" rating, with the target price reduced from 7.4 HKD to 7 HKD. It upgraded POU SHENG INT'L (03813) to a "buy" rating, with the target price reduced from 0.84 HKD to 0.72 HKD. Yue Yuen and its retail entity POU SHENG INT'L held an earnings conference call yesterday. The report mentioned that the company's management has issued warnings regarding the uncertainty of OEM shipment volume, average selling price (ASP), and gross profit for the first quarter of 2026, while expecting an increase in capital expenditures. The firm strongly disagrees with Yue Yuen's stock price resilience, as it is expected that the profitability and free cash flow of its OEM business in 2026 will further decline, putting dividends at risk. Furui stated they are confident that Yue Yuen's OEM business will be unable to meet its 2026 guidance. Pressure on selling prices is expected to increase quarter by quarter. Considering profit risk and high capital expenditures, Furui still sees risks to Yue Yuen's free cash flow and dividends.