The Zhitong Finance App learned that Citibank released a research report saying that, beyond expectations, Dechang Electric Holdings (00179) issued a profit warning for the first half of the 2027 fiscal year ending the end of September, which was announced in early November. Net profit for the period is expected to fall 56% to 62%; given that profit margin prospects are lower than expected, the bank lowered its profit forecast for the 2027-2029 fiscal year by 21% to 37%, and the target price was lowered by 25.5% to HK$14.6 from “neutral” to “sell”.
The report quoted the company's profit warning. Net profit is expected to fall 56% to 62% during the period, to between 50 million and 58 million US dollars, and the median guidance drop of about 60% to about 54 million US dollars. The company attributed exchange losses recorded during the period. Compared with exchange gains for the same period of the previous fiscal year, pricing negotiations that passed on the cost of raw materials to customers took longer than expected.
According to the bank, after excluding exchange factors, basic net profit still fell by about 24% to 44% year on year, with a median drop of about 33%, mainly dragged down by a sharp rise in copper prices of about 30% since this year. Management mentioned that pricing actions are being taken in response to the competitive environment, and customer credit provisions and claims are still being negotiated to pass on high raw materials and other input costs, as well as labor inflation; price cuts and rising investment costs are still ongoing challenges. In particular, the automotive product group still accounts for about 84% of sales in FY2026. The bank expects revenue in the first half of the year to rise slightly by 2% year on year to US$1.87 billion, and net profit to plummet 58% to US$56 million; the net profit decline for the second half of the fiscal year ending the end of March next year should narrow significantly to a 4% year-on-year decline to 79.8 million US dollars. Since the average sales price for the second half of the fiscal year should be better than the first half of the fiscal year, this can partially offset the rise in commodity costs, but the risk of declining profits is still high.
According to the bank, the market's forecast for the full fiscal year 2027 and 28 appears to be too high, and its profit forecast is 43% and 38% lower than the market forecast, respectively. The bank preferred Tsugami Machine Tool China (01651) in China's industrial automation chain, and reiterated its optimism about the Tsugami and Dechang Electric matchmaking deals.