2025-06-10-花旗集团-裕元工业（0551）_裕元工业（0551.HK）_5月制造业增长放缓_但2025年前5个月运行率仍在正轨_11页_322kb

Yue Yuen Industrial (O551.HK) Summary

Core Content Overview

Yue Yuen Industrial (O551.HK) has reported its May revenue figures, showing a flattish growth of 0.5% year-over-year (YoY) to US$505 million. Despite this, the May revenue growth for the MFG (Manufacturing and Footwear Group) segment was 5.3% YoY, aligning with management's guidance for the year. The overall 5M25 MFG revenue growth remains on track with the company's stated expectations. However, the company is still adjusting the production utilization rate (UTR) across its factories, leading to monthly growth fluctuations.

The retail subsidiary, Pou Sheung, saw a slight improvement in May, with a 3.3% YoY revenue decline, which is better than the 6.9% YoY decline for the year-to-date (YTD). The report highlights that China's weak consumption, particularly due to the subdued property market, may continue to affect Pou Sheung's performance.

The stock is currently undervalued, trading at 5-6x price-to-earnings (PE) and offering a 12% dividend yield for 2025. Based on this, the analysts maintain a "Buy" rating.

Key Highlights from Management Guidance

• MFG Capacity Growth: Management expects MSD (Mid Single Digit) to HSD (High Single Digit) growth in 2025, with better order visibility expected in the first half of the year (1H25) compared to the second half (2H25).
• MFG GM (Gross Margin): MFG gross margin may contract slightly YoY during 1H25 due to strict management of outsourcing flows.
• Pou Sheng Performance: Management forecasts modest revenue growth and flat operating profit margin (OPM) for Pou Sheng in 2025, even amid muted China consumption.
• Dividend Payout: The dividend payout is expected to remain consistent in 2025.
• UTR Sustainability: The MFG UTR is expected to stay at 85%+ for 2025, compared to a high 93% in 2024.

Regional Performance in 1Q25

• US and EU MFG: The US and EU MFG segments significantly outperformed China, with revenue growth of 14.3% and 11.0% YoY, respectively.
• China MFG: China MFG revenue contracted by 19.3% YoY, reflecting weak domestic consumption.
• Pou Sheng Revenue: Pou Sheng revenue for 1Q25 was 214 million US dollars, down 8.1% YoY.

Valuation and Investment Outlook

• Target Price: The target price for Yue Yuen Industrial is HK$16.50, based on an 8x 2025E EPS, which is in line with the historical mean minus one standard deviation.
• Dividend Yield: The expected dividend yield for 2025 is around 12.2%, in line with the historical mean.
• Expected Total Return: The expected total return for the stock is 56.5% over the next 12 months.
• Price-to-Book (PB): The target price implies a PB ratio of ~0.7x for 2025E.
• Valuation Drivers: The forecast for earnings recovery is based on rising UTR and efficiency improvements, with a 3-year compound annual growth rate (CAGR) of 10% for earnings through 2027E.

Key Risks and Upsides

Downside Risks:

• Worse-than-expected end-demand in the US and EU due to high interest rates.
• Lower-than-expected MFG UTR.
• Further decline in China consumption due to the weak property market.
• Higher-than-expected material costs.

Upside Risks:

• Stronger-than-expected domestic consumption in China.
• Expansion in gross margin due to higher UTR.
• ASP (Average Selling Price) inflation in the MFG segment.

Analyst Information

• Analysts: Eric Lau and Alice Cai
• Contact Information:
  • Eric Lau: +852-2501-2726, eric.h.lau@citi.com
  • Alice Cai: +852-2501-2704, alice.cai@citi.com

Investment Rating and Catalyst Watch

• Investment Rating: Buy
• Catalyst Watch: Indicates near-term price movements based on specific events or catalysts.
• Rating History:
  • 11-Aug-22: *2, *11.30
  • 10-Nov-22: *1, *12.20
  • 15-Mar-23: 1, *13.40
  • 14-Aug-23: 1, *12.00
  • 12-Jan-25: *2, *16.80
  • 11-Mar-25: 2, *15.80
  • 12-May-25: *1, *16.50

Citi Research Policies and Disclosures

• Conflicts of Interest: Citi Research may have conflicts of interest due to its business relationships with the company.
• Recommendation Basis: Investment ratings are based on expected total return (ETR) and risk, with ETR being the sum of price appreciation and dividend yield.
• Catalyst Watch: A separate rating system that indicates near-term price expectations based on specific catalysts, which does not affect the fundamental equity rating.
• Disclosure: Citi Research has implemented policies to manage conflicts of interest and ensure objectivity in its research.

Summary of Key Points

• MFG Performance: May growth was the slowest, but 5M25 growth is on track with management guidance.
• Pou Sheung: Revenue improved slightly in May, but China consumption remains weak.
• Valuation: The stock is undervalued with a 5-6x PE and 12% dividend yield.
• Target Price: HK$16.50 based on 8x 2025E EPS.
• Investment Outlook: Positive for 2025, with focus on US/EU MFG outperformance and potential for earnings recovery.
• Risks: Include weak demand in the US/EU, lower UTR, and China's subdued consumption.
• Analyst Confidence: The "Buy" rating is maintained with the expectation of a 44.2% share price return.