Yue Yuen Industrial Falls 12% After Flagging 55% Profit Drop

Yue Yuen Industrial (00551.HK) shares plunged over 12% after the company warned first-quarter net profit could fall by as much as 55% from a year earlier, citing seasonal effects and higher costs.

"The profit warning was in line with expectations, as the first quarter is typically the industry’s off-season," Citigroup analysts said in a research note, reiterating a "Buy" rating on the stock.

The world's largest branded footwear manufacturer expects net profit for the three months ended March 31 to decrease by 50% to 55% year-over-year, compared to an adjusted profit of $75.8 million in the same period last year. The company attributed the decline to a complex global economy, geopolitical tensions, and a seasonal mismatch that led to higher unit costs in its manufacturing business.

The stock dropped 12.27% to HK$14.88 in Hong Kong trading. Despite the warning, Citi set a price target of HK$21, viewing the current valuation as attractive and any price weakness as a "good buying opportunity."

Citi analysts highlighted that Yue Yuen's valuation remains compelling, with a price-to-earnings ratio of over eight times and a price-to-book ratio of 0.7 times. The bank forecasts a dividend yield of approximately 8 percent for the year.

Company management acknowledged that the first quarter is usually the weakest for gross margin performance. They expect margins to gradually improve quarter-over-quarter for the remainder of the year, a view shared by Citi.

The profit warning highlights the near-term pressures on the global footwear supply chain. Investors will be watching the company's ability to manage costs and improve margins in the coming quarters, with the next earnings report serving as a key catalyst.

This article is for informational purposes only and does not constitute investment advice.