[ET Net News Agency, 21 May 2020] Morgan Stanley lowered its target price for Yue Yuen
Industrial (Holdings)(00551) to HK$13.5 from HK$16 and downgraded its rating to
"equal-weight" from "overweight".
The research house said both Yue Yuen's OEM and retail businesses are highly exposed to
sportswear and are mainly correlated with major global brands such as Nike and Adidas.
While Morgan likes Yue Yuen's position as a key partner for these top sports brands, and
the company could benefit from a structural upcycle in the sportswear market when the
negative effects of the Covid-19 outbreak fade, Morgan is concerned on potential market
share loss with Nike to Ching Luh (a key Nike footwear supplier) as the latter has been
aggressive on pricing to obtain more orders from Nike, according to Morgan's supply-chain
checks.
Yue Yuen reported an operating loss in 1Q. Morgan recommended that investors wait for
more clear signs that the company has executed better before considering adding to
positions in the stock.
The research house cut its earnings forecasts by 59% for 2020 and by 28% for 2021 to
factor in end-demand disruptions brought on by the Covid-19 outbreak. (KL)