[ET Net News Agency, 17 May 2018] Credit Suisse lowered its target price for Johnson
Electric (00179) to HK$28.5 from HK$30.2, and retained its "neutral" rating.
The research house said Johnson's FY2018 earnings of US$264mn was below consensus
estimates. If excluding the FX impact (US$2mn gain in FY2018 versus US$3mn loss in
FY2017), its FY18 organic earnings rose 9% YoY to US$262mn (from US$241mn in FY2017).
Key disappointment came from lower-than-expected gross margin, down 2.5 pp YoY to 24.4%
in FY2018. The company attributed the gross margin decline to more revenue contribution
from low-margin newly acquired companies, higher raw material (copper, silver)/labour
cost, and increased new product start-up costs.
Credit Suisse expects Johnson's gross margin to remain at the same level in future due
to a combination of improving operating leverage from increasing production volume, and
OEMs asking for more price reduction and rising raw material/labour prices.
It lowered its FY2019-20 earnings forecasts by 2-4% on lower margin assumption. (KL)