Citibank: Lower VTECH HOLDINGS (00303) target price to 62 Hong Kong dollars, rating "Buy"

Citigroup released a research report stating that VTECH HOLDINGS (00303) saw a 5.9% drop in net profit to 156.8 million USD for the fiscal year ending in March, which is about 13% lower than the bank's previous forecast of 179.6 million USD. The main reasons for the underperformance are (1) inventory buildup before Independence Day in the US leading to higher manufacturing costs and direct labor costs; (2) the acquisition of Gigaset causing an increase in operating expenses and tax rates. Based on this, the bank has lowered its profit forecast for the 2026 to 2027 fiscal years by 23% to 24% and introduced forecasts for the 2028 fiscal year. Taking into account historical averages and a dividend yield of 7% to 8% in the 2026 fiscal year, the bank has lowered its target price from 65 Hong Kong dollars to 62 Hong Kong dollars, with a rating of "Buy." The report states that as a tariff response strategy, VTECH HOLDINGS plans to increase the proportion of overseas production bases from the current 25% to 35% by the 2026 fiscal year to serve the US market. Although an underperformance is expected to put short-term pressure on the stock price, the bank believes that growth momentum will resume from the 2027 fiscal year onwards. With the current dividend yield exceeding 8%, any weakness in stock price may present a better buying opportunity.