FIRST SHANGHAI: Initiated coverage on Yu Hao Children (01086) with a "buy" rating and a target price of 1.85 Hong Kong dollars.

FIRST SHANGHAI released a research report stating that it gives a "buy" rating to Goodbaby (01086), with a target price of 1.85 Hong Kong dollars. Cybex, as a globally recognized high-end brand, is the group's core asset and main source of profits and growth driver. Although Evenflo and gb are facing temporary challenges, the group has made corresponding adjustments; it is believed that the worst situation for these two businesses has passed and will gradually improve. In addition, the group has also resumed dividend payments to reward shareholders. Therefore, the bank is optimistic about the group's competitive advantage and future development. Key points from FIRST SHANGHAI include: Global leading baby durable goods manufacturer Goodbaby is a global leading baby durable goods manufacturer, leading the industry with its three core advantages - safety, innovation, and high quality. The company's business scope is wide, not only leading in core product areas such as strollers, child car safety seats, but also expanding into other areas such as baby furniture, carriers, clothing, and other related products, forming a diversified product matrix. The company owns strategic brands such as Cybex (a top brand in Europe), Evenflo (second in the U.S. market for car seats), gb (a leading domestic enterprise), covering all price ranges and age groups to fully meet different market demands. Cybex, as a globally recognized high-end brand, is the group's core asset and main growth driver In 2024, Cybex continued to perform strongly, with annual revenue reaching a record high of 4.4 billion Hong Kong dollars, accounting for 51% of total revenue. As a globally recognized high-end brand, Cybex has a gross profit margin of over 50%, and is the group's core asset and main growth driver and profit source. Cybex continues to increase its global market share, with a market share of around 30% in Europe, maintaining its position as a top brand. In recent years, it has deepened its presence in the Japanese market and expanded into other potential markets (including the Middle East, North America, and China), as well as added new product lines such as furniture and carriers to sustain rapid growth. The gb brand continues its brand transformation, with domestic business showing improvement and expected to gradually improve gb is a local brand of the Goodbaby group, and is a leading domestic enterprise in the domestic market. The continuous decline in the gb brand over the past few years has been mainly influenced by internal and external factors. As of the first half of 2025, self-operated offline channels have achieved positive growth, online business has also improved, and gross profit margin has significantly increased (benefiting from the group's optimized channel mix and strengthened channel control strategy to stabilize prices); it is expected that the performance in the Chinese market will continue to gradually improve and turn losses into profits in the future. Resuming dividends, rewarding shareholders once again In 2024, Goodbaby's revenue increased by 10.6% year-on-year to 8.77 billion Hong Kong dollars; mainly benefiting from growth in Europe/other regions and CYBEX/blue-chip businesses. Operating profit and net profit attributable to shareholders increased by 35.7%/74.9% to 500 million/360 million yuan; mainly due to the increase in gross profit margin. The group generated stable operating cash flow, restructured loans, and further repaid debts, significantly optimizing financial costs; therefore, the group resumed dividend payments, with a dividend of 0.07 Hong Kong dollars per share (equivalent to a dividend payout ratio of 33.3%), to reward shareholders. Risks: 1) Impact of macroeconomic factors, 2) Impact of tariffs, 3) Exchange rate fluctuations, 4) Demand in the U.S. market lower than expected.