GF Securities maintains a "buy" rating on Yue Yuen Industrial (00551) with a fair value of HK$18.34.

GF SEC released a research report stating that for the FY26-28, YUE YUEN IND (00551) is expected to have earnings per share of $0.22/$0.24/$0.26, according to the sum-of-the-parts valuation method, corresponding to a fair value of HK$18.34 per share, maintaining a "buy" rating. GF SEC's main points are as follows: The company's manufacturing business faced temporary pressure in 26Q1, while the retail business saw some recovery. According to the company's 26Q1 performance announcement, the company's overall revenue was $1.985 billion, a year-on-year decrease of 2.2%. The revenue from the manufacturing business (including sports/outdoor shoes, casual shoes and sandals, shoe soles, accessories, and others) was $1.255 billion, a year-on-year decrease of 5.5%; shoe shipments decreased by 8.1% to 56.9 million pairs, with the average unit price increasing by 2.4% to $20.52 per pair. In terms of the retail business, POU SHENG INT'L contributed revenue of $730 million, a year-on-year increase of 4.1% (based on the company's 26Q1 performance announcement, its revenue in Renminbi was 50.52 billion yuan, a slight decrease of 1.1% year-on-year). The net profit attributable to equity holders in 26Q1 was $352 million, a year-on-year decrease of 53.6%; the adjusted net profit attributable to equity holders was $377 million, a year-on-year decrease of 50.6%. The manufacturing business gross margin was under pressure, while the retail business gross margin increased. According to the company's 26Q1 performance announcement, the gross margin for 26Q1 was 21.7% (a decrease of 1.2 percentage points year-on-year), with the manufacturing business gross margin at 14.8% (a decrease of 2.9 percentage points year-on-year), mainly due to fluctuations in orders, production schedules affected by the overlap of the Lunar New Year and the fasting month in Indonesia, coupled with rising labor costs. The retail business gross margin was 33.6% (an increase of 0.9 percentage points year-on-year), benefiting from inventory optimization and discount control. In the short term, the company's performance outlook for 26Q2 is cautious, with optimism for a recovery in performance in 27 with the company's diversified measures. According to the company's monthly announcement, in April, the company's manufacturing/retail business revenue increased by +6.9%/+0.1% year-on-year, while in May, manufacturing/retail business revenue decreased by -6.6%/-2.7% year-on-year. The outlook for 26Q2 performance is cautious. Looking ahead, the company will continue to deepen its long-term cooperation with internationally leading brands, promote the ramping up of production capacity in Central Java, Indonesia, and the construction of a new factory in India, flexibly adjust production schedules to match order demand; the company will strengthen its diversified and localized procurement strategy, stock up in advance to ensure supply chain stability, and enhance manufacturing resilience through digital transformation, automation upgrades, and cost control. At the same time, the company will leverage the "sport and leisure" trend, integrate research and development with automation capabilities, build a more niche product portfolio to achieve sustainable growth in quantity, price, and profit, ensuring financial stability and healthy cash flow. Risk warning: Risks including a decline in sales from major customers, exchange rate fluctuations, and escalating trade frictions.