JP Morgan: Lowers JOHNSON ELEC H (00179) target price to HK$18; profit warning reflects foreign exchange impact and underlying margin pressure

JP Morgan released a research report stating that JOHNSON ELEC H (00179) issued a profit warning for the first half of the fiscal year ending September, expecting net profit for the period to fall 56% to 62% year-on-year; the bank lowered its target price for the company from HK$21 to HK$18, maintaining a "Neutral" rating. JP Morgan pointed out that JOHNSON ELEC H's revenue for the first half of the fiscal year was broadly stable, with net profit for the period expected to range between US$50 million and US$58 million, representing a half-on-half decline of 16% to 27%. The bank highlighted three key points: (1) foreign exchange-related impacts accounted for about two-thirds of the year-on-year earnings decline, but persistent pricing pressure and cost inflation also weighed on underlying profitability; (2) growth in solid oxide fuel cells (SOFC) has yet to offset weakness in traditional businesses, and delays in the start of production for China automotive projects continue to limit utilization of existing capacity; (3) although the bank lowered its near-term earnings forecasts, rising contributions from new businesses and operating efficiency measures provide identifiable drivers for mid-term margin improvement. The bank cut its net profit forecasts for JOHNSON ELEC H for fiscal years 2027 to 2029 by 29%, 22%, and 23%, to US$169 million, US$247 million, and US$309 million, respectively, which are 25%, 8%, and 7% below market expectations. The bank forecasts gross margin to decline from 23% in fiscal year 2026 to 21.5% in fiscal year 2027, then improve to 22.5% and 23% in fiscal years 2028 and 2029, respectively, supported by improved utilization, economies of scale from new businesses, and manufacturing capacity expansion.