CICC: Maintains "Outperform" rating on JOHNSON ELEC H (00179); FX and costs drag on short-term profit.

CICC released a research report stating that, considering exchange rate fluctuations and rising costs, it has lowered its profit forecasts for JOHNSON ELEC H (00179) for FY27/28 by 42.3%/16.5% to USD 123 million/188 million, corresponding to current P/E of 13.2x/8.6x. Meanwhile, expectations of interest rate hikes have led to a decline in Hong Kong stock valuations, and the target price has been cut by 33.6% to HKD 20.25, corresponding to 19.8x/12.9x P/E for FY27/28, implying 50% upside from the current share price. The "Outperform" rating is maintained. CICC's main views are as follows: 1H27 earnings preview below market expectations The company expects profit attributable to shareholders for the first half of FY27 to be USD 50 million-58 million, a year-on-year decline of 56%-62%, while revenue is expected to be roughly flat compared with the same period last year. Of the profit shortfall, approximately USD 49 million-55 million comes from foreign exchange-related impacts. 1H27 revenue is in line with market expectations, while profit is below market expectations, mainly due to exchange losses. Revenue performance outperforms the global auto industry; FX and cost pressures drag on short-term profit The company expects revenue to be roughly flat year on year, with revenue performance already outperforming the industry, mainly due to: 1) new orders from self-owned brand automaker customers in the Asia-Pacific region gradually converting into revenue; 2) ramp-up of new businesses including liquid cooling pumps and SOFC products. On the profit side, the year-on-year decline of more than 50% is largely due to foreign exchange. Restoring on a static basis using the midpoint, profit excluding this impact still declined by about 15%-26% year on year, mainly due to pricing pressure, customer deductions and claims provisions, and rising costs including raw materials and labor. Looking ahead, with the ramp-up of new businesses and diversification of core business customers, revenue is expected to achieve steady growth with some upside, while profitability will remain under pressure. In the past, the automotive product group accounted for more than 80% of the company's revenue. In Q1 of FY27, automotive business revenue increased only 2% year on year, reflecting that global auto demand, changes in customer structure, and price competition continue to constrain core business growth. Looking to the second half, auto industry sentiment is expected to be better than in the first half, driving a gradual stabilization in APG segment revenue, while new businesses are expected to bring additional incremental contribution. In terms of profitability, the recovery of core business profit mainly depends on the pace of implementation of price adjustments and raw material cost pass-through, as well as progress in customer structure transformation, and profitability may still remain under pressure. New businesses remain an important source of the company's medium- to long-term value; focus on their long-term growth potential In SOFC, the company's Stackpole powder metal business has already supplied key sintered metal components to a North American fuel cell energy platform, and is expected to benefit in the future from rising demand from AI data centers. In liquid cooling, the company has already entered data center liquid cooling leveraging its capabilities in motors, pumps, valves, and drive systems, and liquid cooling project ramp-up has already contributed to growth in the Asia-Pacific industrial and commercial business in Q1. In Siasun Robot & Automation, the company has established a joint venture platform with Shanghai Mechanical & Electrical Industry, and further made a strategic investment in Wuxi Juxie Intelligent to strengthen the ecosystem for harmonic reducers, integrated joints, and drive technology. Risk warnings Foreign exchange fluctuation risk; new business expansion falling short of expectations; rising raw material prices, etc.