Damo: Downgraded Hongteng Precision (06088) to “In sync with the market”, the target price was reduced by 55% to HK$3.6

The Zhitong Finance App learned that Morgan Stanley released a research report stating that it downgraded Hongteng Precision (06088) from “increase in holdings” to “in sync with the market”, drastically lowered the target price by 55% to HK$3.6 from HK$8, and lowered the earnings forecast per share from 2026 to 2028 by 23%, 47% and 49%, respectively. The bank pointed out that the company's operating profit for the third quarter fell short of expectations once again, and structural profit margin pressure and delays in monetization of artificial intelligence (AI) projects have not yet transformed the growth in AI demand into sustainable profit growth sufficient to offset the weakness of other businesses.

Morgan Stanley pointed out that rising raw material prices and slow efficiency improvements in new plants are also seriously hampering the company's profitability. Since the bank was first covered in November last year, Hongteng Precision's profit has continued to fall short of expectations.

Management has drastically lowered the operating profit guide for the full year 2026 from the previous forecast of 70% year-on-year increase to a year-on-year flat rate. In terms of valuation, the new target price of HK$3.6 is equivalent to 17.4 times the projected price-earnings ratio in 2027. The bank believes that considering the worsening demand in the consumer electronics and automotive markets, both still account for more than 70% of the company's revenue, and the continued pressure on profitability, the current valuation is reasonable.