2025-08-13 02:16Summary of Yue Yuen (0551.HK) and Pou Sheng (3813.HK) Earnings Call Company Overview - Companies Involved: Yue Yuen Industrial Holdings Limited (0551.HK) and Pou Sheng International Holdings Limited (3813.HK) [1][2] Key Industry Insights - OEM Business Outlook: The OEM business outlook for 2H25 remains cautious due to shorter order visibility from brands and conservative procurement practices. Management expects Q3 volume to decline by high single digits (HSD%) compared to a high base last year, with a wider year-over-year (yoy) decline in gross profit margin (GPM) than in 1H25 [1][12] - Retail Demand: Pou Sheng is experiencing uncertainty in sales recovery for 2H25, with inventory levels under control due to self-help efforts and brand support. The company anticipates a positive growth in average selling price (ASP) for 2H25, contributing to a low single-digit (LSD%) growth in full-year ASP yoy [1][12] Financial Performance - Pou Sheng Sales Decline: Pou Sheng reported a -12% yoy decline in sales for 2Q25, followed by a -9% yoy decline in July. Management expects continued pressure in August due to seasonal factors [13] - Inventory Management: Inventory levels rose by 4.6% yoy in 1H25, with aging inventory below 9%. The company plans to implement proactive measures to manage inventory in response to demand softness [14] Margin and Cost Insights - Margin Pressure: 2Q25 margins faced headwinds from subcontracting costs, uneven production levels, and rising labor costs. The company expects GPM in 3Q25 to decline more than in 1H25, but overall GPM for 2H25 is projected to be higher than in 1H25 [12][14] - Tariff Implications: Four brand customers, accounting for approximately 50% of sales, have requested the company to share low single-digit percentage points (LSDpp) of the elevated US tariff. There is no significant increase in tariff-sharing requirements following the reciprocal tariff for ASEAN countries rising to approximately 20% from 10% [9][12] Capital Expenditure and Strategic Focus - Capex Plans: The company expects to invest over US$300 million in capex for 2025, focusing on diversifying manufacturing capacity in key countries like Indonesia and India, which is set to start production in 1Q27 [10] Valuation and Price Targets - Price Target for Yue Yuen: The target price remains unchanged at HK$14.00, based on an 8x/9x 2025E P/E valuation for Pou Sheng and Yue Yuen's OEM business, respectively [3][20] - Price Target for Pou Sheng: The target price is adjusted to HK$0.60 from HK$0.70, reflecting a conservative outlook on sales and margins [3][19] Risks and Considerations - Key Risks for Yue Yuen: Potential risks include tariff hikes impacting demand, weaker-than-expected orders from key accounts, and lower-than-expected margin recovery [20] - Key Risks for Pou Sheng: Risks include slower recovery of Nike/adidas growth in China and higher discounts leading to operating deleverage [19] Conclusion - The overall sentiment towards Yue Yuen's OEM business appears to be improving, reflected in a 6% increase in share price, driven by settled tariff rates, lower expectations, better ASP, and disciplined operating expense control [2]