On Tuesday, Citi issued a downgrade for Oppein Home Group Inc (603833:CH) stock, adjusting its rating from Buy to Neutral. The financial institution also revised the price target to RMB48.00, a significant decrease from the previous RMB93.00. This decision comes in the wake of Oppein’s second-quarter revenue and net profit falling short of expectations.
Oppein Home Group Inc reported a 20.9% year-over-year decline in second-quarter revenue, which amounted to RMB4.962 billion. The company’s attributable net profit also decreased by 21.3% year-over-year to RMB772 million, missing both Citi’s and consensus estimates. As a result of these underwhelming financial results, Citi has lowered its earnings forecasts for Oppein by 19-23% for the years 2024 through 2026.
The downgrade was influenced by multiple factors, including a lower-than-anticipated revenue assumption and an increased operating expense ratio due to negative operating leverage. Following the analyst conference call, Citi noted that there were no clear indications of improvement in the industry environment for the second half of 2024 compared to the first half.
Despite the downgrade, Citi refrained from assigning a Sell rating to Oppein Home Group Inc. The rationale behind this decision is the substantial 45% decline in the stock price since mid-May 2024.
The current valuation, which is under 10 times the projected earnings for 2024, is considered to be relatively undemanding. Additionally, Citi highlighted the expected 2-year earnings per share compound annual growth rate of 10% through 2026.
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