Key Takeaways:
(P1) Citigroup Inc. lowered its price target for China Lesso Group Holdings Ltd. (02128.HK) to HKD6.2 from HKD7, citing concerns that rising oil prices will erode the plastic pipe manufacturer's profitability.
(P2) The bank's analysts turned more cautious on China Lesso's gross margin outlook after a recent surge in oil prices, according to a new research report. The adjustment came after an investor meeting with the company's management and 2025 results that fell short of expectations.
(P3) Citi maintained its Buy rating on the stock despite slashing its earnings forecasts for 2026 and 2027 by 30 percent. The new HKD6.2 target implies significant upside from the current price.
(P4) The downgrade highlights the vulnerability of industrial companies to commodity price swings. While management expects first-quarter 2026 gross margins to remain steady, supported by raw material restocking, the full impact of higher oil costs remains a key risk for investors.
Despite the maintained Buy rating, Citi expressed a preference for other companies within China’s infrastructure sector that offer higher yields or better earnings growth prospects. The bank named Zoomlion Heavy Industry Science and Technology Co. (01157.HK), Hangcha Group Co. Ltd. (603298.SH), and China State Construction International Holdings Ltd. (03311.HK) as more attractive investments in the current environment.
China Lesso's management noted that demand momentum was recovering in the months leading up to the recent oil price spike, and that its overseas pipeline business is expected to be a key growth driver.
The target price cut could increase investor caution towards the broader Chinese infrastructure sector, particularly for companies sensitive to commodity price fluctuations. The stock was recently trading down 2.99% at HKD4.86.
This article is for informational purposes only and does not constitute investment advice.
