JPM Highlights Recommendations for Shifting Investments into Underperforming Quality Chinese Stocks (Table)

The analyst rating of Outperform for TINGYI (00322.HK) by Macquarie is based on the expectation that the new management will implement strict cost management and focus on revenue recovery, which is anticipated to lead to sustainable growth starting in 2026. Additionally, the report emphasizes the attractiveness of TINGYI's expected dividend yield, with projected rates of 7% and 8% in 2025 and 2026, respectively. Macquarie also raised its target price for TINGYI by 2%, indicating a positive outlook for the company's performance.

The analyst rating from BofA Securities is influenced by the ongoing downturn in China's consumption, which has lasted nearly four years. The report highlights that historical downturn cycles have averaged four years, and while the broker cannot predict if this pattern will continue, it notes that fundamental factors such as employment, consumer confidence, corporate spending, real estate issues, and a lack of strong consumption stimulus policies are likely to keep pressure on the market in the short term. Despite this, BofA Securities believes that share prices may not be as adversely affected as the fundamentals suggest. Consequently, they have lowered EPS forecasts for 15 Chinese consumer stocks and reduced their average target price, while also initiating coverage on WANCHEN GROUP with a "Buy" rating, indicating a selective optimism in certain stocks that combine growth and yield potential amidst changing market conditions.

The analyst rating for MIXUE GROUP was downgraded from Outperform to Hold due to several factors highlighted in the Daiwa research report. The primary reasons include: 1. Potential Downward Valuation Reassessment: The company is facing a potential reassessment of its valuation, influenced by a slowdown in future earnings growth. 2. Unvalidated Growth Engine: The second growth engine, which includes the overseas market and the Lucky Cup initiative, has yet to be validated, raising concerns about its effectiveness. 3. High Market Expectations: The broker believes that the market may have overly high expectations for this second growth engine. 4. Limited Product Innovation and Pricing Flexibility: MIXUE GROUP's mass market positioning restricts its ability to innovate products and adjust pricing compared to mid-tier competitors. 5. Valuation Adjustments: Daiwa lowered its valuation basis from a projected 2026 PE ratio of 28x to 22x and reduced the target price from $535 to $427. Despite some resilience in same-store sales growth and potential support from network expansion, these concerns led to the downgrade in rating.