The Zhitong Finance App learned that since the beginning of the year, CMB International released a research report saying that since the beginning of the year, Hongteng Precision (06088) management has repeatedly indicated in March and May that profits in 2023 will drop 5-15% year-on-year. The bank believes that the increase in operating expenses is reflected in the share price. The company's current valuation is 8.3 times/6.7 times the price-earnings ratio for 2023/24, which is lower than its historical 5-year average price-earnings ratio minus 1 standard deviation. The bank believes that the company's current risk-return is still attractive. Hongteng Precision was given a “buy” rating, with a target price of HK$2.18.

The report mentioned that the bank recently communicated with the company's management, arguing that the market is overly concerned about the impact of the company's rising operating expenses. The bank expects the operating expenses ratio to peak at 14% this year; with the company's economies of scale and increased efficiency, CMB International believes that the company's operating expenses are expected to fall to 13.2%/12.8% in the next two years. Furthermore, the bank expects the company to accelerate the expansion of categories to products with higher profit margins such as 400G optical cables/acoustics/electric vehicle components in the next two years, driving the net profit margin from 3.2% in 23 to 3.6%/4.0% in 24/25.