Yihe Precision (0838HK) issued a profit warning stating that net profit for the first half of 2012 is expected to drop 60% compared to the same period of the previous year, mainly due to a decline in profit margins. Affected by this, DBS lowered its profit margin forecast for FY2012 by 8.6 percentage points, lowered its profit forecast for the 2012-13 fiscal year by 69%-73%; lowered the target price of the stock from HK$1.70 to HK$0.50, and downgraded the stock's rating from buying to selling.

DBS expects Yihe Precision's profit margin to rise in fiscal year 2013, but not by much because the new Wuhan plant (which processes car orders) is unlikely to be profitable in the early stages; although the agency believes that expanding Yihe Precision's business into the automotive sector is the right direction, the initial investment may limit the company's short-term profit growth.