Citi gave VTech (00303.HK) a neutral rating, and the target price was lowered from 110 yuan to 94 yuan.

Citi published a report that believes there is a chance that VTech's recurring profit in 2017 will fall by double digits, because after the company completes the acquisition of Leapfrog, Leapfrog, which continues to lose money, will be incorporated into the company table, and one-time provision expenses will also be incurred. The bank believes that the generous dividend policy will not be interrupted for a long time, but there will be a decline.

The bank expects that VTech will cut Leapfrog's manpower by half, management may retain most of the software content development and marketing department employees, and reduce logistics, administration, and operations departments. Management expects Leapfrog's gross margin to reach 40-50% when the company is able to produce Leapfrog products in-house.