Citi upgraded Johnson Electric's (00179.HK) rating from selling to buying, with the target price of 20 yuan unchanged. According to the bank, the Group's stock price has dropped 36% since the beginning of the year. The current price is equivalent to 9.8 times the price-earnings ratio predicted in 2017, yet no units have been tested in the past ten years.

The bank pointed out that Johnson Electric has just announced its first-quarter results, and the industrial and commercial products (IPG) business has improved. If currency effects are not taken into account, the automotive products (APG) business, which accounts for 80% of revenue, rose 5%, in line with expectations. After taking into account the acquisitions of Steco and AML, it is expected that the share of industrial and commercial product revenue this fiscal year will drop to at least 20% from 29% last year, and the importance of IPG's business, which has been dragging down overall growth, will decline.

Management intends to restructure the business with the goal of reducing the general sales and administrative cost revenue ratio (currently 19.6%). The bank said that if the general sales and administrative cost revenue ratio falls by 0.1% in fiscal year 2017, it will increase profits by 1.2%. It also believes that cutting employees can increase profits by 2-5%, but it will incur one-time restructuring expenses.