Huali Industrial Group (300979 CH) Buy: Awaiting earnings turnaround

Research evidence excerpt

Huali Industrial Group (300979 CH) Buy: Awaiting earnings turnaround

nomies of scale in 2026, which should put pressure on the ROE (%) 19.3 18.4 21.9 24.1

company’s gross margin in 2026. Gross margin may improve as orders from brands

52-WEEK PRICE (CNY)

return to a normal level in 2027.

Valuation at historical trough: We believe the core elements that affect Huali's valuation, 67.00

including new customer development and an increasing share of existing customers, 50.50

remain solid. However, profitability is negatively impacted by near-term macro 05/25 11/25 05/2634.00

uncertainties and capacity expansion. We believe these factors have been fully priced Target price: 47.00 High: 63.30 Low: 37.93 Current: 38.16

in. The stock is trading at 15x 2026 forward PE and 12x 2027 forward PE (based on

reported EPS), which are already at a historical trough. Further downside risk is Source: LSEG IBES, HSBC Qianhai Securities estimates

limited, in our view. We expect a re-rating as pressure on order intake eases gradually.

Darron Xue* (Reg. No. S1700518110002)

Earnings estimate changes: We lower our revenue estimates by 6.3% in 2026, Analyst, A-share Food & Beverage and Pulp & Paper

6.7% in 2027, and 5.7% in 2028, to reflect the impact of changes in brands’ inventory HSBC Qianhai Securities Limited

darron.xue@hsbcqh.com.cn

management policies on orders. In addition, we lower our gross margin estimates by +86 755 8898 3407

2.0ppt in 2026 and 1.1ppt in 2027 on weaker economies of scale. Overall, we lower Kathy Song* (Reg. No. S1700517120001)

our net profit estimates by 17.2% in 2026, 12.4% in 2027, and 5.8% in 2028. Our Head of A-share Consumer Research

HSBC Qianhai Securities Limited

2026-27 net profit estimates are 8.8% and 1.2% below consensus, respectively.