Citigroup: Giant Biogene (02367) is expected to recover in the second half of the year, with the target price reduced to HK$37.

Citigroup released a research report stating that GIANT BIOGENE (02367) is expected to see a 7% decrease in net profit in 2025, in line with the company's guidance given in December last year and consistent with the bank's expectations. The revenue for the period remained flat, also in line with expectations. The online direct sales business performed well, offsetting the weakness in distribution business. The group management aims for a 10% increase in revenue in 2026, with the net profit target to either grow or remain flat considering the contraction in profit margins. The bank believes this outlook is better than the market's pessimistic expectations. Taking into account the lower-than-expected sales and profit margin outlook, Citigroup has lowered the profit forecast for GIANT BIOGENE for the next two years by 8% and 13%, with the target price adjusted from 44.6 Hong Kong dollars to 37 Hong Kong dollars, based on a forecast P/E ratio of 18 times in 2026. The valuation is at a low point, and a recovery is expected in the second half of this year, maintaining a "buy" rating. The report mentioned that in the second half of last year, GIANT BIOGENE's performance in some businesses exceeded expectations, including smaller-than-expected decline in sales on Tmall and Douyin, prudent control of advertising and promotional expenses, stable dividends, and continuous special dividends. Negative factors included inventory clearance at JD.com in the third quarter last year, increased promotional activities during Singles' Day, leading to a decline in sales; slowing growth in offline direct sales; and declining sales from distributors. The GIANT BIOGENE management aims for a 10% revenue growth in 2026, with similar growth for the Comfy and Collagen brands, and performance in the second half of the year is expected to surpass the first half due to base effects. Core products such as collagen bars, medical dressings, and focus face creams remain sales drivers. Citigroup expects a slight contraction in gross profit margin in 2026 (less than 1 percentage point) due to product mix changes and rising raw material costs.