Where did third-quarter results fall short of expectations?

  • In the third quarter of 2026, Xinbao recorded revenue of 4.512 billion yuan, up 1% year over year, and net profit of 86 million yuan, down 71%. The figures were 2% and 60% below Goldman Sachs' previous forecasts, respectively, although the bank believes the results may be in line with more conservative market expectations.
  • Sales growth did not deteriorate markedly: domestic sales rose 4% year over year in the third quarter, while export sales were flat; in the second quarter, they rose 5% and fell 1%, respectively. The sharp decline in profit came against a backdrop of broadly flat revenue.

Why did profit shrink sharply when revenue was broadly stable?

  • Goldman Sachs attributed the decline in margins primarily to rising costs and adverse exchange-rate effects. Third-quarter gross margin, operating margin and net margin were 15.7%, 3.6% and 1.9%, respectively, down 4.3, 4.7 and 4.8 percentage points year over year.
  • Selling, general and administrative expenses rose 4% year over year, and the expense ratio increased by 0.4 percentage points, also putting pressure on profit. Goldman expects cost pressures to ease in the fourth quarter from the third quarter but remain significant, while growth in both domestic and export sales will be weak.

How have earnings forecasts and valuation assessments changed?

  • Goldman Sachs cut its earnings-per-share forecasts for 2026 through 2028 by 13% to 41%. Its 2026 forecast fell from 0.61 yuan to 0.36 yuan; its net profit forecast for the same year fell from 492 million yuan to 289 million yuan.
  • The bank remains positive on the company's manufacturing capabilities and established brands, but believes weak demand for small household appliances and increasingly rational consumer spending will pose near-term challenges for its premium domestic brand Morphy Richards. Morphy Richards is an important profit driver, with a net margin above 10%, compared with 6% to 8% for the overseas business.
  • Goldman Sachs believes the recovery in the overseas business since the second quarter of 2023 is broadly reflected in the valuation and maintains its neutral rating. It cut its 12-month price target from 11.3 yuan to 10 yuan, still based on 13 times average forecast earnings per share for 2026 through 2027.