Yue Yuen Group’s third-quarter net margin recovered quarter on quarter, but manufacturing costs continued to weigh on profit
Yue Yuen Group’s profit warning indicates that third-quarter net profit attributable to shareholders still fell sharply year on year, although its implied net margin was higher than in the second quarter. Goldman Sachs believes improved orders and efficiency helped, while watching the effect of orders brought forward on the fourth quarter.
Original source：Goldman SachsFirst published on Unhidea：Original source date：
Key takeaway
Goldman Sachs believes Yue Yuen Group’s third-quarter earnings were broadly in line with its lowered expectations. Improved manufacturing efficiency drove a quarter-on-quarter recovery in net margin, but order volumes and cost pressures continued to constrain the recovery in profit.
What does the change in third-quarter earnings mean?
Yue Yuen Group’s profit warning indicates that net profit attributable to shareholders for the first nine months of 2026 is expected to fall 50%–55% year on year. Goldman Sachs therefore estimates a third-quarter decline of 37%–50% year on year, broadly in line with its previous forecast of a 49% decline.
Goldman Sachs estimates a third-quarter net margin of 2.8%–3.5%, above the 1.9% recorded in the second quarter; it had previously forecast 2.9% for the third quarter. Although the margin improved quarter on quarter, quarterly profit still fell markedly year on year.
Why was the improvement in orders still insufficient to offset pressure on profit?
Goldman Sachs believes improved manufacturing orders and efficiency in the third quarter may have delivered better operating leverage; OEM sales fell 2% year on year during the quarter.
The company said it made positive progress in bringing orders forward during the third quarter, but this was still insufficient to offset the weaker operating leverage caused by the decline in manufacturing scale. Goldman Sachs believes the year-on-year decline in profit for the first nine months was mainly related to weak OEM margins.
The average number of OEM employees remained above the prior-year level, wages in production locations rose, and overtime and other inefficiency-related expenses were reduced more slowly than expected; production loads also varied across factories, further raising unit footwear production costs.
What will determine the fourth-quarter outlook and valuation assessment?
Some orders were brought forward from the fourth quarter into the third quarter, and the final level of fourth-quarter orders will still depend on holiday demand and the product mix. The company plans to release its full third-quarter results on 10 November 2026, and Goldman Sachs will focus on OEM margins and the subsequent order outlook.
Goldman Sachs maintains its Buy rating and a 12-month price target of HK$15.9. The bank considers a forward price-to-earnings multiple of about 9 times for 2027 inexpensive relative to a 8% dividend yield; key risks include higher tariffs affecting demand, weaker orders from core customers, and a margin recovery that falls short of expectations.
