OrbusNeich Earnings: Revenue Growth Slowdown Temporary; Longer-Term Margins Lowered, Risks Reflected

We cut no-moat OrbusNeich's fair value estimate to HKD 6.11 per share from HKD 7.06 as we lower our operating profit margin assumptions and 2024-25 revenue growth forecasts following disappointing first-half 2024 results. While we think earnings risks are limited and expect a recovery from the decline in US and China revenue, we also cut our longer-term operating margin assumption as we were previously too optimistic that the company could keep staff costs low following the acquisition of Eucatech AG. In light of the expansion of staff and facilities, we cut our operating margin assumption to average 16.9% from 21.1% in our explicit forecast period. While we think most of the risks to OrbusNeich’s earnings are reflected and shares are presently undervalued, the lack of earnings growth may keep investors sidelined.