Citigroup issued a research report adjusting its forecasts for VTECH HOLDINGS (00303). The firm has reduced its earnings per share (EPS) estimates for fiscal years 2027 and 2028 by 16% to 17% and lowered the target price from HK$76 to HK$69. This revision primarily stems from the company's performance in the second half of fiscal 2026 falling short of expectations. The underperformance is attributed to lower-than-anticipated sales in the US market, impacted by tariffs, alongside a decline in the CMS business segment.

The report introduces projections for fiscal 2029, anticipating a compound annual growth rate (CAGR) of approximately 5.5% for EPS over the next three years. Despite the target price reduction, the bank maintains a "Buy" rating on the stock.

During an analyst briefing, company management indicated that revenue is expected to return to positive growth in fiscal 2027. However, gross margins are projected to face pressure due to rising costs of raw materials such as integrated circuits/memory and plastics.

Notably, the company has maintained a high dividend payout ratio of around 100%, even amidst the earnings decline. Citigroup anticipates that the stock price may experience a short-term correction as market consensus earnings estimates are adjusted downward. Nevertheless, considering an estimated dividend yield of about 7% for fiscal 2027, the bank views any potential weakness as a buying opportunity.