Citigroup has issued a research report revising upward its net profit forecasts for YIHAI INTL (01579) for 2026 and 2027 by 19%, reflecting anticipated improvements in gross margin and operating profit margin. The target price has been increased from HK$14.4 to HK$16.6, while the "Neutral" rating is maintained.

YIHAI INTL's net profit for the second half of last year grew 26% year-on-year, a significant outperformance compared to the flat performance in the first half. Although revenue growth remained weak, increasing only 2% in the latter half, it aligned with market expectations. A notable expansion in gross margin and a decrease in the ratio of selling, general, and administrative expenses to sales provided a positive surprise.

The report cited the company's management, which indicated that beyond lower raw material costs, supply chain efficiency has also improved, partly reflected in a reduction in headcount due to increased production automation. Management expects efficiency gains to continue driving gross margin improvement in the first half of the year. However, rising raw material costs may pose a risk in the second half, and the current competitive landscape remains uncertain.