Daiwa has released a research report initiating coverage on TSUGAMI CHINA (01651), assigning a "Buy" rating and setting a target price of HK$77.

The target price is derived from a forecasted fiscal year 2027 earnings per share of RMB 3.30 and a projected price-to-earnings multiple of 20 times.

The firm estimates that the company's revenue and net profit will see compound annual growth rates of 10% and 12%, respectively, from fiscal year 2026 to 2028.

Daiwa is optimistic about the company's prospects due to incoming orders for AI server liquid cooling and humanoid robots, as well as a new capital expenditure cycle initiated by foldable smartphones.

The report also notes that the company's machine tools are used to produce highly precise components widely applied across the industrial sector.

It attributes the stock's strong performance year-to-date to the current upturn in China's metal cutting machine tool market and robust order inflows from emerging industries in the first quarter of 2026.

Furthermore, Daiwa believes that a 20-times P/E multiple reasonably reflects a valuation premium for TSUGAMI, justified by its potential transformation from a traditional machine tool supplier into a beneficiary of emerging precision manufacturing demands, such as those from AI liquid cooling, humanoid robots, and foldable smartphones.