CICC released a research report stating that based on tariff disruptions to profitability, the firm has lowered its 2025 EPS forecast for CHERVON (02285) by 9.5% to $0.28, while introducing a 2026 EPS of $0.30. The company's current share price corresponds to 25/26 P/E ratios of 10.2x/9.8x. Considering the upward trend in industry valuation centers, the firm maintains its target price of HK$27, corresponding to 25/26 P/E ratios of 12.2x/11.8x, representing 20% upside potential, and maintains its outperform rating.

The company announced its 1H25 results with operating revenue of $912 million, up 11.9% year-over-year; net profit attributable to shareholders of $95 million, up 54.8% year-over-year; and adjusted net profit attributable to shareholders of $95 million, up 54.6% year-over-year. The results aligned with the firm's expectations.

**OPE Growth Outpaces Industry, Driving Continuous Improvement in Gross Margins**

In 1H25, the company's OPE business achieved revenue of $602 million, up 22.8% year-over-year, primarily driven by revenue growth from EGO products. Power tool products generated revenue of $306 million, down 2.5% year-over-year, mainly due to declining OEM business and weak Chinese market conditions. The company's comprehensive gross margin increased by 0.4 percentage points year-over-year to 33.3% in 1H25, primarily due to increased proportion of high-margin EGO products, declining raw material costs, and rising selling prices.

**Stable Operating Expense Ratio, Improved Net Profit Margin**

The company's operating expense ratio increased slightly while net profit margin attributable to shareholders improved. In 1H25, selling and financial expense ratios increased by 1.1 and 0.1 percentage points to 14.2% and 0.3% respectively. R&D expense ratio decreased by 0.2 percentage points to 4.4%, while administrative expense ratio remained flat at 5.2% compared to the same period last year. Both net profit margin and adjusted net profit margin attributable to shareholders increased by 2.9 percentage points year-over-year to 10.4% in 1H25.

In Q2, the company divested its automotive business stake. Excluding the one-time divestiture gain of $19.24 million, and adjusting for the divestiture impact, net profit attributable to shareholders grew 23.4% year-over-year in the first half of 2025.

**EGO Brand Market Share Continues Rising, Battery Platform Stickiness Evident**

According to company announcements, EGO's market share continues to grow, and the firm remains optimistic about the competitiveness of the company's EGO products. The company launched over 100 new products in 1H25, with continuous new product expansion. Categories including walk-behind mowers, snow blowers, and riding mowers have become the highest market share lithium-powered OPE products in North America. Battery platform stickiness is evident, with accelerated battery pack sales further consolidating the company's position as the world's largest single-battery OPE platform for 56V systems.

**Continued Focus on Lithium-Powered OPE Terminal Consumption Growth Amid US Rate Cut Environment**

According to US Bureau of Economic Analysis data, hardware tool terminal consumption showed marginal growth from January to April, but growth turned negative after May. The firm expects that temporary high tariffs have somewhat impacted industry demand. Looking ahead, current September Federal Reserve rate cut expectations are heating up, with CME interest rate futures pricing in a 92% probability of rate cuts. The firm suggests continued monitoring of industry terminal cycle upturn following rate cuts.

The firm believes lithium-powered OPE is positioned to outperform the industry through electrification penetration rate improvements, and remains optimistic about CHERVON's ability to continuously increase terminal market share through product advantages.

**Risk Factors:** New product volume falling short of expectations; US rate cuts falling short of expectations; weak growth in US consumer spending.