Citi has issued a research report maintaining a "Buy/High Risk" rating on Tsugami China (01651) with a target price of HK$72, while continuing to give Johnson Electric (00179) a "Neutral" rating with a target price of HK$19.6.

The bank has initiated a pair trade in the Hong Kong-listed industrial automation sector, taking a bullish view on Tsugami China while turning bearish on Johnson Electric, expecting the two companies' first-half fiscal 2027 earnings trends to diverge.

The bank noted that both companies have recently expanded their businesses into AI liquid cooling systems and humanoid robot supply chains, with strong growth prospects.

However, the bank expects Tsugami China's net profit for the first half of fiscal 2027 to rise 34% year-on-year to RMB 675 million, while Johnson Electric's net profit is expected to decline 18% year-on-year to US$109 million.

The bank attributes the earnings divergence primarily to Tsugami China's revenue contribution from fast-growing AI liquid cooling and humanoid robot businesses reaching 20% to 25% in fiscal 2027, far exceeding Johnson Electric's approximately 4%.

Additionally, the two companies face different raw material cost headwinds. Tsugami China is mainly exposed to steel prices, which have been roughly stable, while Johnson Electric is primarily exposed to copper prices, which have accumulated a gain of over 30% since the beginning of this year.