Morgan Stanley has issued a research report raising the target price for CHERVON (02285) from HK$20 to HK$22.5, while maintaining a "Market Perform" rating. The adjustment primarily reflects an improved profit margin outlook driven by a notable recovery in gross margins expected in the first half of 2026.

The bank has updated its performance and financial forecasts for the company's first half of 2026 results and rolled its valuation basis forward to earnings per share estimates for the second half of 2026 through the first half of 2027. As a result, EPS forecasts for 2026 to 2028 have been raised by 8% to 14%. The new target price retains the same 12 times target price-to-earnings multiple, but the valuation benchmark has been shifted to the aforementioned earnings period.

The firm believes that the company's diversified brand portfolio and channel expansion are beneficial for long-term market share gains and earnings growth. However, the recovery in the DIY segment remains uncertain, and with the stock having recently rebounded from its lows, the current valuation is considered reasonable. Morgan Stanley projects a 7% compound annual growth rate in revenue and a 12% CAGR in earnings for 2026 to 2028.