JL Mag Reported a Mixed Q4 with Weaker Margin; FVE Lowered to HKD 28/CNY25

Narrow-moat JL Mag reported mixed fourth-quarter results. Revenue expanded 68% year over year, in line with the preliminary range. However, despite top-line growth, net profit for the quarter declined 84% year over year to CNY 16 million. While the quarterly profit nears the low end of company’s guidance, gross margin for the quarter was weaker than expected. We cut our 2023-24 net profit estimates by 2% and 6%, respectively, and lower our fair value estimate to HKD 28.00 (CNY 25.00) from HKD 29.00 (CNY 26.50). Our fair value implies a 2023 P/E ratio of 24 times, which is justified by 24% 2022-25 net profit CAGR. At the current price, H-shares are trading in 4-star territory. The A-shares, at a 28% premium to its H-shares, are fairly valued.