Jefferies downgrades Jonjee Hi-Tech stock rating to Hold on weak results

Jefferies downgraded Jonjee Hi-Tech (SS:600872) from Buy to Hold, reducing its price target to RMB20.00, following disappointing first-half 2025 results. The Chinese food company reported an 18.6% year-over-year sales decline and a 24.1% net profit fall for H1 2025, with Q2 showing continued weakness, including a 9.1% sales drop and 23.8% net profit decline. While lower raw material costs improved gross margins, these gains were offset by higher SG&A due to increased channel investments and staff costs, leading Jefferies to note that ongoing reforms require time amidst an intensely competitive industry.

Analysis

Jefferies has downgraded Jonjee Hi-Tech (SS:600872) to Hold from Buy and reduced its price target to RMB20.00, citing disappointing first-half 2025 financial results. The company reported a significant year-over-year decline in both sales and net profit for the first half, down 18.6% and 24.1% respectively. The negative trend continued in the second quarter, with implied sales falling 9.1% and net profit contracting by 23.8%. While the company experienced an improvement in gross margin due to lower raw material costs, this benefit was fully offset by a higher SG&A ratio. The increase in SG&A was attributed to strategic channel investments and rising staff costs, indicating pressure on operating leverage. Jonjee's management adjusted shipments in Q2 to support pricing and decrease distributor inventory, a defensive measure that may impact near-term volume. Jefferies' outlook remains cautious, noting that ongoing reforms will require time to materialize amidst an intensely competitive industry landscape.

Key Decisions for Investors

• Given the analyst downgrade and significant declines in both revenue and net profit, investors should re-evaluate any bullish positions and recognize the heightened execution risk for Jonjee Hi-Tech in the near term.
• Monitor the company's SG&A-to-sales ratio in subsequent quarters to determine if the increased channel investments translate into top-line growth, as this is currently the primary drag on profitability.
• Acknowledge that while management's efforts to stabilize pricing and inventory are prudent, the combination of a prolonged reform cycle and intense competition suggests the stock may remain under pressure until a clear recovery in fundamentals is evident.