On Friday, HSBC made an adjustment to its financial outlook on Baozun (NASDAQ:BZUN), a leading e-commerce service partner in China. The firm's analyst has reduced the price target for Baozun's shares to $2.60 from the previous $3.10, while keeping a Hold rating on the stock.
The adjustment comes amid ongoing structural changes within the market that are impacting Baozun's business. The analyst noted that a slow recovery in consumer sentiment and a shift in Chinese consumers' preferences toward domestic brands are challenging the company's revenue growth.
Despite seeing some positive momentum in outdoor, healthy food, and nutrition segments, Baozun's primary revenue streams like home appliances, electronics, and fast-moving consumer goods (FMCG) have shown weakness.
Management at Baozun has been working on strategies to introduce new premium brands and to venture into new channels. However, these efforts are expected to take time before they can significantly contribute to the company's income.
As a result of these factors, HSBC has revised its 2024 and 2025 revenue estimates for Baozun downward by 2% and 3%, respectively.
Furthermore, due to deleveraging and a shift in revenue mix toward the lower-margin brand management segment, primarily Gap Shanghai, the firm has also reduced its margin projections by 1.5 percentage points for the same period.
In an effort to provide valuation support, Baozun previously announced a share repurchase program to buy up to $20 million in American Depositary Shares (ADS) by January 2025.
This buyback program is significant as it represents about 11.5% of Baozun's current market capitalization. However, the analyst expressed skepticism about the likelihood of dividend payouts as a form of shareholder return in the near future.
After incorporating these changes into their financial models and introducing projections for 2026, HSBC has set the new price target, which suggests a 9.7% downside from the previous target.
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