Citi has released a research report maintaining its "Buy/High Risk" rating on Tsugami China (01651.HK) with a target price of HK$72, while continuing to give Johnson Electric (00179.HK) a "Neutral" rating with a target price of HK$19.6. The bank initiated a pair trade on Hong Kong-listed industrial automation stocks, favoring Tsugami China while taking a bearish view on Johnson Electric, expecting the two companies' first-half FY2027 results to diverge.

The bank noted that both companies have recently expanded their businesses into the AI liquid cooling system and humanoid robot supply chains, with strong growth prospects. However, the bank expects Tsugami China's net profit for the first half of FY2027 to grow 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 believes the performance divergence is mainly due to Tsugami China's revenue contribution from the fast-growing AI liquid cooling and humanoid robot businesses reaching 20% to 25% in FY2027, far higher than Johnson Electric's approximately 4%. Additionally, the two companies face different raw material cost headwinds. Tsugami China primarily faces steel price costs, which have been roughly stable, while Johnson Electric primarily faces copper price costs, with copper prices having accumulated a gain of more than 30% since the beginning of this year.