Citi: China Industrials - Initiating Pair Trade, Overweight Great Star, Underweight Dingli
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Citi initiates a new pair trade within the Chinese industrials sector, recommending an overweight position in Great Star (002444.SZ) and an underweight position in Dingli (603338.SS). The core thesis centers on the diverging earnings impacts of US reciprocal tariffs on these two exporters. Citi assigns a Buy rating to Great Star with a target price of CNY 46, while Dingli receives a Sell rating with a CNY 32 target.
Great Star experienced a slowdown in 2025 core earnings growth to roughly 7% due to US tariffs. However, growth is projected to accelerate to approximately 15% in 2026. This recovery is driven by bottoming channel inventory and the anticipated initiation of a Federal Reserve rate-cutting cycle, which should bolster housing sales and hand tool demand. Furthermore, Great Star stands to benefit from AI-related restocking demands for server installation tools and cabinets.
Conversely, Dingli faces severe margin compression in 2026. While the company front-loaded nearly all US sales before April 2025 to avoid initial tariffs, it must now share a 20% additional tariff burden with clients. This increases Dingli's total effective tariff rate to roughly 100%. Citi forecasts Dingli's earnings will decline by 3% in 2026, sharply contrasting with the market consensus of 8% growth. Dingli has no exposure to the AI tailwinds supporting Great Star, making this pair trade a strategic play on tariff exposure and fundamental divergence.