SINGAPORE-HEADQUARTERED Razer will likely face challenges in its hardware business due to slowing demand on top of supply chain constraints and surge in logistic costs, said CGS-CIMB.

In a report on Thursday (Mar 17), analyst Ray Kwok lowered his target price on the consumer electronics company to HK$2.88 from HK$3.90, after he cut his earnings per share estimates by 27 per cent for FY2022 and 29 per cent for FY2023. He maintained his "add" call on the counter.

Shares of Razer, which is listed on the Hong Kong Stock Exchange, were trading at HK$2.31 at 11.27 am on Friday, down HK$0.12 or 4.9 per cent.

Razer on Thursday posted a net profit of US$46.2 million for its financial year ended December 2021, up from US$5.6 million the year prior. Its revenue for the year rose 33.3 per cent to US$1.62 billion, on the back of strong demand for its mice, keyboards and audio devices.

However, the company's gross profit margins for the second half fell 21.4 per cent on year, due to a surge in freight rates and logistics costs for its hardware segment and an increase in promotion and marketing expenses for its software and services segment.

Kwok expects Razer's gaming peripherals sales growth will decelerate to 8 per cent in FY2022 as demand slows down amid the reopening of economies globally, and due to the high base in FY2021.

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Persistent supply chain constraints and surges in freight rates and logistics costs should also continue to weigh on the gross profit margins of the hardware segment, the analyst said.

As for its software and services business, Kwok said Razer will likely increase its investment in this segment to accelerate growth, which would negatively affect the segment's short-term profitability.

These investments include promotion and marketing of Razer Gold, and more value-added services on its software platform to boost gamer activity in the Razer ecosystem.

For Razer Fintech, he expects Razer will focus on boosting its total payment value in its core market in Malaysia, and expand its merchant coverage in other markets such as the Philippines, Singapore, Thailand and Taiwan.

Hong Kong-listed Razer is currently in a bid from a consortium, which includes Razer chairman Tan Min-Liang and non-executive director Lim Kaling, seeking to take the company private at a HK$24.7 billion (S$4.3 billion) valuation. The consortium is offering HK$2.82 a share for Razer, which had listed at HK$3.88 per share in 2017.

READ MORE:

• Razer posts US$46.2m net profit in FY2021, but warns of slowing momentum

• Razer launches regional headquarters in Singapore, plans to grow local staff count to 1,000