Why is Johnson Electric stock plunging today?

Johnson Electric Holdings Ltd shares took a sharp tumble of 17.3% to HK$14 on Monday following the company's release of a profit warning. The warning revealed a significant drop in earnings for the six months ending September 30, with a forecast of between $50 million and $58 million compared to $133 million in the same period last year.

This represents a decline of 56% to 62%. The announcement caused immediate shockwaves in the market, with shares initially gapping down more than 10% at the opening bell before extending their losses throughout the day. The primary reason cited for the decline was the reversal in foreign exchange dynamics. While the previous year had benefited from substantial foreign exchange gains, these gains are not present in the current half, creating a headwind estimated at approximately $49 million to $55 million.

Additionally, Johnson Electric highlighted rising raw material costs and persistent inflation on labor and other operating expenses as further setbacks to profitability. These challenges are reflective of the broader automotive components industry, which has faced difficulties due to global supply chain repricing. Despite the decline, the broader Hong Kong market showed resilience, with the Hang Seng index advancing by 0.3%.