SHK at mercy of volatile market

PUBLISHED : Sunday, 07 May, 1995, 12:00am
UPDATED : Sunday, 07 May, 1995, 12:00am

Sun Hung Kai Company Recommendation: Sell Brokerage: Sassoon Securities THE company's prospects will remain static in the near term.

Deeply entrenched in the securities business, Sun Hung Kai's fortunes will continue to be suspectible to local market swings - given its rather narrow earnings base.

The firm's 1994 profits slumped 23.2 per cent to $315.1 million. Last year's hefty contributions from its associates are unlikely to be sustainable.

Sun Hung Kai's high exposure to China will also weigh down its short-term prospects.

Cafe de Coral Recommendation: Sell Brokerage: Salomon Brothers THE brokerage found no positive news during a recent visit to Cafe de Coral's management. In fact, it was warned the firm expects further industry and earnings consolidations next year.

News from the meeting also included higher rental costs, amounting to 15 per cent of sales, and higher price increases of eight to nine per cent. Network expansion will slow, with the number of outlets increasing by only nine per cent this year.

Salomon Brothers predicts earnings will fall 20 per cent this year. The brokerage may cut its 1996 forecast following earnings results.

Wing Shan International Recommendation: Buy Brokerage: Sassoon Securities WING Shan is the largest electricity supplier to Foshan city in China. It has acquired a 111,235-megawatt power plant in Changxi, lifting its total installed capacity by 175.2 per cent to 174,735 megawatts. The acquisition was financed by a rights issue early last year.

With industrial and commercial activities in the area growing at an annual rate of 20 per cent, total electricity sales are expected to increase at a rate of between 25 per cent and 30 per cent a year, also helped by the inflation-adjusted increase in electricity per unit price.

Starting in 1997, the company's growth potential will be thwarted by capacity constraints at its existing generating facilities.

Wing Hang Bank Recommendation: Buy Schroders Securities WING Hang Bank, a conservatively managed, sophisticated local bank, focuses on small to medium-sized companies.

The brokerage expects it to achieve average earnings per share growth of 16.3 per cent a year between this year and 1997, which is above that of larger banks and puts the stock on a prospective price-earnings ratio of just 6.8 times.

Given Wing Hang Bank's sound financial position and fundamentals, and its management's excellent track record, the brokerage believes the counter should trade at a smaller discount, or at least on a par with its local counterparts.

China Light & Power Recommendation: Hold Brokerage: Sassoon Securities THE recent closure of the unit one nuclear reactor at Daya Bay will not have a significant impact on the company's bottom line earnings.

Through the Hong Kong Nuclear Investment Company, China Light has a 25 per cent stake in the Guangdong Nuclear Power Joint Venture Company, which operates the Daya Bay plant.

Despite slower capital return on expenditure in the coming years due to a deceleration in demand, the brokerage is projecting comfortable net fixed asset growth of 12 per cent a year, which will continue to support core earnings growth of nine per cent for the next five years.