Property to hold back hotels group
Hongkong & Shanghai Hotels Brokerage: SBC Warburg Recommendation: Sell HONGKONG & Shanghai Hotels operate the Peninsula Hotel, the Kowloon Hotel, and the Peninsula hotels in the United States, Manila and China.
The company has outperformed the Hang Seng Index by 15 per cent over the past three months and trades at a 37 per cent premium to the market.
Hotel operations should perform solidly in 1996 but the property division should be sluggish. Vacancies are rising at its residential complex so there is high downside risk to earnings forecasts.
The company had net debt of $3.5 billion at the end of 1994, and with the completion of the Peninsula building works, net financing costs will further erode profit margins this year. Zhenhai Refining & Chemical Co Brokerage: DBS Securities Recommendation: Buy ZHENHAI produces and sells petroleum products such as gasoline, diesel fuel and kerosene. It also refines crude oil for international petroleum companies.
The completion of an expansion project last June has erased production bottlenecks and should lead to a doubling of output capacity by the end of this year.
The transportation sector is undergoing rapid growth resulting in rising demand for oils and this should underpin the aggressive expansion plans.
The company posted 16 per cent growth for the first half of 1995 and earnings growth is expected to be 15.8 per cent this year. Swank International Manufacturing Brokerage: Dharmala Securities Recommendation: Buy SWANK manufactures sunglasses, spectacles and optical lenses. It exports to the Unites States, Europe and Australia, and has 17 retail shops in China.
The company is planning to diversify into the production of other high-end products such as metal frames and corrective glasses which will raise its profitability.
Sales to the US are likely to increase as Swank's superior quality standard and close connection to its clients give it an edge over competitors.
In the 1996 financial year, Swank is going to reap the benefits of capital investments made over the last two years and profit is forecast to grow by 25.4 per cent.