Cathay forces CITIC Pacific downgrade
CITIC Pacific Recommendation: Buy Brokerage: Smith New Court CITIC Pacific's ability to generate substantial increases in profit through acquisition has been proved again. Their year-end results were $104 billion with a earnings per share (EPS) of $0.874, a growth of 21 per cent.
But investor concerns that the company remains more of a holding company than a company which generates profits through its own operations are valid, reported the brokerage.
Smith New Court does not consider the share overly expensive and is confident CITIC will return above-market EPS growth over the next two years.
All areas of CITIC's operations appear to have done well. Nevertheless, the brokerage has downgraded its 1993 and 1994 forecasts to reflect its latest revisions for Cathay Pacific.
Dah Chong Hong (DCH) is considered the most exciting part of the group, with its growth from China outstripping growth in Hongkong. The company's sales of cars in China last year were up 100 per cent. The company is also expanding its sales and service network in China.
Top Form International Recommendation: Sell Brokerage: G. K. Goh FOR the first six months to December 1992, Top Form increased sales by 25 per cent, but saw operating margins drop from 14.7 per cent to 12.8 per cent.
This decline was a result of significant start-up costs for the group's China retail operations, a weak performance by Marguerite Lee in Hongkong, and a softening of European markets.
The weak European market is likely to be a problem for some time. The decline in sales to Bestform in the US, which remains the group's biggest customer, is also a concern, suggested the brokerage.
The group's expansion plans in China appear attractive, particularly the department store development in Shanghai, but this is not due for completion until June 1994 and will not make a contribution to profits until the 1995 fiscal year.