Upgrades and downgrades
China Unicom ING Financial Markets has upgraded the mainland mobile-phone carrier to 'buy', saying it expected a rising return on equity, positive free cash flow and an end to margin contraction in its code division multiple access (CDMA) business over the next 12 to 18 months. Analysts Craig Irvine and Doris Pardo said they expected CDMA margins to stabilise between the second half of this year and the end of next year. They forecast China Unicom generating two billion yuan (HK$1.87 billion) of free cash flow this year and 6.9 billion yuan next year. The analysts said China Unicom was trading at 11 times expected earnings and have upgraded their price target to $8.
Dickson Concepts (International) HSBC has maintained its 'buy' rating, saying high-end retailers would benefit most from a rise in mainland tourist spending and an improved economy. Analysts Anne Ling and Agnes Ng raised their 2005 forecast by 22.6 per cent and 2006 forecast by 52.3 per cent. They raised their price target to $6.30 based on 15 times expected earnings in 2005. However, they warned the market might not react well to major shareholders' global expansion plans.
Esprit Holdings Deutsche Bank has initiated coverage with a 'sell' rating, saying risks to the firm's core wholesale business were growing. Analysts Vinneet Sharma and Ebru Sener said Esprit would beat consensus estimates next year, but struggle to grow thereafter. 'Most of the growth this year and next year has been driven by a 13 to 16 per cent year-on-year appreciation in the euro,' they said. Also, they said the business was inherently risky, as it was about getting 12 fashion trends right every year across disparate markets.