WHAT THE BROKER SAID

PUBLISHED : Sunday, 27 February, 2005, 12:00am
UPDATED : Sunday, 27 February, 2005, 12:00am

About a year ago Core Pacific-Yamaichi said the launch of more through trains from Guangzhou to Hong Kong would accelerate a strong earnings recovery for Guangshen Railway.


The railway, which operates passenger and freight services in Guangdong, particularly high-speed connections between Guangzhou and Shenzhen, was seen as a recovery play. Operating data for December was below expectations but was expected to improve in 2004 due to positive developments between Hong Kong and Guangdong under the Closer Economic Partnership Arrangement.


The number of passengers on the Guangzhou-Hong Kong through trains declined by 9.2 per cent year on year in 2003 and on the domestic through trains by 4.6 per cent. Freight volume was steady.


The company would bring in another two pairs of Guangzhou-Hong Kong through trains in 2004, which would boost earnings. The broker forecast net profit would expand by a compound annual growth rate of 28 per cent over 2004 and 2005.


The stock provided an attractive yield of 4.9 per cent on forecast results of 2004 and 5.7 per cent of 2005. The broker maintained its target price of $2.80, an upside of more than 20 per cent on its February 27 price of $2.325, which was based on a forecast 2004 yield of 4 per cent. It recommended the counter as a ''buy''. Guangshen was trading at $2.425 a year ago. The counter closed at $2.875 on Friday.