WHAT THE BROKER SAYS
Nomura has raised its fair-value estimate and earnings forecasts for Kingway Brewery to reflect its competitive advantage in Guangdong and capacity expansion in other parts of China.
Robust demand in Guangdong and aggressive capacity expansion in Guangdong and Tianjin lifted this year's forecast for sales volume growth to 32 per cent year on year from 30 per cent.
It forecasts net profit growth of 36 per cent and growth in earnings before interest and tax of 51 per cent. For 2007 the figures are 26 per cent and 30 per cent, and for 2008 17 per cent and 18 per cent.
Increased capacity should see sales volume grow to 6.75 million hectolitres this year, with most of the increase coming from the new brewery in Dongguan. Consolidation in Guangdong should lift Kingway's market share by 2 percentage points this year.
Possible pricing pressure from competition in Guangdong, and Kingway's forays into the Tianjin and Xian markets from this year to 2008 present the main risks to the company's earnings.
The broker sets a target price of $3.72 on Kingway, up from $3.04, and maintains its 'buy' call. The counter closed on Friday at $3.40.