CHINA Resources Enterprise (CRE), the largest member of the red-chip index, is one of only a handful of mainland constituents of the Hang Seng Index. Its interests range from property to supermarkets to food distribution.
Prudential Bache Securities has put a 'sell' on the stock, saying the share price has run far ahead of its valuation of the company.
'While we are comfortable with the fundamentals of CRE the share price has run ahead of current prospects,' the research group says. 'The stock we believe is now overvalued.' The stock trades at a premium to Pru Bache's estimated free operating cashflow value of $7.95 per share.
Pru-Bache approves the condition of CRE's recently-purchased increased stake in red-chip foods conglomerate Ng Fung Hong, but says it will not do much to enhance earnings per share growth.
China Resources is one of several red chips downgraded by Pru Bache.
'With the red chip run-up . . . we have become more cautious concerning valuations of many of the stocks and we reverse our call on the sector, changing it to sell.' Cathy Holcombe