Upgrades and downgrades
BUY
Shui On Construction
ING Financial Markets has initiated coverage with a 'buy' recommendation, as it expects the company to return to profitability soon, after successfully transforming from a Hong Kong construction firm into a China property developer and cement maker. Analyst Andrew Kuet said next month's sale of its Shanghai residential project should be the 'inflexion point'. 'This should contribute 623 million yuan [HK$583.93 million] in revenue and 124 million in earnings, enabling a return to profitability next year,' he said. Mr Kuet also said Shui On's cement business in central China had grown into a 7.5 million tonnes-a-year operation, making it the No3 producer in China. He said capacity should rise to 11 million tonnes per annum in two years. ING expected the unit's pre-tax profit contribution to grow from $31 million this year to $48 million next year on capacity expansion and a favourable cement price trend. He has a $9.10 target on the stock.
BUY
Raymond Industrial
Kim Eng Securities has issued a 'buy' rating for the counter after its first-half net profit rose 315 per cent to $23 million. The electrical home-appliance maker has also installed a new cigarette-paper production line and is set to double production capacity. Analyst Mark Po has revised up his profit estimates for this year and next year by 16 per cent and 25 per cent to $87 million and $113 million respectively. Mr Po said the stock was trading at 6.2 times next year's expected earnings and he has a $2.225 price target on the counter.
SELL
Sunday Communications
Hong Kong's smallest mobile operator may have this week reported a half-year net profit for the first time, and a larger than expected one at that, but Core Pacific-Yamaichi still recommends a 'sell' on the stock, citing its weak balance sheet. The company's debt fell 15 per cent in the first half but net debt was still $493 million and the net debt-to-equity ratio was 72 per cent. Sunday also has to repay $547 million in debt by next year. Post-paid average revenue per user fell 5.2 per cent to $200 in the first half and is expected to fall further to $180 by the year-end due to fierce competition. Such fundamentals did not warrant the price-to-earnings ratio of 24.1 for this year and 10.8 for the next that Sunday was trading at, analyst Mona Chung said. With no dividend payout, it should trade at a 'significant discount' to rival SmarTone Telecommunications, at 15.1 times this year's earnings. Her earnings forecasts for this year and next have been revised up and suggest a price of 26 cents, 22.38 per cent below yesterday's 33.5 cents close.
