Daiwa starts Belle International (Hong Kong stock code 1880) at Sell with a target price of HK$10.20 (14.2X FY12 P/E). “We think the golden age for Belle, China footwear brand-owner and major distributor of international sportswear brands such as Nike and Adidas, is over and that the market is too optimistic on this name.” Analyst Bing Zhou says that there is more competition in the mid-to-high-end footwear space than meets the eye, as inventory days across the board in Belle’s industry have reached an all-time high. Moreover, recent business developments, such as penetration into the low-end footwear business, are indicative of Belle’s increasing struggle to maintain high levels of organic growth in its core business. “We believe that Belle’s valuation is heading for a derating as its marginal returns along with earnings growth look set to slow.” Belle is down 1% at HK$13.04 vs the HSI’s 1% rise.
The HSI rebounds 0.8% to 19,073.87 early Tuesday morning, after falling in 12 out of the past 13 trading days; although volume is only modest at HK$7.55 billion, suggesting investors’ confidence has yet to recover strongly. DBS Vickers says “it is a great time to buy on dips during the next two to three months,” as the year-end rally is a likely event as Beijing is likely to announce fiscal measures to support growth, after it completes the evaluation of various pilot programmes and the transition of the new leadership is more or less complete. “Thus, the right strategy is to gradually add good quality stocks to the portfolio during the bottoming process,” DBS says.
GCL-Poly Energy (Hong Kong stock code 03800) is down 1.2% at HK$1.64 on top Friday’s 7.8% tumble, due to news of the U.S. government’s preliminary ruling to impose antidumping tariffs of about 31% on Chinese panel makers.
Deutsche Bank believes the U.S. decision increases the risk of regulatory uncertainty and raises the possibility of a trade war; it says although GCL-Poly is not directly involved in this anti-dumping case, “it is unlikely to be immune from the sector headwinds.” The house adds, the likely delay in subsidy cuts in Germany and Italy may lead to better demand but it believes oversupply is likely to remain and “we do not see any sign of a pricing rebound in the near term,” hence it stays cautious on GCL-Poly and the sector.
HSBC cuts GCL-Poly Energy’s target price to HK$1.40 from HK$2.07 and keeps the stock at Underweight. It says the firm’s utilisation in 1Q12 was only 75% as opposed to about 100% in previous periods; “we see this as a strong signal of demand weakening; especially given GCL-Poly was already selling at about 8% below spot. It also adds to increasing inventory concerns.” HSBC notes U.S. has announced anti-dumping duties of 31% on Chinese cells and modules sold into the U.S.; it believes the impact of the preliminary ruling on GCL-Poly is negative in the near term but longer term lost sales could be quickly offset by rising domestic Chinese solar PV installations. It adds, the EU may launch a similar investigation on the Chinese solar companies which would be a greater concern given the larger European market size.
Daiwa Research lowered its target price for GCL Poly Energy to HK$2.4 from HK$2.9, and maintained its “buy” rating. The research house noted the increase in polysilicon-production and wafer-processing costs in GCL’s 1Q operating results. Daiwa thus cut its 2012 net profit forecast by 24% on slower cost reduction assumptions. But it still expects GCL to gain market share rapidly in 2012 and be the industry leader in terms of share and profitability medium term.
GCL Poly Energy (Hong Kong stock code 03800) tumbled 7.78% to HK$1.66 amid disappointing 1Q results.
Nomura said GCL Poly Energy’s 1Q operating results were disappointing, with the company’s wafer and polysilicon shipments largely flat q-q. The research house believes this suggests consolidation is taking longer, which is further reflected in the continued decline in ASPs. While management expects ASPs to stabilize in 2H, Nomura noted pricing is already very low, thus keeping profitability constrained. The house remains conservative on GCL given ASPs continue to decline on oversupply, contribution from the project business likely to be 2H-end loaded, and worsening macro- economic conditions. The house maintained its “neutral” call, with a target price of HK$2.30.
CIMB cuts GCL-Poly Energy target cut to HK$1.25 from HK$1.80 as the house changes the valuation of the solar business from discount cash flow to 1.12X P/BV, on par with leading polysilicon producers. The house says the company’s 1Q12 gross margin squeeze from low product prices confirmed its negative view on the company. CIMB adds that the bleak market outlook and stubbornly low wafer prices make a net loss for this year inevitable. “We change our valuation basis because investors would look for tangible value given the loss-making situation. We expect further earnings downgrades by the market, putting further pressure on the share price,” says CIMB.
Citigroup cuts GCL-Poly Energy’s target to HK$1.70 from HK$2.00 after lowering its 2012-14 estimates by 5%-14% to factor in more conservative pricing and a solar farm ramp-up. The house lowers its estimates on concerns of a margin contraction, and maintains a cautious view given limited clarity on the company’s solar farm business, which the house estimates will account for 35% of 2012 net profit. “We see downstream cell/module cost-leaders as better plays on rising utilization rates, until we see a better poly-si supply/demand metric,” Citigroup says. It keeps the stock at Sell. GCL-Poly Energy slides 7.2% to HK$1.67.
JP morgan tweaked its target price for GCL Poly Energy to HK$1.7 from HK$1.8, and maintained its “underweight” rating. It noted that the company reported poor 1Q operational results from double whammy of lower ASPs and higher costs. GCL guided for 50,000MT poly production in 2012, ASPs to stabilize in 2H, and expects 35GW of global demand, including 6GW in China. But JPM thinks this demand target may be overly optimistic given Italy’s GSE reported just 564MW connected in 1Q versus 10,027MW connected for 2011.
Hutchison Whampoa (ADR: HUWHY, Hong Kong stock code 0013), due to its exposure to Europe via its telecom, retail and port operations, underperformed and ended Friday down 2.4% to HK$66.95 vs the HSI’s 1.3% decline. Deutsche Bank says to account for increasing uncertainty in Europe, it widens its target NAV discount from 15% to 20% and cuts Hutchison’s target price by 8% to HK$82.00, although it keeps the stock at Buy on valuation. DB says several of 3Europe’s competitors have announced 1Q results; while Hutch may gain market shares, the worsening APRU trends in Italy and UK “poses an earnings risk” as these two markets account for about 60% of 3Europe’s 2012 EBITDA.
The HSI fell 446 points to 18.754.60 at midday Friday. SHK Financial says the market is “infused with uncertainties and investor confidence remains fragile.” But on the other hand, Hong Kong shares is falling for the 11th session out of 12 Friday, and technically, the HSI is testing the support zone of 17,600-19,200 formed from mid-November 2011 to January 2012, according to SHK Financial. “The 17,600 level is on the long-term uptrend formed since October 2008 at 10,676 through to October 2011 at 16,170, and represents very strong support. We see a fall below 17,600 as very unlikely and recommend buying in stages over 17,600-19,200.” The HSI slid 0.3% to close Thursday at 19,200, and has fallen 9.9% over the past 11 sessions.
