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ASIA STOCKS TO WATCH Morgan Stanley Cuts BBMG from Buy to SellBy Isabella Zhong
April 6, 2017
BBMG’s Hong Kong-listed shares (2009.HK) have surged 40% since the beginning of the week. The towering gain warrants a double downgrade, argues Morgan Stanley analyst John Lam.
Lam notes BBMG’s market cap based on the price of its H-shares yesterday imply an enterprise value per ton (EV/ton) of clinker capacity at CNY531/ ton, which is at a
29% premium to the average level of other Hong Kong-listed rivals.
The analyst also isn’t a fan of BBMG’s property business.
Also, we think the market may not be pricing in
declining BBMG margin/earnings from its property business in 2017-2018 due to
depletion of its low cost land bank in Beijing and loss contribution from
Jidong Development's non-cement business, which put our 2017 and 2018 earnings estimates 20% below consensus.
Lam has downgraded BBMG from overweight to underweight and has slashed his target price on the stock from HKD4.65 a share to HKD3.10 a share, which implies 32% downside.
BBMG shares rallied as much as 63% earlier this week before it pared off its gains yesterday. The stock is up 1.4% this morning.
BBMG shares have been heavily bought this week following the unveiling of the Xiongan New Area in Hebei province last weekend.
The company is expected to be a major beneficiary of the mega project given Hebei is the largest market for its cement business.
Source: Barron's Asia
https://www.barrons.com/articles/morgan ... 1491532378
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