not vested
This Chinese Glass Maker Has 58% UpsideBy Adam Routh
JPMorgan has increased its target price on Xinyi Glass (868.HK) to HKD 12 a share, implying 58% upside, as it expects the Chinese glass maker to benefit from
lower natural gas prices for non-residential users.
China's National Development and Reform Council (NDRC) lowered city gate prices of natural gas by CNY 0.10 per cubic metre with effect from September 1 in a bid to increase demand for cleaner fuels.
JPMorgan estimates that natural gas accounts for 40% of the cost of producing float glass (used in heavy construction) and 20% of the cost of producing auto glass.
The cost savings should see a reduction in selling prices but should also boost profit margins.
JPMorgan analyst Leon Chik explains:
In particular, float glass prices are at very high levels now and indicate a market shortage in many regions. This means XYG should be able to keep some of the gas savings and this should be reflected in higher GPM.
We note that more than half of the float glass producers are using oil or coal based heating and they will not be able to benefit from the lower cost of gas.
Shares of Xinyi Glass have gained 20% this year, propelled by China's booming property market and the stock yields more than 5%.
At under eight times forward earnings, the stock is also cut-price compared to other glass-making stocks in Asia, such as Japan’s Asahi Glass (5201.JP) which trades at 14.5 times.
Xinyi shares recently traded marginally up for the day at HKD7.71 a share.
Source: Barron's Asia
http://www.barrons.com/articles/this-ch ... 1504677710
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