China High Speed Transmission 0658

[winston]

Not vested.

China High Speed Transmission Equipment Group (0658) makes and sells transmission devices. Its net profit soared 2.58 times to 307 million yuan (HK$349 million) for the year ended December 31, 2007.

Nomura says the acquisition of Hongsheng should secure a stable supply of forged steel for CHSTE. Given the robust global demand for wind turbine gearboxes, Nomura maintained its fair value of HK$17.50 per share and "strong buy" call.

JPMorgan remains positive on CHSTE's due to huge growth prospects in wind power equipment. However, it is negative on the six-to-12- month share price given a significant equity swap overhang, which it deems creates excessive risk for minority shareholders. JPM noted every 10 percent share price drop below HK$13.70 could yield a 15 percent cut in 2009 earnings per share due to the terms of CHSTE's recent equity swap agreement.

Macquarie, which predicts earnings to rise by 25 percent this year and 30 percent next year, has upgraded the stock to "outperform."

Dr Check suggests buying CHSTE at around HK$12. It closed at HK$15.10 on Friday.

[winston]

China High-Speed Transmission shares suspended -HKEx
Fri Oct 24, 2008 3:03am EDT

HONG KONG, Oct 24 (Reuters) - Trading in shares of China High Speed Transmission Equipment Group Co. Ltd. (0658.HK: Quote, Profile, Research, Stock Buzz) was suspended on Friday, the Hong Kong exchange said.

No further details were immediately available.

China High Speed Transmission had said on Thursday it was in talks with Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) over amending the terms of equity swap. It said the equity swap did not pose any effect on the cash flow or normal operations of the company.

Shares of the company had fallen 28 percent, or HK$1.8 prior to the suspension. The shares have plunged nearly 50 percent since Wednesday.

[winston]

China High Speed upbeat

China High Speed Transmission Equipment (0658), the nation's largest maker of gears for wind turbines, is confident of offsetting losses from a wrong-way investment in equity-swap contract.

"We should be able to offset the losses, although we cannot be absolutely certain that they will be fully negated," chairman Hu Yueming said yesterday.

China High Speed stock suffered a selloff after a disclosure of its derivative investment spooked investors. It used as much as HK$1.1 billion of shares in a swap agreement with Morgan Stanley that would give it an income if the stock price is higher than a pre-agreed price of HK$13.67.

The firm, whose original swap contract with Morgan Stanley will mature in May 2011, said the investment will not affect its business operation.

KATHY WANG

[winston]

20081219 SBI China High Speed Transmission (658 HK, HK$10.20) - Wind industry solid, but stock fairly valued
China High Speed Transmission (658 HK, HK$10.20) – Wind industry solid, but stock fairly valued

Newsflow. According to news sources, Shanghai Electric (2727 HK, HK$3.14) has started to construct its manufacturing base for wind power equipment on 18 Dec with a cost of RMB143m. The plant, with a production capacity of 600 wind turbines with a total generation capacity of 200MW annually, is expected to be completed by the 4Q 2009. Moreover, in our recent conference meeting with the management of Dongfang Electric (1072 HK, HK$18.80), they had also cited the wind power equipment sector to be a new driver for the company, which is expected to partially offsetting slower demand in its traditional power equipment sector.

Our view. China High Speed transmission (658 HK, HK$10.20) is a key beneficiary of the emerging wind power sector, being China’s largest gear box manufacturer for wind turbines and a key supplier to General Electric (GE). However, the counter has surged 70.6% since our report “Wind in the Sails” (28 Nov) on a combination of:-
1) strong industry fundamentals,
2) overall stock market rally and
3) active repurchasing of its CBs to alleviate investor concern on it cash flow.

Now trading at 21.0x FY12/08F and 15.0x FY12/09F P/E on consensus, we think that the counter is fairly valued in our view and recommend investors sell into this current strength.

[winston]

China High Speed Transmission (658 HK, HK$9.25) - Time to lock in gains

News flow. Suzlon announced that it had agreed to sell a 10% stake in Hansen Transmission (HSN LN), one of the world's largest wind turbine gearbox manufacturers to a private equity firm to raise funds to meet debt obligations and pay for its acquisition of 17% in Repower. On the completion of the sale, Suzlon's stake in Hansen will be reduced to 61.28%.

Market has been anticipating this sale and Hansen's stock has rallied around 36% in the past month. Based on the latest closing price, the
valuation of the 10% stake in Hansen is 14.2x FY3/10F P/E, based on consensus estimates.

Our view. China High Speed Transmission is currently trading at 13.6x FY12/09F P/E, based on consensus estimates, which we consider aggressive. In our view, the market has yet to fully factor in the impact of China's economic slowdown on the company's non-wind segments such as construction, marine and steel. Our back-of-pad estimates suggests a 15-18x FY12/09F P/E range. We re-iterate our previous view (email alert: "Wind industry solid, but stock fairly valued" on 19 Dec) that investors should take this opportunity to lock-in profits on the counter given:
1) its valuation premium to Hansen (even after Hansen's stock price rally in anticipation of the stake sale);
2) CHST' 51.6% rally since beginning of Dec 08; 3) potential underperformance in traditional gear transmission segments and
3) the company's potential funding gap to meet its CB obligations in FY12/11F, despite its recent aggressive repurchasing of its CB.

[winston]

20090115 Macquarie China High Speed
China decoupling...in wind

We review the operations of China High Speed Transmission (CHST) amid a deteriorating global credit market, and upon transfer of coverage to Carol Cao. We adjust our target price from HK$17.40 to HK$11.30 based on a lower target PER of 17x on FY09E earnings. We maintain our Outperform rating on CHST given the 32% potential upside from the current price.

2009 – a tough year for wind, but China growth intact

With tighter credit conditions and weaker global economic growth, we think that 2009 will be a tough year for the wind industry in the EU and the US, where project delays will likely be common due to the unavailability and higher cost of financing. We believe, however, that the growth of China’s wind industry will remain largely unabated due to strong government policy support, the declining cost of project funding, and stable wind tariff despite falling fossil fuel prices.

Domestic focus and pricing discount mitigate wind risks

The main risk to CHST’s earnings in 2009, in our view, is the potential delay or cancellation of orders from its international wind gearbox customers in the event of a delay or cancellation of wind turbine delivery. We estimate that CHST sells about half of its wind gearboxes to international customers, with GE being the largest customer, making up 40% of its wind gearbox sales in FY09E. We believe that such risk is largely mitigated for CHST, due mainly to its pricing discount over international competitors, as well as the secure demand from its domestic customer base. The biggest risk is with Nordex, the German wind turbine marker, which makes up about 10% of CHST’s wind sales.

Decline in raw material prices to help maintain margins

Weaker demand for wind turbines worldwide could intensify competition amongst the component suppliers and place downside pressure on gearbox prices. Marketing and advertising costs associated with the expected relief in the supply bottleneck of wind gearboxes could also increase. However, we believe that the expected decline in raw material prices in 2009 will help CHST maintain margins.

Healthy balance sheet to fund growth

We believe CHST has a strong enough balance sheet to fund its future expansion. We expect CHST to turn positive free cashflow in FY10. While there could be potential losses related to the equity swap that CHST currently holds, the downside risk is limited and already well known to the market, in our view.

TP downgrade due mainly to global wind de-rating

The downgrade to our target price for CHST is the result of benchmarking to the global wind sector valuation, which has been de-rated in recent months. We have also lowered our FY09E earnings by 9% based on more-conservative assumptions for non-wind sales. Our target price is currently based on a 17x FY09E PER (24x FY09E PER previously), which is at a premium to the global wind industry average of 10.3x, but on a par with the current valuation of global wind gearbox suppliers such as Hansen Transmission (HSN LN, GBp1.44, NR).

[winston]

DJ MARKET TALK: CHST May Stabilize; GE Cuts 2009 Orders 33% -SCMP

0848 [Dow Jones] China High Speed Transmission (0658.HK) may stabilize after dropping 9.2% to HK$9.97 Monday; SCMP report today, quoting unnamed fund manager attending institutional investor conference after market close yesterday, says General Electric (GE) had reduced orders to CHST for this year by 33% to 800 units;

SCMP also quotes CHST spokeswoman as saying company had "proactively" cut supply to GE owing to U.S. market volatility. Report no doubt negative, but likely in part priced in by yesterday's shares fall; key is if CHST can secure more domestic orders to offset lower GE orders.

At Monday's close, CHST trading at 13.9X FY09, 11.4X FY10 consensus earnings pegged by Thomson Reuters, not too demanding given supposedly strong growth of China's wind power industry. CHST spokeswoman in Nanjing confirms investor conference, but declines to disclose details

[winston]

Why cant this smart analysts round up their TP to HK$14 instead of having it at HK$13.90 ? Does 13.90 looks like a bigger number so that people will buy ? Doesnt 13.90 sounds so stupid as if their proprietary model churned out that 13.90 number ?

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DJ MARKET TALK:CHST +0.3% Pre-Mkt;Mkt Overreacted To GE Orders-MS

0938 [Dow Jones] At pre-open, China High Speed Transmission (0658.HK) edges up 0.3% at HK$10.00, after tumbling 9.2% yesterday on chatter General Electric reduced orders to CHST. Morgan Stanley says market overreacted given GE order not canceled; instead, CHST adjusted down capacity allocation to GE voluntarily from 1,500 units to 600-700 units due to uncertainty in U.S. market, strong demand from domestic customers.

Adds, GE capacity "has been taken up fully" by increase in domestic demand; also believes shift of orders from GE to domestic customers had mild positive impact on earnings due to lower average selling price of GE orders. Overall, believes strong domestic demand sufficient to cover any slowdown in U.S. market, thus keeps Overweight call with HK$13.90 price target

[winston]

DJ MARKET TALK: CHST Down 1.7%; Switches To Domestic Demand -Macq

1041 [Dow Jones] China High Speed Transmission (0658.HK) down 1.7% at HK$9.80, extending 9.2% fall yesterday, but support at yesterday's intraday low of HK$9.45 looks unlikely to be troubled. Stock hurt by chatter General Electric reduced orders to CHST, prompting company to hold investors conference call after market close yesterday.

Macquarie says CHST "declined to confirm" supposed cut of 700-800MW; suspects mutual agreement between two parties, citing very weak wind development outlook in U.S. in 2009, GE's existing commitments to more long-term European gearbox suppliers, whose supply contracts could not be easily altered for 2009.

Adds, CHST indicates strong orders on hand from domestic customers, which expected to be more than enough to absorb excess capacity from GE delaying delivery of some orders. Rates stock Neutral with HK$11.30 target. Volume moderates to HK$37 million.

[winston]

DJ MARKET TALK: CHST Off 5.4% But CS Ups Forecasts, Target Price

1545 [Dow Jones] China High Speed Transmission (0658.HK) falls further in afternoon, now down 5.4% at intraday low of HK$9.43, adding to 9.2% drop yesterday, weighed by concerns of lower orders from General Electric. Still, Credit Suisse says even if all global orders canceled this year, CHST still would meet targeted sales of 6,000 MW due to more domestic orders.

Adds, gross margin for GE orders is slightly lower than others, thus client change would not lower company's margins. Raises CHST's FY09-10 sales forecast by 10%, 23% respectively, based on increased sales from wind gearbox, ups net profit forecast by 8%, 17%, target price by 5% to HK$11.83, keeps Outperform call. Volume remains heavy at HK$133.5 million; HK$9.43 immediate support