Last Update as at 14 Sep 11:39 (HKT)
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DJ MARKET TALK: Macquarie Tips 'Low-Quality' Li & Fung Rally
1118 [Dow Jones] STOCK CALL: Macquarie says in the near term "we think Li & Fung (0494.HK) could see a low-quality share price rally" driven by softening raw material prices which depressed 1H12 earnings.
"However, we think Li & Fung will use this as an opportunity to potentially raise equity," as the company tries to de-lever its balance sheet to fund large acquisitions and justify its P/E multiple.
While it has factored-in benefit from the lower raw material costs, the house also put in the lower organic growth rate and the equity dilution from new acquisitions, resulting in a 12% lower target price to HK$11.00, implying a 13.5X forward P/E; it keeps the stock at Underperform.
Source: Dow Jones & Company, Inc.