Excerpts from latest analyst reports...
CSC bullish on CHU KONG's 2011 demand
CHU KONG Petroleum and Natural Gas Steel Pipe Holdings Ltd (HK: 1938), China’s largest steel pipe manufacturer in its class, was initiated ‘buy’ by CSC Securities due to expected strong demand this year.
The brokerage gives Chu Kong a target price of 4.47 hkd, representing a 17.6% upside from its Monday close of 3.8.
The Guangzhou-based firm, founded in 1993, produces and sells seam welded steel pipes, pipe parts, and casting pipes, as well as trading steel pipes and providing casting and lining services.
CSC said that the slowdown seen last year is now being replaced by increased demand for steel pipes in the PRC, especially from the power sector and major petrochemical firms.
“With its cost-plus business model, Chu Kong will be less impacted by the rising raw material prices and will stay competitive in the global market.”
CSC said it is using DCF-based methodology to calculate its target price for Chu Kong.
“The assumptions are: i) market risk premium of 10.0%, ii) beta of 1.1, iii) after-tax cost of debt of 5.25%, iv) WACC of 10.61%. Based on these assumptions, the target price of Chu Kong is HK$ 4.47, implying a potential upside of 17.6%.” (based on Monday, April 28 closing price of 3.8 hkd).
The brokerage expects a rebound in demand for the Chinese steel pipe manufacturer this year.
“We view Chu Kong as a bottom-out, because the oil and gas prices are on a rising trend, which will promote the capex of oil and gas companies to increase, thus benefiting the increasing demand for oil and gas pipelines. Also, infrastructure and pipeline projects in China are gradually resuming construction, thus project orders of Chu Kong will continue to increase again.”
It also said that not only orders for oil delivery-use steel pipes were on the rise, but also construction-use steel pipes, especially from the country’s rapidly growing electric power infrastructure.
“As State Grid favors the use of tubular towers in China, it is expected that the demand for steel pipes will significantly increase over the coming years. Currently, the outstanding quantity from State Grid is 100,000 tonnes. Chu Kong is one of the few steel pipe makers which can meet the technology requirements of State Grid.”
See also: CHU KONG: Huge Order Potential, 5.7x P/E, Puts Pipemaker In Spotlight
Guodu raises COMTEC SOLAR to ‘BUY’ after strong earnings
Guodu Securities has raised its recommendation on Comtec Solar Systems Group Ltd (HK: 712) to ‘BUY’ on what it considers an underpriced valuation for the monocrystalline solar panel maker as well as robust recent financial performance.
“Comtec Solar’s adjusted earnings jumped to 260.9 mln yuan for 2010. The growth was driven by both an increase in wafer shipments and lower production costs. Last year’s capacity expansion plan was finished in 4Q10.
"Based on average utilization rate of 85%, we believe wafer shipments will further rise to 510MW for 2011F which paves the way for solid earnings growth,” Guodu said.
The brokerage added that another encouraging trend is the continued healthy demand for wafers by cell manufacturers.
“We expect the gross margin to be around 30% for 2011F. Comtec Solar is now trading at 5.0x P/E for 2011F which seems unreasonably low, especially after the incident in Japan which has raised concerns about the safety of nuclear energy.”
The new target price of 4.5 hkd can be translated into 6.5x PER and 2.0x PB for 2011, and with a 32% upside share price potential.
See also: COMTEC SOLAR: Brilliant 3Q On Robust Wafer Demand
