Citi recently released a research report downgrading China National Heavy Duty Truck (CNHTC) from "buy" to "sell," with the target price reduced from 6.2 yuan to 5.5 yuan. This move suggests that the stock's potential has been largely priced in, and investors may be advised to reconsider their positions. The bank also revised its earnings forecasts for 2008, 2009, and 2010, cutting them by 25%, 43%, and 45% respectively. These revisions were based on the company’s performance in the first 11 months of this year and the projected growth in heavy truck sales for 2009.
Citigroup estimates that Sinotruk’s 2009 earnings will remain flat, as heavy truck sales are expected to decline by 12% year-on-year. However, this decline may be partially offset by stronger transmission sales. Despite the challenges, the bank still believes that Sinotruk’s heavy truck sales growth will outperform the broader market. Additionally, Citi highlighted two key developments: the acquisition of Shanxi Datong Gear by Sinotruk Group, and the launch of the new HOWO-A7 heavy-duty truck model in December. These initiatives are seen as positive long-term catalysts for the company.
In another report, Citi downgraded Yulong Paper (02689) to “sell†with a target price of RMB 1.6. The bank cited ongoing pressure on paper product pricing due to weak domestic and export demand. Yulong’s half-year profits fell by over 45%, reflecting the challenging operating environment. Meanwhile, Seri Paper recently announced the early repurchase of $16.25 million in senior notes, as well as the early repayment of two loans totaling $100 million and HK$720 million. The company also renegotiated terms with creditors, which Citi viewed positively, as it helps reduce short-term debt pressure and lowers the risk of early loan defaults during the credit crunch.
However, Citi remains cautious about Zhiying’s financial health, particularly its gearing ratio and earnings outlook. The bank estimates that Zhiying’s net debt for FY2009 could rise to RMB 14.5 billion, raising concerns about its ability to manage debt under current market conditions. Overall, while some companies show signs of strategic progress, the broader sector faces headwinds, prompting Citi to adopt a more cautious stance across several key players.
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