霸王集团 汇丰研究报告 英文(4)

霸王集团 汇丰研究报告 英文

Valuation

Given the high volatility of 2011e earnings and the strength of a potential earnings recovery in 2011, we believe there is a high level of uncertainty to 2011 earnings for Bawang. We have not changed our existing 2011 forecast, which assumes that the monthly run rate for Bawang will revert to 2009 levels.

However, to reflect the uncertainty regarding Bawang’s outlook, we use lower PE multiples to value the stock. We now value Bawang at its historical-low multiple of 15.5x forward earnings (formerly 20.7x), which is the average PE between July 2009 and November 2009 (see chart below). This translates into a new target price of HKD3.1. Note that, if we used the lowest-ever PE the Bawang shares have traded on, which is 12.7x in September 2009, the target price would fall to HKD2.5.

HSBC considers the average cost of equity to be 10% for China. A volatile China stock with a potential return of 10ppt on either side of this hurdle rate, i.e., 0-20%, merits a Neutral rating. As the potential return on Bawang shares (including dividend yield) is within this range, we maintain our Neutral (V).

Risks and catalysts

Risks to our rating and estimates would include a slower-than-expected monthly sales recovery, especially in lower-tier cities, and intensified competition. Upside investment risks include sell-through of herbal tea and new product launches.

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