On Sunday, UBS downgraded Gongniu Group Co., Ltd. (603195: CH) from purchase to impartial, with the goal worth adjusted from RMB 83.00 to RMB 64.50. The corporate expects demand for Chinese language sockets and switches, a key part of Gongniu’s gross sales and earnings, to sluggish as residential gross flooring space (GFA) completions decline within the first half of 2024. This can be compensated by development in market share.
UBS analysts anticipate Gongniu’s earnings per share (EPS) compound annual development fee (CAGR) to sluggish to eight% from 2024 to 2026, down from 19% from 2020 to 2023. The anticipated slowdown in development is attributed to potential revenue dangers and customers’ tendency to go for lower-priced items. Regardless of these challenges, the inventory’s price-to-earnings (PEG) ratio stays at a premium, which UBS believes is warranted by Bull’s superior and enhancing return on fairness (ROE) and excessive payout ratio.
Since its preliminary public providing (IPO) in 2020, Gongniu’s ROE is anticipated to extend by 2.3 share factors to 27.6% in 2024, beating the peer common by about 20%. Moreover, the corporate’s payout ratio is anticipated to be roughly 70% in 2023, which is larger than the common dividend fee of 55% in the course of the 2020-2022 interval. Regardless that development is anticipated to sluggish, this monetary technique might assist the corporate’s valuation.
UBS additionally identified that Gongniu’s growth into new classes reminiscent of electrical automobile (EV) chargers could result in revenue development. This diversification is seen as a constructive growth as the corporate seeks to develop new markets and income streams. The corporate’s revised stance on Gongniu displays a cautious outlook on the corporate’s core enterprise, balanced by recognition of its monetary power and strategic initiatives.
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