Analyst Research Report Snapshot

Title:

Brilliance China (1114 HK, HK$13.8, N): Downgrade to Neutral

Price:

$46.00

Provider:

KGI Greater China

Date:

08 Nov 2013

Pages:

5

Type:

AcrobatPDF

Companies referenced:

1114.HK

Available for Immediate Download
Summary:

R&D expense booking delayed to 4Q13 3Q13 Brilliance BMW profit more than 40% above our estimate as most R&D expense booking delayed to 4Q13 2013F diluted EPS raised 2% to Rmb0.64 on stronger than expected profit in first 9 months; 2014F diluted EPS cut 1% to Rmb0.79 as previous unit sales estimate was too aggressive and product mix change turns adverse in 2014 Investor concerns will emerge about margin pressure on R&D expense booking in 4Q13 and adverse product mix change in 2014; target price raised to HK$14.10 on 14x 2014F PE; with 2% upside, downgrade to Neutral Brilliance BMW is on a fast growth track fueled by China's strong demand for luxury cars and the company's aggressive capacity increase plan. The stock has gained nearly 30% since we upgraded it to Outperform in August. But we now think most positives are already priced in. Looking ahead, investor concerns will emerge about margin pressure on R&D expense booking in 4Q13 and adverse product mix change in 2014. We have rolled over to 2014 and raise our 12-month target price from HK$12.80 to HK$14.10, based on 14x 2014F PE (previously 16x 2013F PE). Our target PE multiple 14x is the average of Brilliance China's 3-year historic forward-looking PE, which we think is reasonable. Our new target price implies 2% upside based on yesterday's closing price of HK$13.80. Downgrade to Neutral.

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