Morgan Stanley released a research report saying that Xinyi Glass (00868) has had a cumulative rebound of 63% since February, with a price-earnings ratio of about 10%. However, the fundamentals of the industry are still structurally declining, there is still no sign of a rebound, and its product prices and profits continue to be under pressure. The report lowered the target price of the stock by 17.9% from HK$9.5 to HK$7.8, and the rating was lowered from “synchronizing with the market” to “reducing holdings”.
According to the report, most investors believe that the “absorb existing real estate and optimize incremental housing” policy measures recently introduced in the mainland may push domestic housing sales to bottom out, but digesting the stock will require a large amount of capital, such as full implementation or the cost of 3 trillion to 4 trillion yuan. Assuming that the government allocates about 300 billion yuan to remove inventory, that is, only about 4% of second-hand housing sales. At the same time, considering that the formulation of the policy framework takes 6-12 months, it is expected that the policy will not be gradually implemented until the first half of 2025. Furthermore, with the sharp drop in new construction over the past two years, the number of completed houses will continue to decline. Overall demand is still sluggish, and the number of factory order days is still low, about 11 days, compared to 16.5 days at the end of April 2023.
According to the report, since the stock price of Xinyi Glass bottomed out on February 9 this year, due to factors such as relaxed real estate policies, low valuations, and relatively high dividend yields, its stock price has increased 63% cumulatively. The forward price-earnings ratio for December is now 10 times higher, higher than the average value of about 9 times since 2010. The report found that due to the pessimistic prospects for completion of the property, the current valuation is relatively expensive.