by DBS Vickers Securities (March 17)
Fears of rising oil prices and a slowdown in US demand and possibly rotational interest in new IPO, Li Heng (also a high-end nylon producer), have sent China Sky's share prices down 30%.
Despite a healthy operating environment and on-schedule expansion plans, China Sky is now trading at 5.1x FY2008F diluted PER, below its historical PER band of 5.4x to 18.4x.
Owing to the unfavourable change in investors' risk appetite and concerns about the competitive landscape beyond 2009 spurred by Li Heng's aggressive expansion plan, we now derive our valuation based on FY2008F earnings instead of blended FY2008/08 earnings.
We also reduced our PER multiple to 9x (which is below its average historical PER of 10.8x) to factor in the higher risk premium.
Consequently, our target price is reduced to $1.70.
- Research Report by DBS Vickers Securities (17 March)
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