Citi Research raised its target price for Brilliance China (01114) to HK$17 from HK$12, and upgraded the stock to "buy" from "sell".
The research house said its previous concerns on back-loaded expenses, rising competition and volume growth slowdown has been reflected in the previous six-month share-price decline, but euro depreciation can help reduce component costs and enhance product price competitiveness, and the secular consumption upgrade story remains solid, supporting long-term growth.
Citi believes the long-time consumption upgrade story remains solid for these entry-level premium cars, with Chinese incomes rising in RMB, and rising even faster if measured in euro.
Though 2015 will be relatively weak in the model cycle, the 2015-17 pipeline with 2-series, possibly 1-series, X3 SUV, new X1 and new 5-series still points to long-term
growth potential for BMW Brilliance JV, justifying its valuation premium (11.3x target
2015E P/E) versus industry peers (8x), the research house noted.
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