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On Friday, BofA Securities adjusted its stance on Guangshen Railway Co. Ltd. (601333:CH) (NYSE: GSH), downgrading the stock from Buy to Underperform. The firm also revised its price target to RMB2.50, a decrease from the previous RMB3.60. The downgrade was based on a number of factors that could potentially impact the company’s performance.
BofA Securities expressed concerns over the declining significance of Guangshen’s core assets in the Guangdong region. This is largely attributed to the introduction of the Guangzhou-Shenzhen-Hong Kong Express Rail Link, which poses a competitive threat. Additionally, around ten other infrastructure projects in the area may further divert traffic away from Guangshen Railway.
The firm also highlighted that while traffic growth is evident, Guangshen’s revenue growth is not keeping pace. This discrepancy suggests that the company is not capitalizing on the available market growth opportunities. Moreover, analysts at BofA Securities foresee a continued loss of passenger volumes for Guangshen Railway.
Another point of concern for BofA Securities is the higher capital expenditure anticipated for upgrades at Guangzhou Station and the High-Speed Rail (HSR) enhancements at Guangzhou East. These investments are expected to exert medium-term cost pressures on the company, further justifying the downgrade to Underperform.
In summary, BofA Securities has downgraded Guangshen Railway to Underperform from Buy, citing the risk of traffic diversion due to rising competition and the potential financial strain from necessary capital expenditures for infrastructure improvements. The new price target reflects these challenges that may affect the company’s future growth and profitability.
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