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On Monday, Citi analysts revised their stance on Beijing Enterprises Holdings (392:HK), downgrading the stock from Buy to Neutral despite increasing the price target from HK$29.00 to HK$35.00. The adjustment follows a significant appreciation in the company’s share price, which surged by 21% over the past three months and 34% over the previous six months. The stock’s rally is attributed to enthusiasm from People’s Republic of China (PRC) investors for yield-focused investments in a low-interest-rate environment within China.
The analysts noted that while Beijing Enterprises’ yield is projected to be 4.9% for the year 2025, it is no longer considered exceptional when compared to its peers. The company’s recurrent profit is expected to grow by 5% year-over-year in 2025, with increased contributions from its gas operations and brewery business. However, the firm’s net profit forecasts for 2025 and 2026 have been reduced by 6% due to anticipated lower performance in the gas business segment.
Despite the downgrade, Citi has increased its sum-of-the-parts (SOTP) target price for Beijing Enterprises by 21% to HK$35 per share. This revision is mainly attributed to a lower weighted average cost of capital (WACC). The report also compares Beijing Enterprises’ yield with that of other PRC gas companies, highlighting that China Resources Gas and Towngas Smart Energy offer higher yields of 5.3% and 5.4%, respectively, which surpasses that of Beijing Enterprises.
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