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On Wednesday, Ganfeng Lithium Co., Ltd (HK:1772:HK) (OTC: GNENF) saw its stock rating downgraded by Daiwa Securities from "Outperform" to "Underperform," accompanied by a decrease in the price target from HK$29.00 to HK$23.00.
The downgrade was primarily due to a shift in valuation methodology, with Daiwa Securities now applying a price-to-book ratio (PBR) instead of a price-to-earnings ratio (PER), anticipating that the company will incur losses in the years 2024-2025.
Daiwa Securities has applied a 40% valuation discount to Ganfeng Lithium's stock compared with its A-shares. This discount reflects the less liquid market for H-shares, which has led to a new 12-month forward PBR target of 1.0x for Ganfeng Lithium's H-shares, as opposed to 1.6x for its A-shares.
The analyst from Daiwa Securities elaborated on the reasons behind the downgrade, noting that the change to a PBR valuation is due to the expectation that Ganfeng Lithium will not be profitable in the next two years. This projection is a significant factor in the reassessment of the company's stock value.
Despite the downgrade, Daiwa Securities acknowledged a key upside risk that could potentially benefit Ganfeng Lithium. The firm pointed out that a higher-than-expected average selling price (ASP) of lithium in China could positively impact the company's financial performance.
The revised price target of HK$23.00 reflects the new valuation approach and market expectations for Ganfeng Lithium. Shareholders and potential investors are now equipped with Daiwa Securities' latest perspective on the stock's future performance.
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