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Investing.com - UBS downgraded China Shenhua (HK:1088) (OTC:CSUAY) from Neutral to Sell on Wednesday, while lowering its price target to HK$27.80 from HK$31.70.
The downgrade comes as UBS analyst Sharon Ding noted a shift in China Shenhua’s stock behavior, observing that before 2021, the company was "a purely fundamental name" with its share price largely determined by coal prices.
Since 2021, however, UBS has observed that Shenhua’s share price has shown increased reliance on yield factors, with strong correlation to the 10-year bond yield, supporting the firm’s valuation methodology based on target yield.
UBS maintains its yield valuation approach, setting a target yield of 4% for Shenhua’s A-shares, which includes a 2.5% yield premium plus UBS’s 10-year bond yield forecast of 1.5% for 2025 and 2026.
For Shenhua’s H-shares, UBS established a 5.2% target yield, representing a normalized discount of approximately 30% since January 2025, while cautioning that fundamental earnings downside risks "should not be overlooked" despite the company remaining "a yield player amid macro uncertainty."
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