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Citi has updated its assessment of Greentown Management Holdings Co Ltd (9979:HK), reducing the price target to HK$4.50 from the previous HK$6.10.
Despite the adjustment, the firm maintains a Buy rating on the stock. The revision follows the immediate resignation of Greentown's vice chairman, which the firm views as a potential source of short-term uncertainty for the company's strategy and performance targets.
The vice chairman's departure could lead to a reassessment of Greentown's ability to generate positive operating cash flow, which has been negative after dividends. Furthermore, there may be a reevaluation of the company's three-year plan, which previously aimed for a compound annual growth rate (CAGR) of 20% in revenue and 25% in profit, alongside a dividend payout of over 80% for the period of 2024 to 2026.
Citi's analysis suggests that while management changes can introduce uncertainty, the impact on large, well-established firms tends to be less severe over the mid to long term. This is attributed to the continuity of operations relying on established systems rather than on individual leadership.
In light of these considerations, Citi has adjusted its 2024 estimated target price-earnings (PE) ratio for Greentown to 8 times, down from the previous estimate of 10 times. The new price target reflects a 26% decrease from the prior target, factoring in the first half of 2024's operating cash flow and growth projections.
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