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On Wednesday, Citi adjusted its outlook on shares of Shanxi Xinghuacun Fen Wine Factory Co (600809:CH), reducing the price target to RMB209.00 from the previous RMB259.00, yet reaffirmed its Buy rating on the company's stock.
The adjustment follows a revision of the firm's earnings forecasts, with a slight decrease in the expected net profit for the year 2024 due to anticipated higher advertising and promotion (A&P) spending in the second half of that year to bolster consumer demand.
The financial institution also reduced its earnings estimates for 2025 and 2026 by 4% each year, correlating with a 2% decrease in sales forecasts for the same periods. This recalibration has led to a new price target based on a 20 times multiple of the company's projected 2024 earnings per share (PE), which represents approximately a 40% discount to the target PE ratio of industry peer Moutai.
The rationale behind the new price target includes a cautious stance on Fen Wine's earnings visibility, which has been clouded by macroeconomic uncertainties in China. Despite the reduced target, Citi continues to recommend a Buy rating, suggesting confidence in the company's long-term value proposition relative to its current market price.
Citi's analysis indicates that Fen Wine's target PE ratio should remain at a discount to Moutai's, reflecting the relative uncertainty in earnings for Fen Wine. The firm's stance on the stock remains positive, emphasizing the investment's potential despite the revised financial expectations and broader economic challenges.
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