[ET Net News Agency, 3 September 2020] BOCOM Research lowered its target price for
China Huarong (02799) to HK$1.05 from HK$1.35 and downgraded its rating to "neutral" from
"buy" on continued provision pressure in 2H.
The research house said China Huarong's pre-tax profit/net profit/attributable net
profit fell 42%/72%/92% in 1H. The sharp earnings decline was mainly due to negative fair
value (FV) changes at the revenue end, while revenue and pre-tax profit drop mainly came
from the distressed asset management segment, which witnessed a large drop in
market-driven DES (debt-to-equity swap) revenue.
BOCOM believes gains on the FV changes of financial assets will rebound in 2H, as the
capital market turns better, but the company still needs to increase provision charges due
to the asset quality pressure under the economic headwinds brought by COVID-19. (KL)