UOB Kay Hian cut its target price for Brilliance Auto (01114) to HK$9 from HK$11.5, and maintained its "buy" rating.
The research house cuts 2015-17 EPS forecasts by 7%, 19% and 14% respectively to reflect slower sales, given the negative wealth effect from the A-share market crash ytd and the resulting further margin contraction. However, it maintains its view that earnings should have bottomed out in 2015 and are set to rebound in 2016-17 with the start of a new product cycle.
Looking ahead, UOB Kay Hian expects the improving sales and earnings momentum to trigger a re-rating. It believes the prospective slower 2016 earnings growth should have been priced in by the 20% share price correction over the past month. Now, the risk-reward dynamics are skewed towards the upside, given that valuation has come down to 7x 2016F PE, 2SD below its historical 1-year forward PE, and as earnings are set to recover from 2016.
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