Daiwa Research lowered its target price for Kunlun Energy (00135) to HK$7.8 from HK$9.6 but upgraded its rating to "buy" from "outperform".
The research house said Kunlun's share price has dropped by 18% year-to-date on potential pipeline spinoff at subpar valuation. Although the details on the pipeline spinoff are not yet confirmed, Daiwa believes investors will start to focus on its city-gas development.
Daiwa thinks the price correction is overdone as the current valuation reflects the downstream gas business at only <1x PBR, a bargain compared with major gas distributors with >3x PBR. Daiwa trimmed its 2019-21 EPS forecasts by 1-2% to reflect the higher city-gate price.
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