One of the things we hear is that we should buy at prices we would not sell at and to sell at prices we would not buy at. Not too long ago, on 5 June 12, I said that it is not a good time to sell China Minzhong's shares and that it would be more sensible to think of adding to any long positions. See the blog post: here.
In a research dated 11 June 12, Kim Eng says that:
We would not recommend investors to cut loss at this stage as stock valuations are still too cheap to do so. ... The next catalyst for the stock would be the full-year results ended in June 2012. We expect to see revenue recovery due to the late-winter season and the fact that Minzhong should also be able to collect the bulk of its receivables in 4QFY6/12. The full-year numbers should reveal the impact of the European problem on both demand and asset quality.
How low can the share price go? We conduct a scenario analysis to determine how low the share price can fall to ... Although we believe that the share price has already factored in the potential slowdown in demand in Europe and our target PER of 4.7x is 25% below the historical average, we have:
1. cut our sales volume further by an aggressive 40%,
2. written down CNY200m in receivables for FY6/13, and
3. revalued the share price at 3.7x PER, which is 1 standard deviation below the historical average PER.
The upshot is a target price of SGD0.51, which is only a little below the current price of SGD0.53.
Minzhong’s worst case NAV per share (we exclude land use rights, land improvement costs as well as 20% of trade receivables) also suggests the current share price provides a very safe floor.