Credit Suisse on Friday issued a research note showing it has a
Neutral rating and $6 target price on Sino-Forest Corporation
(TRE.TO) following the release of China PMI data.
Weaker headline: "China's headline PMI declined from May's 52.0
to 50.9 in June. For our purposes, the wood & furniture was
rather mixed. Highlights included: (a) the sector specific PMI rose
from May's 49.7 to 51.5 in June; (b) input prices trended upward
from 69.8 to 73.2 in June; and, (c) new orders increased from 46.2
to 48.2, but the backlog of new orders decreased from 58.2 to 54.2.
Within the wood & furniture sector, 3 of 11 readings were below
the 50 threshold which improved versus 6 categories in May."
Some pertinent PMI points: "Our China Economics team viewed the
June PMI as "another set of disappointing numbers across-the board"
and "fourth consecutive month of declines...and the worst reading
since February 2009."
Valuation: "We believe TRE's shares face a long road to
redemption, but the process is fluid and subject to change as new
information becomes known. At the current levels, we believe shares
clearly highlight the market's loss of confidence as implied
metrics on many measures are well below historic levels. Ongoing
efforts to improve disclosures, among other things, may help slowly
regain market confidence. Our financial model remains unchanged
since the start of recent share price volatility, but, we apply an
80% discount to our C$28 NAV to obtain the C$6.00 target. That
target is also supported by a conservative liquidation scenario. We
retain our Neutral rating."
On June 8, 2011, a putative class of Sino-Forest shareholders
commenced legal proceedings in the Ontario Superior Court of
Justice against, among others, Sino-Forest and its underwriters,
including Credit Suisse Securities (Canada), a subsidiary of Credit