--Analyst Actions: Credit Suisse Keeps Outperform, $28 TP on Sino-Forest Corp Despite Weaker April PMI
Credit Suisse has kept an Outperform rating and $28 target price on Sino-Forest Corporation (TRE.TO) based on China's April PMI data.
Weaker headline: "China's headline PMI declined from March's 53.4 to 52.9 in April. Our China Economics team believes "the economy is decelerating. Financial stress is starting to emerge among non-SOE companies". For our purposes, the wood & furniture showed some positive signs of improvement. Highlights included: (a) the sector specific PMI increased from March's 47.8 to 50.3; (b) input prices trended upward from 66.2 to 73.1; and, (c) both new orders and backlog of new orders increased from 46.9 and 44.6 to 47.6 and 52.5, respectively. Within the wood & furniture sector, 7 of 11 readings were below the below the 50 threshold which improved versus 9 categories in March."
Some pertinent PMI points: "Our China Economics team stated "[w]e are revising down our forecasts for China's GDP growth to 8.8% (from 9.1%) for 2011, and to 8.9% (from 9%) for 2012. We do not envision a hard landing at this moment... We are also marginally revising down our CPI inflation forecast to 5.4% from 5.6% for 2011."
Investment thesis: "In our view, Sino-Forest remains rather unique among timberland investment opportunities. TRE's Chinese exposure is the most significant differentiator against other timberland plays. Over the longer-term, TRE should capitalize from China's wood fiber supply-demand imbalance."
Valuation: "Our target price of C$28.00 corresponds to our C$28 NAV which is obtained from our longer-term financial model. That model relies upon the forecast of multiple harvests and planting cycles until 2049 and applies a DCF valuation. We reiterate our Outperform rating."
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