Sino-Forest Corp Just Shy of Year High as Credit Suisse reiterates Outperform
Credit Suisse reiterated its Outperform rating and kept a $28 target price on Sino-Forest Corporation (TRE.TO), buoyed by its exposure to the Chinese economy.
TRE has hit a day high $22.68, just shy of an existing year high $22.74.
Incremental increase: "China's headline PMI modestly rose from October's 54.7 to 55.2 in November. Our China Economics team stated "[w]e think the data suggest that China's growth outlook has continued to improve." For our purposes, the wood & furniture sector printed rather surprisingly strong data. Highlights included: (a) the PMI increased from 53.6 to 58.2 in November for the highest reading since December 2009; (b) input prices surged from 80.0 to 86.3 for the second highest reading ever (June 2008 was slightly higher); and, (c) new orders rose, but the backlog of new orders declined from 54.4 and 62.8 to 59.0 and 57.5, respectively. Eight of the 11 areas in the wood & furniture sector exceeded 50 with only stocks of finished goods, suppliers' delivery time and imports falling below that threshold."
Pertinent PMI points: Our China Economics team believes "[t]he PMI trend is consistent with a mid- nine percentage growth rate for 4Q10, stronger than our current projection, but we are mindful about the inventory build-up in the economy. The key concern remains with inflation, in our view. We project CPI inflation to break 6% yoy around mid-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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