Credit Suisse has an Outperform rating and $28 target price on Sino-Forest Corporation (TRE.TO) ahead of its Q4 results on March 15.
Earnings preview: "Sino-Forest is scheduled to report Q4 2010 earnings on March 15th before 6am (eastern)/6pm HKT. We are forecasting Q4 EPS of US$0.60 which is similar to the Street's estimate and within the US$0.50-US$0.71 range. As a result of seasonal factors, the second half of the year typically accounts for about 70% of annual earnings. Yet, market conditions and harvest timing may substantially affect quarterly earnings. Given the long-cycle nature of most of our coverage universe and specific industry factors for timberlands, we do not place undue emphasis on quarterly results."
Selected issues: "From a financial perspective, we focus on three areas: (a) the sales price per hectare; (b) gross profit margin for the quarter; and, (c) the relationship between new hectares under management, depletion of timber holdings and additions to timber holdings. In terms of strategic issues, we consider the following to be pertinent: (a) further details on the State Owned Entity transaction; (b) a perspective on the recent wood & furniture PMI data; (c) the pace of growth of land under management and the pace the purchased portfolio is being harvested; (d) an outlook for land deals; and, (e) update and outlook on replanting rates."
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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