Goldman Sachs has adjusted its stance on China Merchants Shekou Industrial (001979:CH), downgrading the company's stock from Buy to Neutral.
The firm also increased the price target to RMB13.00 from the previous RMB12.30. This change reflects a more cautious outlook in comparison to other companies within the sector that Goldman Sachs rates as Buy, which on average show a potential upside of 30%.
The analyst noted that since China Merchants Shekou was added to the Buy list on November 17, 2021, the company's share price has seen a rise of 13%. This performance is contrasted with the CSI 300 Index, which fell by 7%, and other developers covered by Goldman Sachs, which collectively dropped by 40%.
The decision to downgrade is based on a sector-relative perspective, despite the company's shares outperforming its peers and the broader market.
The rationale provided by Goldman Sachs for the downgrade centers around the company's financial health. Although China Merchants Shekou is considered above average in its fundamental resilience among its peers, concerns have been raised regarding its growing net debt and a balance sheet that has not yet been deleveraged. Additionally, the company's intellectual property (IP) portfolio is perceived to be weaker compared to those of stronger peers in the sector, such as CRL and Longfor.
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