On Thursday, Morgan Stanley revised its stance on Greentown Management Holdings Co Ltd (9979:HK), downgrading the stock from Overweight to Equalweight and significantly reducing the price target to HK$3.18 from the previous HK$7.58. This change by the financial firm reflects a more cautious view of the company's future earnings and dividend policy.
The downgrade was prompted by a combination of factors, including disappointing first half of 2024 results, growing difficulties in cash collections, and a challenging macroeconomic environment that has led to a slowdown in construction and new project starts. These issues have contributed to a less optimistic earnings forecast for the years 2024 through 2026.
Morgan Stanley has adjusted its earnings predictions for Greentown Management, anticipating earnings growth of only 2% over the 2024-2026 period. The firm has also lowered its earnings estimates for 2024, 2025, and 2026 by 18%, 28%, and 34%, respectively, translating to Rmb1,191 million, Rmb1,409 million, and Rmb1,653 million for each year.
The revised outlook is also influenced by concerns over the company's dividend policy, which is seen as uncertain due to weak cash flow. Moreover, recent changes in key management personnel have raised questions about the company's execution capabilities going forward.
Despite the downgrade, Morgan Stanley suggests that the current share price may have already factored in the subdued outlook. The firm indicates a potential to adopt a more positive view if Greentown Management can provide greater clarity on its earnings prospects and establish a clear dividend policy.
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