HSBC has lowered its rating on shares of China Film Co Ltd (600977: CH) from Hold to Reduce, adjusting the price target to RMB6.20 from the previous RMB10.60.
The revision comes after observing a significant decline in the company's share price, which has fallen 19% since the start of May. This drop is notably steeper than the CSI 300 index, which decreased by 12% in the same timeframe.
According to the HSBC analyst, the downgrade was prompted by a weaker-than-expected film market that exerted considerable earnings pressure on China Film.
The company reported a year-over-year decrease of 26% in revenue and a 43% fall in net profit for the first half of 2024. In light of these results, the analyst has reduced the domestic box office estimates for China Film by 22% for both 2024 and 2025.
China Film's stock is currently trading at a price-to-earnings (PE) ratio of 36 times the 2024 earnings estimate, which is roughly 71% higher than the average of its peers. Despite the company's net profit compound annual growth rate (CAGR) for 2024-2026 being approximately 6% above the peer average, HSBC believes that the valuation is overstretched.
The analyst's statement highlighted the disparity between China Film's valuation and its market performance, suggesting that the current stock price does not accurately reflect the company's financial health or future earnings potential. The reduction in the price target to RMB6.20 reflects the revised expectations for the company's financial performance and market position.
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