On Wednesday, HSBC revised its stance on China Tourism Group Duty Free Corp (1880:HK) shares, moving the rating from Buy to Hold. The firm also significantly reduced the price target for the company’s shares, setting it at HK$55.00, a decrease from the previous target of HK$120.30.
The downgrade was influenced by a combination of factors including a cut in earnings forecasts and an increase in the weighted average cost of capital (WACC). The latter adjustment was made to align with HSBC's most recent cost of equity (COE) and risk-free rate guidance, as well as a higher company beta applied in their discounted cash flow (DCF) analysis.
According to the analyst's statement, the revised A-share target price (TP) reflects a 32.4% reduction, now at RMB74.0. The methodology for determining the H-share price target has also been updated. Previously, the H-share TP was a direct conversion from the A-share TP, using the RMB-HKD exchange rate. The new approach incorporates an average discount of 30% applied to the A-share TP to arrive at the H-share TP.
This recalibration has resulted in a new H-share target price for China Tourism Group Duty Free Corp that is 54.3% lower than the previous target. The updated price target reflects the analyst's recalibrated expectations for the company's stock performance.
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