On Friday, JPMorgan shifted its stance on Xinyi Solar Holdings Ltd. (968:HK) (OTC: XNYIF), upgrading the company's stock from Neutral to Overweight, though the firm slightly reduced the price target to HK$4.00 from the previous HK$4.10. The adjustment in the price target reflects a modest decrease of approximately 2%.
The upgrade by JPMorgan was driven by an analysis of the solar industry's demand dynamics and the company's first half of 2024 results. The firm anticipates a reduction in effective solar glass production capacity by 7-11% for the fiscal years 2024-2025.
Additionally, they project a decrease in solar glass gross profit margin by 4 percentage points in the fiscal year 2024. Consequently, JPMorgan has revised its earnings forecast for Xinyi Solar, expecting a reduction of 5-26% for the fiscal years 2024-2025.
Despite these adjustments, JPMorgan has decided to maintain the target multiple for Xinyi Solar's solar glass business at 8.0 times, which is consistent with the valuation multiple of Flat Glass. The continuation of this valuation metric has contributed to the firm's decision to upgrade the stock.
The price target revision also accounts for the rollover of the price target end date from December 2024 to June 2025. This timeline extension is part of the rationale behind the slight decrease in the price target. JPMorgan's upgrade to Overweight is largely credited to what they consider an undemanding valuation of Xinyi Solar's stock. The analyst's commentary provides insight into the firm's decision-making process and expectations for the company's financial performance in the coming years.
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