On Friday, UBS downgraded Yunnan Energy New Material Co Ltd (002812:CH) from Buy to Neutral, despite increasing the price target to RMB37.00 from RMB35.00. The adjustment comes after a significant approximately 40% rally in the company's share price since September.
Yunnan Energy recently disclosed its third-quarter financial results for 2024, reporting a net profit of RMB152 million, which marks a 15% increase from the previous quarter but an 80% decrease from the same period last year. The company's net profit for the first nine months of 2024 amounted to 65% of consensus estimates, which is below the past three-year average of 77%, and did not meet market expectations.
Following the financial results, UBS revised its earnings per share (EPS) forecasts for 2024 through 2026, reducing them by 27% to 56%. The revisions were made to account for anticipated lower average selling prices (ASP) and gross profit per square meter (GP/sqm) for the company's separator products.
Yunnan Energy is currently trading at 1.2 times its projected 2025 price-to-book value (P/BV), which is below the sector average of 1.8 times. UBS believes this valuation is justified, given the company's projected return on equity (ROE) for 2025 to 2026 is estimated at 6%, compared to the sector average of 10%.
The firm's assessment reflects a cautious outlook on the company's financial performance relative to its industry peers.
InvestingPro Insights
Adding to UBS's analysis, recent data from InvestingPro provides further context on Yunnan Energy New Material Co Ltd's financial position. The company's market capitalization stands at $4.67 billion, with a P/E ratio of 44.3, indicating that investors are paying a premium for the company's earnings. This aligns with an InvestingPro Tip that the company is "Trading at a high earnings multiple."
Despite the recent downgrade, Yunnan Energy has shown some positive financial indicators. The company's revenue for the last twelve months as of Q3 2024 was $1.48 billion, with a gross profit of $315.11 million. However, the revenue growth has been negative, with a -16.05% decline over the same period, supporting UBS's cautious stance.
An InvestingPro Tip notes that Yunnan Energy is a "Prominent player in the Chemicals industry," which may explain the high valuation despite recent financial challenges. However, another tip warns that the company is "Quickly burning through cash," which could be a concern for investors considering the reduced earnings forecasts.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips on Yunnan Energy New Material Co Ltd, providing a deeper understanding of the company's financial health and market position.
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