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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Asian small caps have fallen 15% and China small caps have
plummeted 27% since mid April 2011. Some investors are
bargain-hunting in the sea of fallen mid/ small caps at single-digit
P/Es or at sub-book value to help add beta to their portfolios.
● About 39% of the China small caps covered by CS are now
trading below book value. They are at 0.9 std dev below the tenyear
average P/E, and at 17% P/E discount to the China large
caps, close to trough valuations of the 2008 financial crisis.
● We believe the sell-side analysts’ forecast adjustments are now
behind the curve and, as a result, so are consensus estimates.
We believe the next round of forecast revisions will be in early-tomid
October when the seasonal orders are largely completed.
● In this issue of D&G, we include 60 small-cap stories from the
region, with two key stories — Lee & Man and Elan
Microelectronics.
Cover story: are we really at distressed valuations?
Stock valuations are clearly cheaper than five months ago. Some
investors are annoyed at not having unloaded more mid- and smallcap
stocks when Asian small caps have fallen 15% and China small
caps have plummeted 27% since mid April 2011. Nevertheless,
investors who expect a sustained market rebound are bargain-hunting
in the sea of fallen mid/ small caps at single-digit P/Es or at sub-book
value to help add beta to their portfolios.
China small caps close to 2008 crisis trough valuations
How low are the valuations of small caps? Asian small caps are at an
estimated 2011 P/E of 11.7x, with China small caps trading at the
lowest P/E of 8.3x in the region. About 39% of the China small caps
covered by Credit Suisse are now trading below book value. They are
at 0.9 standard deviation below the ten-year average forward P/E
(Figure 1). Their forward P/E discount to the China large caps is now
at 17% (Figure 2). Both metrics are approaching the trough valuations
of the 2008 financial crisis, when they were at 1.2 standard deviations
below the ten-year average P/E and 20% P/E discount to the large
caps. Why aren't we hearing calls of ‘screaming buy’ now that we are
at crisis valuations?
Sell-side analysts behind the curve to estimate the ‘E’
It should be only when the ‘E’ is accurate. As an analyst, D&G feels
that the sell-side analysts’ forecast adjustments are now behind the
curve and, as a result, so are consensus estimates. It is because most
corporates have yet to conclude how soft the peak season orders are,
and consumer demand for the year-end season remains a question
mark. That slows the forecast reduction process, although share
prices are already falling sharply to factor in the potential cuts. D&G
believes the next round of forecast revisions will be in early-to-mid
October when the seasonal orders are largely complete.
Davids of the week
In this issue of D&G weekly, we include 60 small-cap stories in the
region. The two key small-cap stories are:
Hong Kong: We reduce forecasts of Lee & Man Paper (2314.HK,
HK$3.24, UNDERPERFORM [V], TP HK$2.60) as the heightened
costs, softened demand and inflating industry capacity are exerting
margin pressure. The stock trades at 10.9x FY3/12E P/E with 20%
potential downside. (Kenny Lau, CFA, kenny.lau@credit-suisse.com).
Taiwan: We reduce forecasts of Elan Microelectronics (2458.TW,
NT$31.55, UNDERPERFORM, TP NT$22.00) on its muted outlook
and sequential decline in 3Q11 revenue. The stock trades at 29x
2011E P/E with 30% potential downside.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Asian small caps have fallen 15% and China small caps have
plummeted 27% since mid April 2011. Some investors are
bargain-hunting in the sea of fallen mid/ small caps at single-digit
P/Es or at sub-book value to help add beta to their portfolios.
● About 39% of the China small caps covered by CS are now
trading below book value. They are at 0.9 std dev below the tenyear
average P/E, and at 17% P/E discount to the China large
caps, close to trough valuations of the 2008 financial crisis.
● We believe the sell-side analysts’ forecast adjustments are now
behind the curve and, as a result, so are consensus estimates.
We believe the next round of forecast revisions will be in early-tomid
October when the seasonal orders are largely completed.
● In this issue of D&G, we include 60 small-cap stories from the
region, with two key stories — Lee & Man and Elan
Microelectronics.
Cover story: are we really at distressed valuations?
Stock valuations are clearly cheaper than five months ago. Some
investors are annoyed at not having unloaded more mid- and smallcap
stocks when Asian small caps have fallen 15% and China small
caps have plummeted 27% since mid April 2011. Nevertheless,
investors who expect a sustained market rebound are bargain-hunting
in the sea of fallen mid/ small caps at single-digit P/Es or at sub-book
value to help add beta to their portfolios.
China small caps close to 2008 crisis trough valuations
How low are the valuations of small caps? Asian small caps are at an
estimated 2011 P/E of 11.7x, with China small caps trading at the
lowest P/E of 8.3x in the region. About 39% of the China small caps
covered by Credit Suisse are now trading below book value. They are
at 0.9 standard deviation below the ten-year average forward P/E
(Figure 1). Their forward P/E discount to the China large caps is now
at 17% (Figure 2). Both metrics are approaching the trough valuations
of the 2008 financial crisis, when they were at 1.2 standard deviations
below the ten-year average P/E and 20% P/E discount to the large
caps. Why aren't we hearing calls of ‘screaming buy’ now that we are
at crisis valuations?
Sell-side analysts behind the curve to estimate the ‘E’
It should be only when the ‘E’ is accurate. As an analyst, D&G feels
that the sell-side analysts’ forecast adjustments are now behind the
curve and, as a result, so are consensus estimates. It is because most
corporates have yet to conclude how soft the peak season orders are,
and consumer demand for the year-end season remains a question
mark. That slows the forecast reduction process, although share
prices are already falling sharply to factor in the potential cuts. D&G
believes the next round of forecast revisions will be in early-to-mid
October when the seasonal orders are largely complete.
Davids of the week
In this issue of D&G weekly, we include 60 small-cap stories in the
region. The two key small-cap stories are:
Hong Kong: We reduce forecasts of Lee & Man Paper (2314.HK,
HK$3.24, UNDERPERFORM [V], TP HK$2.60) as the heightened
costs, softened demand and inflating industry capacity are exerting
margin pressure. The stock trades at 10.9x FY3/12E P/E with 20%
potential downside. (Kenny Lau, CFA, kenny.lau@credit-suisse.com).
Taiwan: We reduce forecasts of Elan Microelectronics (2458.TW,
NT$31.55, UNDERPERFORM, TP NT$22.00) on its muted outlook
and sequential decline in 3Q11 revenue. The stock trades at 29x
2011E P/E with 30% potential downside.
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