Pork player WH Group saw its shares fall amid concerns over a potential U.S.-China trade war, but the concern is overdone, offering a good buying opportunity, Credit Suisse said in a note on Monday.
“Pork price in the U.S. has been weak since the beginning of the China-U.S. trade dispute due to tariff concerns and more capacity coming online at the same time. This could hurt WH Group’s U.S. upstream business profit,” Credit Suisse said. “But a faster-than-expected pork price drop in China year-to-date will benefit WH’s margins in China starting from the second quarter, which should at least partly compensate the profit loss in the U.S.”
It noted 2017 results were broadly in line with forecasts, amid better performance in the U.S., which compensated from some one-off costs which hurt the China business. It said it expected first-quarter results could be weak, but it tipped a rebound in the second quarter.
The bank raised its 2018-19 earnings per share (EPS) forecasts by 8.6-8.8 percent, pointing to a lower tax rate.
It kept an Outperform call on the stock and raised its target price to HK$11.90 from HK$10.90.
It said the current valuation of 12 times 2018 price-to-earnings ratio was a good entry point.
The stock ended Tuesday up 3.11 percent at HK$8.62.