On Monday, Jefferies adjusted its stance on Zhuzhou CRRC Times Electric Co., Ltd (3898:HK) (OTC: ZHUZY), shifting the rating from Underperform to Hold and revising the price target downward to HK$42.00 from the previous HK$47.00. The revision comes after the company reported its third-quarter financial performance for 2024, which saw a revenue increase of 8% year-over-year and an approximately 11% rise in net profit. These figures contrast with the more robust growth experienced in the first half of 2024, where revenue and net profit grew by 20% and 31% year-over-year, respectively.
During the results meeting, the company indicated that China Railway Construction Corporation (CRC) plans to hold new high-speed train tenders in the fourth quarter of 2024 and initiate the replacement of aged internal combustion engine (ICE (NYSE:ICE)) locomotives. This transition is contingent upon the validation of CRRC's new energy locomotives and the procurement of funding from the central government.
The analyst from Jefferies noted the potential challenges for CRRC, particularly regarding the oversupply in the Insulated Gate Bipolar Transistor (IGBT) industry, which is anticipated to intensify into 2025. This factor contributes to the firm's decision to rate the stock as a Hold, suggesting a neutral outlook on the company's near-term performance in the face of industry headwinds.
The Hold rating reflects a conservative position on Zhuzhou CRRC Times Electric's prospects, balancing the company's recent performance with the anticipated market conditions. The revised price target of HK$42.00 represents Jefferies' adjusted expectation for the stock's value, taking into account the latest financial results and market forecasts.
InvestingPro Insights
Recent data from InvestingPro adds depth to Jefferies' analysis of Zhuzhou CRRC Times Electric Co., Ltd. Despite the challenges noted in the IGBT industry, the company maintains a strong financial position. InvestingPro data shows that Zhuzhou CRRC holds more cash than debt on its balance sheet, with liquid assets exceeding short-term obligations. This financial stability could provide a buffer against potential industry headwinds.
The company's P/E ratio of 10.62 and PEG ratio of 0.96 suggest that the stock may be undervalued relative to its earnings growth potential. This aligns with an InvestingPro Tip indicating that the stock is trading at a low P/E ratio relative to near-term earnings growth. Additionally, with a dividend yield of 5.32% and a history of maintaining dividend payments for 18 consecutive years, Zhuzhou CRRC may appeal to income-focused investors.
While Jefferies has adjusted its outlook, it's worth noting that Zhuzhou CRRC has shown resilience, with a YTD price total return of 32.53%. This performance, coupled with the company's profitability over the last twelve months, suggests that despite industry challenges, the company maintains a solid operational foundation.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Zhuzhou CRRC, providing a deeper understanding of the company's market position and potential.
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