Goldman Sachs has revised its stance on Zhejiang Weixing New Building Materials (002372: CH), downgrading the stock from Neutral to Sell and significantly lowering the price target to RMB11.00 from RMB17.00.
The downgrade comes amid concerns over the company's growth prospects within China's challenging property market.
The analyst from Goldman Sachs expressed a cautious outlook for Zhejiang Weixing, citing a downturn in China's property completion cycle that is not expected to recover, even with recent stimulus measures.
The firm's revised earnings per share (EPS) estimates for the company for the years 2024 to 2026 have been reduced by 20-32%, indicating anticipation of subdued growth in both revenue and profits in the coming years.
The reduced EPS estimates from Goldman Sachs now stand significantly below the Wind Consensus estimates, which previously projected a 10% increase in top-line growth with an improving net margin for Zhejiang Weixing. Goldman Sachs' current assessment suggests that the market consensus may be overly optimistic.
In terms of valuation, Zhejiang Weixing is trading at 19 times its projected 2025 earnings, which Goldman Sachs views as excessive given the limited earnings growth expected over the next few years. The new 12-month price target implies a 20% downside potential for the stock, compared to the average downside of 5% for the firm's coverage universe.
The report from Goldman Sachs also acknowledges the company's efforts to expand its market share in China's plastic pipe industry and its initiatives to increase cross-selling of related products, such as waterproof coatings and water purifiers.
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