Sinofert Holdings Lt : Take benefit from double bottom

07/10/2012 | 11:32am Opinion : Bullish above 1.1 HKD Target price : 1.7 HKD Stop loss: 1.1 HKD

STOCK EXCHANGE OF HONG KONG Chemicals - Agricultural

Sinofert Holdings is the largest comprehensive fertilizer enterprise in China, with a vertically integrated business model which encompasses production, procurement, distribution of various fertilizer products and other related services.

Sinofert Holdings has a low valuation, suggesting a continuation of prices above the significant technical levels being tested.

According to Thomson Reuters consensus from the latest estimates of analysts, the share is trading, on the basis of the current price, 5.94 and 7.76 times the expected results for the current year and the following year. In terms of enterprise value, that is to say the capitalization of the group plus net debt, for a price of 1.35 HKD, the company is worth 0.37 times its sales. Except in case of strong downward revisions of earnings estimates, these low valuation levels theoretically limit the potential fallback.

Although the trend appears bearish in the long term, the potential drop is limited by the significant levels located at HKD 1.1. The extended test of this support area in the recent weeks reinforces its strength and could facilitate a technical rebound. Furthermore, a double bottom is forming in daily data.

Considering these elements, the timing seems appropriate to buy the share. We will benefit from the support to anticipate a return at HKD 1.7. This position will be reduced near the first goal but partially preserved because in case of crossing of this resistance, it would help to set a more ambitious target.

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