On Monday, Morgan Stanley (NYSE:MS) issued a downgrade for Wanhua Chemical Group (600309:CH) stock, changing the stock's rating from Overweight to Equalweight. The firm also adjusted the price target for the company's shares to RMB74.00, a decrease from the previous RMB100.00.
The revision of the stock's rating and price target comes as Morgan Stanley recalibrates its net profit forecasts for Wanhua Chemical for the years 2024 to 2026. The firm's analysts have reduced their profit expectations by 28-34%, primarily due to lower-than-anticipated earnings from the company's non-MDI product lines.
In explaining the rationale behind the change, Morgan Stanley highlighted the need to update their valuation in line with new projections. The new price target of RMB74.00 is based on a 15 times multiple of the company's estimated 2025 earnings per share, which aligns with the mid-to-low cycle valuation multiples typically assigned to MDI products.
The revised price target also suggests a 2 times multiple of the company's projected 2025 book value per share, a figure that hovers near historical lows. Morgan Stanley's assessment indicates that the stock's current valuation is fair when considering its projected return on equity trajectory, which the firm views as weak.
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