Brokers disagree over valuation of YHI

Brokers disagree over valuation of YHI

IS tyre distributor and alloy wheel manufacturer YHI International overvalued?

The stock closed two cents up at 78 cents yesterday with 1.8 million shares traded. Since listing in early July, YHI shares have mostly traded between 55 and 58 cents, before a surge in late July took the counter to a high of 84 cents.

YHI announced recently that its Shanghai subsidiary has won new contracts from NHK Sales Co and YFC Co - both among Japan's largest automotive products wholesalers - to supply about 240,000 alloy wheels by November this year.

The value of the contracts is expected to be around $10.6 million. To fulfil the contracts, YHI Shanghai started a fourth production line last month, increasing total capacity to 60,000-80,000 alloy wheels per month.

Most analysts like the business. But the valuation separates opinions.

'Although we reckon that development is positive from both a news flow and fundamental standpoint, we continue to favour Stamford Tyres on valuation ground. Switch to Stamford,' said broking house Kim Eng-Ong Asia. YHI is trading at 11.4 times FY2003 earnings, much higher than Stamford Tyres, which is in a similar business and is trading at 8.6 times, it said.

But valuing YHI against automobile-related manufacturers in Malaysia and China led DBS Vickers to conclude that the stock is under-valued. It recently initiated coverage of YHI with a 'buy' rating, citing the company's earnings potential and China growth angle. Price target for YHI is $1, it said.


The Straits Times

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