Citibank: Target price of HK$500 for the initial “buy” rating of SGD (06656)

The Zhitong Finance App learned that Citi released a research report saying that for the first time, it covered Sega Xinneng (06656) and gave it a “buy” rating. The target price was HK$500 based on the cash flow discount rate.

According to the bank, SGL is one of the fastest growing companies in the residential energy storage system (ESS) sector. Citi is optimistic that the company's owners are only 10.1 times forecasting a price-earnings ratio in 2027 due to (i) its integrated design and high-end product strategy, driving rapid market share growth; (ii) bringing new growth engines to industrial, commercial and utility-scale businesses, making good use of the transferable product advantages and strong management team from Huawei; and (iii) at a 42% compound annual profit growth rate between 2025 and 28, the current valuation is equivalent to forecasting a price-earnings ratio of only 10.1 times the 2027 price-earnings ratio, which is 24% lower than the average price-earnings ratio of 13.2 times that of the same industry.

The bank attributed the fall in its stock price after listing to market concerns about shrinking profit margins, but believes this impact could be offset by increased sales. Its net profit for the first half of the year increased 201% year over year to RMB 2,428 billion. The bank model assumes a normalization of profit margins. Potential catalysts include inclusion in Hong Kong Stock Connect in September and the end of the stock ban in October to improve liquidity.