Delta Outbreak Weighs on Shenzhou's Share Price, but We Think This Is a Good Buying Opportunity

Our fair value estimate remains unchanged despite 16 delta variants reported at the Third Department workshop of Shenzhou’s Ningbo factory. Based on the assumption of an average seven-day quarantine period for all Ningbo workers, we estimate earnings impact is capped at 3% for the year. Even if the quarantine period is to lengthen, we still expect negative financial impacts to be limited to first half of 2022. Given Shenzhou’s rock-solid balance sheet, the firm can comfortably weather an extended shutdown. After an 8% sell-off, we now view Shenzhou shares as undervalued, as they trade at a 19% discount to our fair value estimate of HKD 171.