COVID-19 Fear Creates Rare Opportunity to Buy Shenzhou Shares

We maintain our fair value estimate at HKD 171 despite Shenzhou’s profit warning ahead of full-year 2021 results. The company blamed a net profit decline on several factors that are all COVID-19 related, except foreign exchange losses. We would treat volatility in the stock as opportunistic entry points, but we acknowledge further production suspensions could lead to downward revisions to our near-term estimates. That said, our base case assumes that suspensions in Southeast Asian plants do not repeat and margins will recover as operating leverage comes back. Shenzhou shares are trading at about a 28% discount to our fair value estimate.