Xinyi Energy Looks Attractive After Recent Correction; Acquisition Target Lowered

We cut Xinyi Energy’s fair value estimate to HKD 3.12 from HKD 3.28, after incorporating higher interest rates, the depreciation of the Chinese yuan and a slower near-term acquisition pace in our valuation model. As Xinyi Energy’s share price has corrected over the past few months, we think the shares are undervalued now with an attractive dividend yield of more than 7% annually. However, we think near-term share price performance could be capped by the firm’s increasing gearing level and the rising interest rate environment.