Sino Forest

Credit Suisse on Friday issued a research note showing it has a Neutral rating and $6 target price on Sino-Forest Corporation (TRE.TO) following the release of China PMI data.

Weaker headline: "China's headline PMI declined from May's 52.0 to 50.9 in June. For our purposes, the wood & furniture was rather mixed. Highlights included: (a) the sector specific PMI rose from May's 49.7 to 51.5 in June; (b) input prices trended upward from 69.8 to 73.2 in June; and, (c) new orders increased from 46.2 to 48.2, but the backlog of new orders decreased from 58.2 to 54.2. Within the wood & furniture sector, 3 of 11 readings were below the 50 threshold which improved versus 6 categories in May."

Some pertinent PMI points: "Our China Economics team viewed the June PMI as "another set of disappointing numbers across-the board" and "fourth consecutive month of declines...and the worst reading since February 2009."

Valuation: "We believe TRE's shares face a long road to redemption, but the process is fluid and subject to change as new information becomes known. At the current levels, we believe shares clearly highlight the market's loss of confidence as implied metrics on many measures are well below historic levels. Ongoing efforts to improve disclosures, among other things, may help slowly regain market confidence. Our financial model remains unchanged since the start of recent share price volatility, but, we apply an 80% discount to our C$28 NAV to obtain the C$6.00 target. That target is also supported by a conservative liquidation scenario. We retain our Neutral rating."