Macquarie Research maintained its price target of HK$4.45 and "outperform" rating for Dah Chong Hong Holdings (DCH)(01828). It sees the risk on the upside as supported by DCH's US$350m acquisition of the Asia consumer and healthcare distribution business of Li & Fung (00494).
The research house expects modest margin recovery in China for the motor business, but the new LF business will be the key driver. DCH will benefit from geographic diversification into Southeast Asia as well as the fast-growing healthcare business.
While giving a lower target multiple of 9x for DCH due to its conglomerate nature versus other pure auto dealer groups (10x), Macquarie believes the LF acquisition has the potential to improve returns.