Daiwa downgraded Changfeng Axle (1039.HK)'s rating from buy to sell, lowering the target price of the stock from HK$3.70 to HK$1.00 because Daiwa expects the company's earnings from 2011-2012 to decline and believes that the stock is unlikely to face a positive catalyst in the next 6-12 months.

Daiwa said that Changfeng Axle's 2011 interim results announced at the end of August were weaker than expected, with revenue and net profit falling 19% and 21%, respectively, year-on-year. Yamato believes that Changfeng Axles will have a strong distribution network; the bank doesn't think its own view is unrealistic. Yamato is also concerned about the extent to which the company's medium-term balance sheet has deteriorated.

Changfeng Axle closed at HK$1.35 yesterday.