Guohao Capital maintains the Pearl River Steel Pipe (1938.HK) buying rating, with a target price of HK$4.20. The company previously issued a profit warning and expects a sharp decline in revenue and profit for fiscal year 2010. Guohao Capital said that the sharp drop in Pearl River Steel Pipe's stock price yesterday was surprising because the bank believed that the warning was anticipated. The company's revenue for the first half of 2010 fell 32% year on year, and profit fell 51%. Guo Hao said that the disappointing interim results of Pearl River Steel Pipeline were mainly due to austerity measures in mainland China and the European financial crisis. The bank believes that now is a good time to buy the stock because the stock is undervalued (equivalent to 7.6 times the price-earnings ratio of FY2011). Pearl River Steel Pipeline dropped 9.07% yesterday to close at HK$3.21.