Guohao Capital rated Shenguan Holdings (0829.HK) as a buy for the first time. The target price was set at HK$6.15, based on the forecast price-earnings ratio of 20 times for fiscal year 2010. The bank pointed out that Shenguan Holdings is the largest and dominant manufacturer of edible collagen sausage products in China; in the long run, the bank expects it to benefit from increased consumption of domestic sausage products.

The bank pointed out that Shenguan Holdings has strong pricing power because there is very little competition in the industry; it is expected that the gross profit margin of up to 55% in fiscal 2008 and the net profit margin of 38% will be maintained in the 2009 and 2010 fiscal years.

The bank added that the stock's current undervaluation is only equivalent to 15.4 times the predicted price-earnings ratio for fiscal year 2010, while the compound annual growth rate of earnings per share for fiscal year 2009-2011 will be as high as 45%.

The stock was listed on the Hong Kong Stock Exchange on October 13. The stock fell 0.83% yesterday to close at HK$4.76.