Tuesday, 14 June 2011

Target Price: Whom to trust?

When buying shares, some people just follow the target price given by various research houses. Is the target price trustable? Well, everyone has their own opinion and their own way of arriving at the target price.

Sometimes a stock with target price of RM4.00 can suddenly being downgraded to RM2.00 overnight, when a disappointing earning is annouced or some unforseen circumstances occur. People buy at RM3.00 and happily hope to sell at RM4.00 and suddenly they say that the target price is now only RM2.00. Who to blame? How useful is the target price then?

Target price can give careful investors confidence that their own analysis is not far off the line. One thing for sure, target price can dictate the share price's short term movement, which speculators like a lot.

Just on the same day today on 14th June 2011, two reports on KNM are published.

By ECM Libra Research:

ECM Libra Research has downgraded KNM GROUP BHD [ ] to a Hold from Buy previously and cut its target price for the stock from RM3.43 to RM1.68 after KNM lowered its FY11 profit guidance by some 26% on June 13 to RM270 million at EBITDA levels owing to project delays and also lower than expected margins.

“We are cutting our FY11 earnings estimate by 51% to account for delays in the UK biomass project as well as overall lower margins for existing orderbook.

“We also cutting FY12 and FY13 earnings on the assumption that current orderbook will not be as lucrative as expected,” it said.


KNM GROUP BHD [ ] remains a Buy at Hwang DBS Vickers Research at RM1.90 and has a 12-month target price of RM 3.35.

It said on Tuesday, June 14 KNM which is currently trading at attractive valuation of only 8x FY12 EPS, making it one of the cheapest O&G stocks in Malaysia.

“The recent sell-down by investors, due to disappointing 1Q11 earnings, is excessive. We remain bullish on KNM’s long-term prospect and the full impact of normalised margins will be reflected in FY12. We recommend investors to buy on weakness,” it said.

Whom to trust?


  1. simple rule, do u still remember when we were seating for UPSR, PMR, the option with the longest sentence is the most likely correct one.

    So apply it to analyst report, see which one has the longest justification.

    TP is not fixed forever, as the company biz keep changing when time goes by, TP also has to be adjusted.

    However, if the new TP is adjusted too far from the previous one, it shows that the analyst is a bit "3 hearts 2 meanings"

    Analysts r also human being, some r good, some r bad, we gotto be cherry picky

    1. Now I just get all the info from analyst reports, except the target price. However, it serves as a good reference to my own target price :)