Morgan Stanley maintained as a holding-watch rating target price of 12 dollars

Beijing Time October 29 Evening News, Morgan Stanley published a study today to maintain the Dangdang stock "wait-and-see" rating, as well as the 12 dollar target share price.

The following is the full report:

Dangdang is a mature electric business company, and is trying to restore growth through transformation. While the long-term outlook remains uncertain, we expect the recovery in short-term profit growth to support its share price.

Mature Market Competitor

Dangdang will usher in the 15 birthday this month, this is one of China's oldest electric business companies. Dangdang's users are mostly more mature and concentrated in the one or two-line cities. We believe that the continued consumption of core users benefits Dangdang, but the company needs to expand its user base to a wider age group and three or four-line cities to achieve long-term growth.

A necessary but risky transition

Dangdang tries to revive growth by entering fashion and the mother and infant category. We believe that this is a difficult strategy to implement. Other companies are looking for a higher share of these high-margin market segments, which will be harder to achieve in the coming years. As a result, Dangdang's long-term growth prospects may be limited.

Positive performance will support share price

While the long-term outlook is uncertain, a balanced development strategy will ensure healthy revenue growth and stable profitability. Dangdang made a profit in the fourth quarter of 2013, and we expect the company to remain profitable for the foreseeable future, although there will be significant fluctuations in tax subsidies and interest income over the quarter. We expect that in 2015, Dangdang's larger investment in the mobile business would be offset by better cost-cutting measures. Given the rebound in profits and relatively low valuations, Dangdang's share price will be propped up at the current level. Our target price is $12, which is valued at 10% discount from DCF. This is equivalent to 33 times times the 2015 forward earnings ratio, and a forward-looking market surplus of 0.4 times times the growth ratio (PEG). (D-Gold)