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Shares of China-based chemical producer Gulf Resources Inc. surged on Tuesday after an analyst initiated coverage of the stock with a "Buy" rating.
THE SPARK: In addition to his positive rating, Wayne Chung of Brean Murray, Carret & Co. on Tuesday set a price target of $10.
THE BIG PICTURE: Gulf Resources is a producer of bromine, crude salt and other specialty chemical products in China. Its products have applications in such as industries as oil exploration and distribution, wastewater processing and papermaking. On Monday, the company said it expects its 2011 profit and revenue to grow by more than 20 percent compared with last year.
THE ANALYSIS: Chung wrote in a research report that Gulf Resources has about a 20 percent market share of the bromine industry in China. He called Gulf Resources a "small-cap story" for investors, citing the company's market share, generous profit margins in China's bromine industry, and entry barriers for potential rivals. Gulf Resources' bromine production capacity is expected to reach 49,000 metric tons this year, up 13 percent from last year. The increase comes as supply constraints help lift bromine prices, Chung said.
SHARE ACTION: Shares of Gulf Resources jumped $1.06, or more than 19 percent, to $6.58 in midday trading, after rising as high as $6.85 in the morning.