Morgan Stanley cut the stock target price of Dongfang Electric, China's second-biggest power-equipment maker, following the Sichuan earthquake.

The company's stock target price was cut by 40 percent to HK$23.38 from HK$38.82, according to the report released yesterday.

The reduced target price is lower than yesterday's closing price of HK$24.05 which gained 2.78 percent.

Morgan Stanley also cut the company's earnings forecasts for 2008 and 2009 by 150 percent and 30 percent respectively, but maintained the "equal-weight" rating on the stock.

Dongfang Electric is still competitive in the long term despite the quake, the report said.

The company's steam turbine factories in Hanwang have 90 percent facilities damaged, the report said. It will probably take more than one year for the company to rebuild its facilities and recover its original capacity.

Dongfang Electric said in a statement yesterday that some assets in Hanwang town of Mianzhu were damaged, including plants and equipment. And 97 employees at its subsidiary, Dongfang Steam Turbine (DST), had been killed.

However, the earthquake had little impact on the company's other operations, including hydro-electric turbine generator sets, steam power generators, and engine generators.

"Due to frequent aftershock and as rescue work is still underway, the company is unable to carry out site assessment on the loss of assets for the time being," said the statement.

Liu Zhiqian, a spokesman for Dongfang, said that the company expects output at its quake-hit main plant in Sichuan province to return to 80 percent normal in six months.

He added that losses of building and equipment at the Hanwang site would not be enormous for the firm's bottomline, because the complex was already 42 years old.

Castor Pang, a strategist at Sun Hung Kai Financial, said production of some of the factories might be halted for about 9 months, and the quake's impact on its earnings will probably be reported in its third quarter results.

The company's share price plunged as much as 20 percent after the earthquake due to the worries on the production damage.

Pang said the share price of Dongfang Electric made a slight rebound yesterday. "Investors who buy the shares at a high level should take the chance to sell off the shares during the short-lived rebound," Peng added.

The company's share price is reasonable at current level, Pang said, but the impact of earthquake is not fully found at the moment. He advised investors to be cautious and not to buy the share.

(HK Edition 05/22/2008 page3)