Morgan Stanley has started its coverage of Chinese wine company Wuliangye Yibin.

The broker today (13 December) introduced a rating of 'overweight' on the company, which is 71.83%-owned by Yibin State Assets Operation Co.

"We are initiating coverage on Wuliangye with a target price of CNY20, implying 18% upside from the current price," Morgan Stanley said. "We forecast it will achieve net profit growth of 33% in 2006-09, driven by price increases and volume growth.

"Wuliangye experienced parallel rises in prices and sales volume in 2005 and 2006," the broker continued, "We expect this trend to continue near-term."

Morgan Stanley also forecast that 2007 earnings could rise by a further 27%-44% and the 2007 net margin could expand by an additional four to seven percentage points if the company is able to implement the major changes in its corporate strategy.

In October, Wuliangye posted a rise of 10.6% in net profit for its third quarter. Profits hit CNY199.8m (US$25.2m) on the back of a 34.5% leap in revenues, to CNY1.6bn.