Yum Cha 飲 茶 March 5, 2018 INDICES Closing DoD% Hang Seng Index 30583.5 (1.5) HSCEI 12203.9 (1.8) Shanghai COMP 3254.5 (0.6) Shenzhen COMP 1822.2 (0.6) Gold 1322.8 0.4 BDIY 1207.0 0.9 Crude Oil, WTI(US$/BBL) 61.3 0.4 Crude Oil, BRENT(US$/BBL) 64.7 0.6 HIBOR, 3-M 1.1 (2.6) SHIBOR, 3-M 4.7 0.1 RMB/USD 6.3 (0.2) TALKING POINT - REVIEW RESULTS OF STOCK CONNECT STOCK LIST Shanghai Stock Exchange released the updated stock list for the southbound stock connect last Friday. 14 stocks are added while 10 stocks are removed. As expected, new economy names such as China Literature (0772.HK) and Yixin (2858.HK) are included in the new addition list. The stock list will become effective today. Meanwhile, we expect Shenzhen Stock Exchange will also release the updated stock list for the southbound stock connect very soon. Stocks to be added to the Stock Connect universe Ticker Company name Price (HK$) Market cap (HK$m) 2017E PER (x) 2018E PER (x) PBR (x) 2017E dividend yield (%) 3-month average daily turnover (HK$) 87 HK Equity SWIRE PACIFIC B 13.48 110,892 21.26 14.72 0.43 n.a. 48,566,620 1378 HK Equity CHINA HONGQIAO 8.62 75,670 8.06 5.28 1.10 3.18 178,283,300 772 HK Equity CHINA LIT 76.15 69,024 129.37 63.68 8.36 n.a. 192,259,500 582 HK Equity LANDING INTL 0.34 50,114 n.a. n.a. 3.26 n.a. 102,280,800 2858 HK Equity YIXIN 5.94 37,281 70.79 26.74 n.a. - 64,944,300 1030 HK Equity FUTURE LAND 6.19 36,677 11.00 6.95 3.05 2.79 216,239,300 1141 HK Equity CMBC CAPITAL 0.6 27,467 n.a. n.a. 22.16 n.a. 20,812,610 1638 HK Equity KAISA GROUP 4.11 24,922 16.25 7.32 1.22 - 109,415,500 127 HK Equity CHINESE EST H 12.32 23,502 n.a. n.a. 0.88 n.a. 21,443,360 2232 HK Equity CRYSTAL INTL 8.21 23,422 17.47 14.77 7.71 1.43 19,371,010 1628 HK Equity YUZHOU PPT 4.98 20,841 5.87 4.52 1.43 6.05 90,554,730 45 HK Equity HK&S HOTELS 12.1 19,227 31.03 28.47 0.52 1.65 11,542,970 754 HK Equity HOPSON DEV HOLD 7.46 16,603 12.64 11.84 0.29 2.41 8,731,286 1269 HK Equity FIRST CAP GP 3.32 16,175 n.a. n.a. 3.60 n.a. 11,929,840 Stocks to be removed from the Stock Connect universe Ticker Company name Price (HK$) Market cap (HK$m) 2017E PER (x) 2018E PER (x) PBR (x) 2017E dividend yield (%) 3-month average daily turnover (HK$) 2888 HK Equity STANCHART 85.55 282,040 14.80 12.37 0.70 2.54 154,641,700 1031 HK Equity KINGSTON FIN 4.7 63,988 n.a. n.a. 3.20 n.a. 60,792,200 3698 HK Equity HUISHANG BANK 4.09 45,194 4.96 4.47 0.67 3.44 3,148,188 41 HK Equity GREAT EAGLE H 39.45 27,166 14.47 13.81 0.46 1.98 6,649,595 3331 HK Equity VINDA INT'L 15.36 18,343 24.19 19.77 2.26 1.36 3,294,679 2329 HK Equity GUORUI PPT 2.18 9,687 n.a. n.a. 0.80 n.a. 2,014,372 2199 HK Equity REGINA MIRACLE 6.8 8,325 26.98 14.91 3.11 1.15 3,079,684 861 HK Equity DC HOLDINGS 4.41 7,397 n.a. 21.72 0.81 - 13,789,900 787 HK Equity GLOBAL BRANDS 0.55 4,704 10.03 5.85 0.23 n.a. 23,108,100 1315 HK Equity VISION FAME 0.375 2,250 n.a. n.a. 7.41 n.a. 6,066,714 Source: Bloomberg, CGIS Research Analyst: Wong Chi-man, CFA RESEARCH NOTES CHINA SECURITIES SECTOR - The China securities sector was one of the most underperform- ing sectors in 2017 because of lacklustre trading volume, along with a more stringent regulatory environment. Since the deleveraging process in the economy is still ongoing and the regulatory environment is likely to remain stringent because of the potential restructuring of the regulators, the valuation of securities companies may be capped in the near term. However, as the valua- tion has already reached a multi-year low in terms of PBR, it reflects most of the negatives, in our view. Therefore, we have a BUY rating on GF Securities (1776.HK; GFS), Haitong Securities (6837.HK; HTS) and CITIC Securities (6030.HK; CITICS) on the back of the cheap valuations. Short-term catalysts include listing reforms and the official inclusion of A-shares in the MSCI Emerging Markets Index in mid-2018. WEEKLY SHORT SELLING ANALYSIS - Last Friday, the HKSFC released the aggregate short positions data for February 23. We analyzed which companies may be vulnerable to short-selling activity, based on the following three criteria: (i) the net change in short positions between Febru- ary 15 and February 23; (ii) short positions as a percentage of free float; and (iii) the absolute amount of short positions. According to the results of our analysis, we believe China Coal (1898.HK) requires close monitoring, based on the latest short positions outstanding. On the other hand, we note that short positions in ENN Energy (2688.HK) and Pacific Basin (2343.HK) have dropped significantly. DATA RELEASES DUE THIS WEEK March 5 National People’s Congress March 5 Caixin Composite PMI Feb March 5 Caixin Services PMI Feb March 7 Foreign Exchange Reserves Feb March 8 Balance of Trade Feb March 8 Exports YoY Feb March 8 Imports YoY Feb March 9 Inflation Rate YoY Feb March 9 Inflation Rate MoM Feb March 9 PPI YoY Feb Source: Bloomberg
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Company name (HK$) (HK$m) PER (x) (x) yield (%) turnover (HK$) … · 2018-03-05 · Transsion, which was established in 2006, is a global company dedicated to providing popular mobile
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1
Yum Cha 飲 茶 March 5, 2018
INDICES Closing DoD%
Hang Seng Index 30583.5 (1.5)
HSCEI 12203.9 (1.8)
Shanghai COMP 3254.5 (0.6)
Shenzhen COMP 1822.2 (0.6)
Gold 1322.8 0.4
BDIY 1207.0 0.9
Crude Oil, WTI(US$/BBL) 61.3 0.4
Crude Oil, BRENT(US$/BBL) 64.7 0.6
HIBOR, 3-M 1.1 (2.6)
SHIBOR, 3-M 4.7 0.1
RMB/USD 6.3 (0.2)
TALKING POINT - REVIEW RESULTS OF STOCK CONNECT STOCK LIST
Shanghai Stock Exchange released the updated stock list for the southbound stock connect last Friday. 14 stocks are added while 10 stocks are removed. As expected, new economy names such as China Literature (0772.HK) and Yixin (2858.HK) are included in the new addition list. The stock list will become effective today. Meanwhile, we expect Shenzhen Stock Exchange will also release the updated stock list for the southbound stock connect very soon.
Stocks to be added to the Stock Connect universe
TickerCompany name
Price
(HK$)
Market
cap
(HK$m)
2017E
PER (x)
2018E
PER (x)
PBR
(x)
2017E
dividend
yield (%)
3-month
average daily
turnover (HK$)
87 HK Equity SWIRE PACIFIC B 13.48 110,892 21.26 14.72 0.43 n.a. 48,566,620
1378 HK Equity CHINA HONGQIAO 8.62 75,670 8.06 5.28 1.10 3.18 178,283,300
772 HK Equity CHINA LIT 76.15 69,024 129.37 63.68 8.36 n.a. 192,259,500
CHINA SECURITIES SECTOR - The China securities sector was one of the most underperform-ing sectors in 2017 because of lacklustre trading volume, along with a more stringent regulatory environment. Since the deleveraging process in the economy is still ongoing and the regulatory environment is likely to remain stringent because of the potential restructuring of the regulators, the valuation of securities companies may be capped in the near term. However, as the valua-tion has already reached a multi-year low in terms of PBR, it reflects most of the negatives, in our view. Therefore, we have a BUY rating on GF Securities (1776.HK; GFS), Haitong Securities (6837.HK; HTS) and CITIC Securities (6030.HK; CITICS) on the back of the cheap valuations. Short-term catalysts include listing reforms and the official inclusion of A-shares in the MSCI Emerging Markets Index in mid-2018.
WEEKLY SHORT SELLING ANALYSIS - Last Friday, the HKSFC released the aggregate short positions data for February 23. We analyzed which companies may be vulnerable to short-selling activity, based on the following three criteria: (i) the net change in short positions between Febru-ary 15 and February 23; (ii) short positions as a percentage of free float; and (iii) the absolute amount of short positions. According to the results of our analysis, we believe China Coal (1898.HK) requires close monitoring, based on the latest short positions outstanding. On the other hand, we note that short positions in ENN Energy (2688.HK) and Pacific Basin (2343.HK) have dropped significantly.
DATA RELEASES DUE THIS WEEK
March 5 National People’s Congress
March 5 Caixin Composite PMI Feb
March 5 Caixin Services PMI Feb
March 7 Foreign Exchange Reserves Feb
March 8 Balance of Trade Feb
March 8 Exports YoY Feb
March 8 Imports YoY Feb
March 9 Inflation Rate YoY Feb
March 9 Inflation Rate MoM Feb
March 9 PPI YoY Feb
Source: Bloomberg
2
RESEARCH NOTES
CHINA CEMENT WEEKLY — The average cement price (nationwide) decreased 2% to RMB387/tonne compared with the price level before the Chinese New Year (CNY) holiday. The regions with a decline of RMB20-50/tonne were mainly east
China, south central China and southwest China. Cement demand remained at a low level during the week, as it takes time
for construction activity to resume after the CNY holiday. The decline in cement prices is not a surprise, as it is a common
practice to lower prices to stimulate downstream demand just after the CNY holiday. There is an increase in cement invento-
ry because of weak demand during CNY, but the inventory level is likely to come down once more construction activity re-
sumes in the next one to two weeks. Cement prices are expected to rebound in late March.
SNIPPETS
CHINA TMT HARDWARE: IPO OF FOXCONN INDUSTRIAL INTERNET — According to Chinese news flow, CSRC will
discuss Foxconn Industrial Internet’s (FII) IPO on 8 Mar 2018, which is line with our previous discussion that FII’s IPO is
likely to kick off soon, with the whole process expected to be completed by the end of Apr 2018 (based on the current infor-
mation, the IPO can be completed by end of Mar 2018 if the process goes smoothly). FII’s IPO process is very smooth, as:
a) Hon Hai hosted a shareholders meeting on 31 Jan 2018; b) FII posted the first draft of its prospectus on 9 Feb 2018 and
received the CSRC's enquiries, c) FII replied to all of the CSRC's enquiries and posted its updated draft prospectus on 22
Feb 2018; and d) FII received the CSRC’s discussion on its IPO on 8 Mar 2018. It took about a month from posting the
draft prospectus to seeking CSRC’s approval, which shows that the Chinese government is very supportive of FII’s listing.
FII reported turnover of RMB172.8bn, RMB272.7bn and RMB354.5bn in 2015, 2016 and 2017, respectively. FII also re-
ported a net profit of RMB14.4bn, RMB14.4bn and RMB15.9bn in 2015, 2016 and 2017, respectively. There is limited infor-
mation on the pricing and size of FII’s IPO. According to Chinese new flows, the proceeds from the IPO are estimated at
RMB27bn, and most of the proceeds will be used for investment in the Industrial Internet, high-performance computing
data center construction, 5G & IoT solutions, smart manufacturing (R&D and capacity expansion), and procurement of
networking equipment. Chinese news flow also suggests FII’s market cap will be in the range of RMB300bn to RMB500bn.
We expect more details on FII’s IPO to be circulated after its gets approval from the CSRC, and we expect the market to
search for proxies. Some investors may treat FII as an Apple-related name, so the IPO may boost sentiment on Apple
suppliers. However, we believe that FII is a symbolic name regarding the investment theme of the Industrial Internet, which
is an integration of several areas, including: a) cloud computing, b) high-end manufacturing, c) Big Data, and d) high-
precision equipment. We note that MIIT posted a notice on its website on 24 Feb 2018 regarding forming an “Industrial
Internet Task Force” to take charge of development of the industrial internet in China. We believe that FII’s IPO will be
used as a symbolic case for promoting the Chinese government’s policy on the Industrial Internet. We reiterate our view
that FII will be one of the largest IPOs in the A-share market and one of the largest listed companies after the completion of
the IPO. We maintain the view that Industrial Internet is one of the hottest topics in the A-share market and that it will be a
major investment theme in 2018. The potential beneficiaries are: a) machine makers such as Haitian [1882.HK], solution
providers such as O-Net [0877.HK] and PentaMaster [1665.HK], IT solutions and cloud computing such as Kingdee
[0268.HK], Kingsoft [3888.HK] and DC Holdings [0861.HK], and communications equipment such as O-Net [0877.HK] and
ZTE [0763.HK]. For details, please refer to our previous discussion.
3
SNIPPETS
CHINA TMT HARDWARE — Shimge Pump Industry Group (Shimge Pump) [002532.CH] announced that it is in discus-
sion with Transsion Holdings (Transsion) regarding an asset sale and swap transaction. According to its corporate website,
Transsion, which was established in 2006, is a global company dedicated to providing popular mobile communication prod-
ucts for local consumers in emerging markets. Transsion's sales network covers Nigeria, Kenya, Tanzania, Ethiopia, Egypt,
UAE(Dubai), Saudi Arabia, India, Pakistan, Indonesia, Vietnam, Bangladesh, etc. There are four brands under Transsion:
TECNO, iTel, Infinix and Spice. TENCO is the high-end brand, and iTel is the low-end brand; Infinix is sold only through
online channels. Transsion is now a leading player in the mobile industry in Africa, with a 38% market share in 2016, ac-
cording to IDC. China IC Fund and Unigroup are Transsion shareholders, but they had less than a 1% stake each as of 30
Jun 2017. Transsion’s business is classified into: a) hardware – handsets, tablets, home appliances and lighting, b) plat-
forms, and c) mobile business, especially searching, payment, social networking and mobile games in African markets.
Since the market is focusing mostly on smartphones and the China market, HOXV (Huawei, Oppo, Xiaomi and Vivo) is
really the focus of the market, so Transsion is not on investors’ radar. In terms of units, Transsion shipped 120m handsets
in 2017 according to IHS, up from about 80m units in 2016. Among the 210m units shipped in 2017, about 90m were fea-
ture phones and 30m units were smartphones. According to industry news flow, Transsion’s ASPs were about US$10-12
per feature phone and about US$60-70 per smartphone. The key to Transsion’s success is the customization of functions,
especially photo and sound quality for African markets. Shares of Shimge Pump will remain suspended until the details of
its transaction with Transsion are released. After completion of the transaction, Transsion will be one of the few listed
handset brands. We expect Transsion to provide a profit guarantee for 2018 and 2019, and the market is likely to search
for proxies to Transsion. Based on industry information, Transsion’s major suppliers are mostly A-share-listed names such
as Holitech Technology [002217.CH] – displays and camera modules; FPC and Huiding [603160.HK – finger print sensors;
OFilm [002456.CH] – dual camera modules; and MediaTek and Sreadtrum – processing units. We expect the market to
seek more information on Transsion and its supply chain after Shimge Pump releases the details of the transaction. We will
closely monitor the process and provide more information later.
Financial assets sold under repo 26,111,914 59,807,864 90,951,854 43,638,525 56,610,309 66,120,345 Others 4.7 2.9 2.7 4.3 3.8 3.7
Due to banks and other f inancial institutions 6,916,395 34,077,574 32,799,527 49,884,220 43,500,000 39,000,000 Commission and fee income 53.7 41.5 42.6 36.3 33.9 32.9
Financial assets sold under repo 55,704,255 124,914,446 127,788,537 121,414,243 137,500,000 165,000,000 Others 0.5 0.8 0.3 1.0 1.2 1.3
Due to banks and other f inancial institutions 4,710,000 11,751,000 18,033,000 19,550,000 13,500,000 15,500,000 Commission and fee income 53.4 51.2 49.4 56.9 48.6 46.4
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China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459
20/F, Wing On Centre, 111 Connaught Road Central, Sheung Wan, Hong Kong. General line: 3698-6888.
BUY share price will increase by >20% within 12 months in absolute terms :
SELL share price will decrease by >20% within 12 months in absolute terms :
HOLD no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL :