SELL. We believe now is a good time to revisit GWM to capture its potential volume and margin recovery next year.

Transcription

1 Focus of the Day Great Wall Motor (2333 HK) Risk-reward becoming attractive; upgrade to Buy Angus CHAN Last Closing: HK$ 9.40 Upside: +22.3% Target Price: HK$ We believe now is a good time to revisit GWM to capture its potential volume and margin recovery next year. We see the following share price catalysts in 2018: 1) new 1.5T H6 with higher ASP which could lead to margin recovery, 2) self-developed 7-speed DCT box to further lower costs, 3) WEY brand sales volume contribution to increase in 2018 and 4) less operating expenses from WEY brand in its second year. WEY brand currently accounts for roughly 15% of GWM s total sales volume. We expect WEY brand to contribute 300k-400k units of sales volume in 2018, underpinned by VV7 and VV5 sales ramp-up and new models (VV6 and crossover SUV (VV3)). We upgrade GWM from Neutral to Buy on volume and margin recovery in We raise our TP from HK$9.00 to HK$11.50, based on 10x FY18E P/E. SELL NEUTRAL Indices Close 1d % Ytd % HSI 29, H Shares 11, SH A 3, SH B SZ A 2, SZ B 1, DJIA 23, S&P 500 2, Nasdaq 6, FTSE 7, CAC 5, DAX 13, Indicators Close 3m % Ytd % Brent Gold 1, Silver Copper 7, JPY GBP EURO bps change 3 m 6 m HIBOR US 10 yield Want Want (151 HK) Bottomed out but insufficient visibility in recovery pace; upgrade to Neutral Summer WANG, CFA summer.wang@bocomgroup.com Last Closing: HK$ 6.28 Upside: -4 % Target Price: HK$ 6.00 NEUTRAL SELL BUY HSI Technical HSI 29, d MA 28, d MA 26, d RSI 68 Short Sell (HK$ m) 8,661 We upgrade Want Want from Sell to Neutral as we think it has bottomed out. The company resumed top-line growth for two consecutive quarters (2Q-3Q17) following its revenue decline since 2H14. In our view, new channel penetration (with the aid of customized products and B2B online solutions offered by e-retailers such as JD.com) and marketing enhancement (with increasing shelf coverage and in-store promoters) helped propel revenues. However, we have yet to see any convincing emergence of new star products that are capable of making material revenue contribution in the near term. A thrift A&P budget remains our concern as well.

2 We introduce Mar-ended FY18-21E earnings estimates, and set our new TP at HK$6.00 on 19.6x FY19E P/E (0.5SD below its LT-median P/E, vs previously HK$4.00 on 13.4x CY18E P/E, 2SD below its LT-median). Upside risks: stronger-than-expected new products in 2018, faster channel penetration, and retreat in commodity costs. Downside risks: choppy revenue recovery, higher staff cost, and larger cost inflation. Hang Seng Index (1 year) 32,000 30,000 28,000 26,000 24,000 22,000 20,000 Transportation Sector Takeaways from Asia Logistics and Maritime Conference 2017 Geoffrey CHENG, CFA Logistics Sector Container Shipping Sector UP MP OP UP MP OP We attended the Asia Logistics and Maritime Conference 2017 on Nov The speakers at the conference shared current development of B&R initiative, new technology trend in supply chain industry, and suggestions for the Greater Bay Area. Although robotics have not yet been massively applied in the supply chain industry, automation and digitalization will be the main stream of logistics services, as more and more logistics giants made heavy investment into technology. To further facilitate freight flow, speakers suggested streamlining the current clearance procedure, extending clearance time to 24/7, allowing unilateral inspection, and relaxing vehicle qualification within the Greater Bay Area. Speakers of the forum were in general cautiously positive over 2018 outlook of container shipping industry. As demand growth will remain solid, it boils down to how the industry incumbents will constrain supply growth next year. HS China Enterprise Index (1 year) 13,000 12,000 11,000 10,000 9,000 8,000 Shanghai A-shares (1 year) 3,800 3,600 3,400 3,200 3,000 Shenzhen A-shares (1 year) 2,300 Internet Sector 20 Nov to 24 Nov 2,100 1,900 Connie GU UP MP OP 1,700 Last week, Alibaba acquired equity interest of Sun Art Retail. The new retail concept may materialize and expand rapidly. Kingsoft s 3Q17 revenue was in line and the game revenue may further decline in 4Q17. We adjust TP to HK$23.42, implying 21x 2018E P/E. Besides, Baidu, Alibaba, Tencent and iflytek were identified by China s Ministry of Science and Technology as open innovative platforms for next generation AI technologies. WeChat Pay was connected to cn and set foot in the UK market. SenseTime plans IPO. Mobike s extended its global presence to 200 cities, providing biking services for 30 m times per day. Waymo, Google s self-driving car unit, announced to achieve full self-driving and plans to provide ride-hailing services at certain regions. Lyft was approved to test self-driving vehicles and the new round of financing valuation reached US$11.5 b. 2

3 We reiterate Outperform sector rating and Momo (MOMO US) as our top pick with a rating of Buy. Other stocks to watch include Tencent (700 HK) and Alibaba (BABA US). Cement sector Price soared 2.4% WoW Angus CHAN angus.chan@bocomgroup.com UP MP OP Last week, cement market price rose 2.4%. Price hikes could be seen in Hebei, Shanxi, Shanghai, Jiangsu, Anhui, Henan, Shandong, Chongqing and Gansu, up RMB20 to RMB70. Similar to Gansu, central and northwestern China continued to witness price hike since the previous week. In the latter half of Nov, the supply of cement and clinker in China tightened and prices continued to soar. Cement prices of most of the regions reached RMB400/t. The transaction price of certain regions such as Henan, Shandong and northern Jiangsu exceeded RMB500/t. Due to limited corporate supply in regions with production halts, the supply side mainly aimed at fulfilling previous orders from customers and certain markets were out of stock. Regions that had not suspended production witnessed robust demand and supply. We expect the price to continue to soar for the subsequent period. 3

4 Market Review Hong Kong stocks rose on Friday. The Hang Seng Index gained 158 points, or 0.5%, to close at 29,866. Insurers advanced. Ping An (2318 HK) gained 3.5% as the best blue-chip performer. NCI (966 HK) soared 8.7%. PICC (1339 HK) rose 4.2%. CPIC (2601 HK) climbed 3.3%. China Life (2628 HK) edged up 0.8%. Healthcare sector rallied. Sihuan Pharma (460 HK) surged 14.7%. Sino Biopharma (1177 HK) climbed 5%. Luye Pharma (2186 HK) gained 3.8%. CSPC (1093 HK) rose 3.5%. Auto names fell. Geely (175 HK) dropped 1.8% as the worst blue-chip performer. Brilliance China (1114 HK) shed 2.9%. Dongfeng (489 HK) declined 0.6%. Hong Kong developers mostly finished higher. CK Asset (1113 HK) rose 1.8%. Link REIT (823 HK) added 1.2%. NWD (17 HK) rose 0.9%. SHKP (16 HK) climbed 0.8%. Wharf (4 HK) fell 1.4%. US stocks rose. The S&P 500 climbed 5.34 points, or 0.2%, to 2, The DJIA gained points, or 0.1%, to 23, The Nasdaq Composite Index rose points, or 0.3%, to 6, European stocks fell. Stoxx Europe 600 dropped 0.1% to finish at News Reaction MOFCOM: to further reduce import tariffs of consumer products. MOFCOM started to adjust the import tariffs of certain consumer products starting from 1 Dec. On top of the previous tax reduction, the import tariff cut of consumer products cover food, health products, medicines, daily chemical products, clothing shoes and hats, household equipment, cultural and entertainment, general merchandise and other consumer goods, involving digit tariff codes. The average tax rate was adjusted downward from 17.3% to 7.7%. China s e-commerce platforms recorded 850 m orders in Double Eleven period, 95.5% of which was placed on Tmall. According to statistics, among a total of 850 m logistics orders placed on Chinese e-commerce platforms in Double Eleven period, Tmall accounted for 95.5% but the product return rate was merely 6.1%, less than one third of the return rate of developed countries. Baidu plans to invest in more than 10 AI start-ups in 2018 according to Yu Youping, Baidu s general manager of AI Technology Ecology. Baidu s face recognition interface will completely abandon the traditional cost accounting method based on the volume of adjustment and use, while developers and certified enterprises are given free quota with additional speed of 2QPS and 5QPS, respectively per day. This means that small and medium-sized enterprises that do not have massive development of face apps will enjoy the service for free permanently. Baidu currently steps up its development of AI and plans to invest in more than 10 AI start-ups in

5 Economic releases for this week - USA Date Time Event Survey Prior 27-Nov New Home sales (k) Nov MBA mortgage applications (%) Nov Initial jobless claims (k) Dec ISM manufacturing Economic releases for this week - China Date Time Event Survey Prior 30-Nov Manufacturing PMI BOCOM Research Latest Reports Data Report Analyst 24 Nov Want Want (151 HK) - Bottomed out but insufficient visibility in recovery pace; upgrade to Neutral Summer Wang, CFA 24 Nov China Aviation Sector - Strengthening RMB to lift earnings ahead Geoffrey Cheng, CFA 24 Nov Zhong Ke San Huan ( CH) - No signs of industry recovery; cut TP Louis Sun 24 Nov Property Sector - HK/China property weekly Carmen Wong, Alfred Lau, CFA, FRM, Philip Tse, CFA, FRM 23 Nov CIFI Holdings (884 HK) - Tier-2 developer on fast growth track with undemanding valuation Philip Tse, CFA, FRM, Alfred Lau, CFA, FRM 23 Nov Insurance Sector - Sept revenue from personal insurance soared; watch the progress of new-year products 23 Nov Renewable Energy Sector - China continued to impose anti-dumping duties on Korea's polysilicon; growth of wind power generation slowed in Oct Li Wan CFA, FRM, Yufan Zhang Louis Sun 23 Nov China Resources Land (1109 HK) - Unchanged fundamentals, undemanding valuation Philip Tse, CFA, FRM, Alfred Lau, CFA, FRM 22 Nov Vipshop (VIPS US) - Need partners to accelerate market share gain; further TP cut Summer Wang, CFA 22 Nov GCL-Poly (3800 HK) - Lift FY17 earnings estimates, but watch out for downside risks of FY18 result performance Louis Sun 22 Nov Banking Sector - New asset management rules: bank WM most impacted with faster transition Li Wan CFA, FRM, Hannah Han 22 Nov Kingsoft (3888 HK) - 3Q17 revenue in line; game revenue to decline further in 4Q17 Internet Innovation Center: Gu Xinyu (Connie), CPA, 22 Nov Healthcare Sector - Industry movement as of 21 Nov 2017 Grace Zha, Li Zhao 21 Nov Transportation and Infrastructure Sector - Weekly news wrap as of 17 November 2017 Geoffrey Cheng, CFA, Fay Zhou, Luya You 21 Nov Alibaba (BABA US) - The new retail concept may materialize and expand rapidly upon its share acquisition of Sun Art Retail Internet Innovation Center: Gu Xinyu (Connie), CPA, 20 Nov Internet Sector - 13 to 17 Nov Internet Innovation Center: Gu Xinyu (Connie), CPA, 20 Nov Cement sector - The cement price rose 2.3% WoW, with soaring prices seen in various places Angus Chan, Steve Liu 20 Nov Cathay Pacific Airways (293 HK) - Management turns more positive; recent pullback a good entry point Geoffrey Cheng, CFA 17 Nov Baidu (BIDU US) - AI products and commercialization in full swing; search + feed ad to bolster ROI Internet Innovation Center: Gu Xinyu (Connie), CPA, 16 Nov Netease (NTES US) - Gaming valuation lower on short term issue while lifting e-com valuation Internet Innovation Center: Gu Xinyu (Connie), CPA, Source: Company data, BOCOM Int l 5

6 Hang Seng Index Constituents Company Stock Current Mkt 5 d Ytd 52-week PE Yield P/B name code price cap chg chg Hi Lo 2016A 2017E 2018E 2017E 2017E (HK$) (HK$ m) (%) (%) (HK$) (HK$) (X) (X) (X) (%) (X) CKH HOLDINGS 1 HK , HANG LUNG PPT 101 HK , CKI HOLDINGS 1038 HK , HENGAN INTL 1044 HK , CHINA SHENHUA-H 1088 HK , HANG SENG BANK 11 HK , CHINA RES LAND 1109 HK , CK ASSET HOLDING 1113 HK , HENDERSON LAND D 12 HK , AIA 1299 HK , KUNLUN ENERGY 135 HK , ICBC-H 1398 HK ,475, CHINA MERCHANTS 144 HK , WANT WANT CHINA 151 HK , NEW WORLD DEV 17 HK , GEELY AUTOMOBILE 175 HK , SWIRE PACIFIC-A 19 HK , SANDS CHINA LTD 1928 HK , WHARF REAL ESTAT 1997 HK ,293 N/A N/A N/A N/A N/A N/A N/A N/A N/A CLP HOLDINGS 2 HK , AAC TECHNOLOGIES 2018 HK , BANK EAST ASIA 23 HK , PING AN 2318 HK ,579, MENGNIU DAIRY 2319 HK , N/A BOC HONG KONG HO 2388 HK , CHINA LIFE-H 2628 HK , CITIC 267 HK , GALAXY ENTERTAIN 27 HK , WH GROUP LTD 288 HK , CATHAY PAC AIR 293 HK , N/A N/A HONG KG CHINA GS 3 HK , BANKCOMM-H 3328 HK , SINOPEC CORP-H 386 HK , HKEX 388 HK , BANK OF CHINA-H 3988 HK ,319, WHARF HLDG 4 HK , HSBC HOLDINGS PL 5 HK ,525, POWER ASSETS 6 HK , MTR CORP 66 HK , CHINA OVERSEAS 688 HK , TENCENT 700 HK ,949, CHINA UNICOM 762 HK , LINK REIT 823 HK , SINO LAND 83 HK , CHINA RES POWER 836 HK , PETROCHINA-H 857 HK ,720, CNOOC 883 HK , CCB-H 939 HK ,768, CHINA MOBILE 941 HK ,630, LENOVO GROUP 992 HK , HANG SENG INDEX 29,866 19,061, ,200 21,

7 China Ent Index Constituents Company Stock Current Mkt 5 d Ytd 52-week PE Yield P/B name code price cap chg chg Hi Lo 2016A 2017E 2018E 2017E 2017E (HK$) (HK$ m) (%) (%) (HK$) (HK$) (X) (X) (X) (%) (X) CHINA SHENHUA-H 1088 HK , SINOPHARM-H 1099 HK , CHINA RAIL CN-H 1186 HK , BYD CO LTD-H 1211 HK , ABC-H 1288 HK ,434, NEW CHINA LIFE-H 1336 HK , PICC GROUP-H 1339 HK , CHINA CINDA-H 1359 HK , ICBC-H 1398 HK ,475, POSTAL SAVINGS-H 1658 HK , CRRC CORP LTD -H 1766 HK , GF SECURITIES-H 1776 HK , CHINA COM CONS-H 1800 HK , CGN POWER-H 1816 HK , MINSHENG BANK-H 1988 HK , CHINA VANKE-H 2202 HK , PING AN 2318 HK ,579, PICC P&C-H 2328 HK , GREAT WALL MOT-H 2333 HK , CHINA PACIFIC-H 2601 HK , CHINA LIFE-H 2628 HK , BANKCOMM-H 3328 HK , SINOPEC CORP-H 386 HK , ZHUZHOU CRRC T-H 3898 HK , CHINA RAIL GR-H 390 HK , CM BANK-H 3968 HK , BANK OF CHINA-H 3988 HK ,319, DONGFENG MOTOR-H 489 HK , CITIC SEC-H 6030 HK , HAITONG SECURI-H 6837 HK , CGS-H 6881 HK , HUATAI SECURIT-H 6886 HK , CHINA TELECOM-H 728 HK , AIR CHINA LTD-H 753 HK , PETROCHINA-H 857 HK ,720, HUANENG POWER-H 902 HK , CONCH CEMENT-H 914 HK , CHINA LONGYUAN-H 916 HK , CCB-H 939 HK ,768, CITIC BANK-H 998 HK , HANG SENG CHINA ENT INDX 11,908 5,329, ,101 9,

8 BOCOM International 10/F., Man Yee Building, 68 Des Voeux Road Central, Hong Kong Main: Fax: Rating System Analyst Stock Ratings: Buy: The stock's total return is expected to exceed that of the corresponding industry over the next 12 months. Neutral: The stock's total return is expected to be in line with that of the corresponding industry over the next 12 months. Sell: The stock's total return is expected to be below that of the corresponding industry over the next 12 months. Not-Rated: The analyst does not have conviction regarding the outlook of the stock's total return relative to that of the corresponding industry over the next 12 months. Trading Buy: The stock's absolute return is expected to be very attractive in the near term. This rating can be different from the rating with a view over the next 12 months. Analyst Industry Views: Outperform: The analyst expects the industry coverage universe to be attractive relative to the relevant broad market benchmark over the next 12 months. Market perform: The analyst expects the industry coverage universe to be in line with the relevant broad market benchmark over the next 12 months. Underperform: The analyst expects the industry coverage universe to be unattractive relative to the relevant broad market benchmark over the next 12 months. Broad market benchmark for Hong Kong is the Hang Seng Composite Index, for China A-shares is the MSCI China A Index, for US-listed Chinese companies is S&P US Listed China 50 (USD) Index. Trading Sell: The stock's absolute return is expected to be very unattractive in the near term. This rating can be different from the rating with a view over the next 12 months. Research Team Head of Deputy Head of Hao HONG, CFA (852) hao.hong Geoffrey CHENG, CFA (852) geoffrey.cheng Macro-Strategy Internet Hao HONG, CFA (852) hao.hong Yuan MA, PhD (86) yuan.ma Karen TAN (852) karen.tan Connie GU, CPA (86) connie.gu Grace HUA, CFA (852) Grace.hua Mengqi SUN (86) mengqi.sun Zhe ZHOU (86) zhe.zhou Shan Ying (86) ying.shan Banks/ Non-Bank Financials Property Li WAN, CFA, FRM (86) wanli Alfred LAU, CFA, FRM (852) alfred.lau Hannah HAN (852) hannah.han Philip TSE, CFA, FRM (852) philip.tse Jennifer ZHANG (852) yufan.zhang Carmen WONG (852) carmen.wong Consumer Renewable Energy Summer WANG, CFA (852) summer.wang Louis SUN (86) louis.sun Environmental Services Technology Wallace CHENG (852) wallace.cheng Chris YIM (852) christopher.yim Gaming & Leisure Transportation & Industrials Alfred LAU, CFA, FRM (852) alfred.lau Geoffrey CHENG, CFA (852) geoffrey.cheng Fay ZHOU (852) fay.zhou Healthcare Automobile & Defense Grace ZHAO (86) grace.zhao Angus CHAN (86) angus.chan 8

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