We expect Hang Seng Index to make a technical rebound in near term. Hang Seng Index Performance

Transcription

1 27 June 2018 Hang Seng Index Performance Source: Bloomberg Major Market Indicators % Cha nge Hong Kong Close 1- Da y 1- Mth 6 - Mth 12 - Mth Hang Seng Index 28, % - 5.6% - 2.4% 11.8% HSCEI (H- Shares) 11, % - 7.7% - 4.3% 5.9% Mkt T/O ($ Mn) 124, % 33.3% 73.7% 83.0% Ove rse a DJIA 24, % - 1.9% - 2.0% 13.9% NASDAQ 7, % 1.7% 9.0% 23.0% Shanghai SE Composite 2, % - 9.4% % % Shenzhen Component 9, % % % % Commoditie s a nd FX Crude Oil Futures (US$) % 4.0% 18.4% 59.6% Gold Futures (US$) 1, % - 3.3% - 2.4% 1.1% Baltic Dry Index 1, % 23.8% - 2.4% 47.6% USD / Euro % 0.2% - 2.1% 3.0% Yen / USD % - 0.6% 3.0% 2.1% CNH / USD % - 2.9% - 0.5% 3.6% Market Overview Hang Seng Index closed down 0.3% at 28,881. HSCEI decline 0.8%. Market turnover increased to $124.8 billion. Heavily weighted AIA Group (1299) surged 0.7%. Tencent (700) and HSBC (5) cut 0.7% and 0.3%. Consumption, gaming, railway, automobile, cement, insurance, PRC banking and PRC property stocks underperformed the market. Want Want China (151), WH Group (288) and Shenzhou (2313) fell 1.1%-1.2%. Sands China (1928) and Galaxy Entertainment (27) both decreased 1.2%. China Railway Group (390), CRRC Corporation (1766) and CCCC (1800) shrank 1.1%-1.3%. Geely Automobile (175) and Great Wall Motor (2333) slid 2.1%. Anhui Conch (914) retreated 4.5%. Banking and insurance stocks in HSCEI dropped an average 1.1% and 1.0% respectively. Ping An Insurance (2318), PICC Group (1339), CITIC Bank (998) and China Minsheng Banking (1988) tumbled 1.5%-1.9%. Ten largest Chinese property developers dropped an average 2.4% among which Country Garden (2007) and Sunac China (1918) decreased 6.6% and 4.8% respectivley. We expect Hang Seng Index to make a technical rebound in near term HK banking and utilities stocks ended higher. BOC Hong Kong (2388), Hang Seng Bank (11) and Bank of East Asia (23) climbed 0.7%-1.0%. CLP Holdings (2) and Power Assets (6) grew 3.2% and 1.3% respectively. Local properties, technology, securities, telecom, power and pharmaceutical stocks lacked clear direction. Sunny Optical (2382) advanced 2.8% whilst AAC Technologies (2018) slumped 3.6%. China Telecom (728) soared 1.7% while China Unicom (762) plunged 0.6%. CSPC Pharmaceutical (1093) added 1.7% while Sinopharm (1099) cut 0.6%. We expect Hang Seng Index to make a technical rebound in near term.

2 Market in Focus Complete ecosystem and unique triathlon business model - Subscribe XIAOMI (1810) XIAOMI (1810) kicked off the IPO on Jun 25 by offering approximately 2,180mn shares for sale at $ per share to raise $ bn. 5% of the total offering or approximately 109mn shares will be earmarked for public offering. Seven cornerstone investors including China Mobile, SF Holdings, China Merchants Group, Poly Real Estate and Qualcomm will subscribe US$548mn shares. Chairman Mr Lei Jun controls 55.7% of the voting power of XIAOMI after the listing. Besides, he also directly or indirectly holds shares in many listed companies such as Kingsoft (3888, 10.9% stake), YY Inc (10.9% stake), Cheetah Mobile and Xunlei. XIAOMI is an internet company with smartphones and smart hardware connected by an IoT platform at its core. In 2016, 2017 and 1Q18, XIAOMI achieved revenue of RMB68.4bn, RMB114.6bn and RMB34.4bn respectively, with an increase of 2.4%, 67.5% and 85.7% yoy respectively. Non-IFRS adjusted profit was RMB1.9bn, RMB5.4bn and RMB1.7bn respectively with adjusted net profit margin of 2.8%, 4.7% and 4.9%. XIAOMI s main business segment includes smartphones, IoT and lifestyle products and Internet services. In 1Q18, these segments accounted for 67.5%, 22.4%, and 9.4% of revenue respectively while gross margin of hardware (smartphones and IoT products) and Internet services stood at 7% and 62.3% respectively. In 2017, the average Internet services revenue per user was RMB XIAOMI is currently the fourth largest smartphone company in the world. According to the IDC and Gartner, Xiaomi s smartphone shipment surged 42% yoy to 13mn units and accounted for 15.1% market share in China in 1Q18 though total smartphone shipment from the China market decreased by approximately 16.0% yoy. Similarly, sales of Xiaomi s smartphones in China jumped 124% yoy to 29mn units in 1Q18 compared with industry growth of 1.3% yoy. Besides, XIAOMI achieved good sales performance in emerging markets, ranking number one in India in terms of smartphone shipments in 1Q18 with a 30.3% market share. XIAOMI also invested over 200 companies trying to establish an ecosystem composed of a comprehensive suite of products including mobile peripherals, smart hardware and lifestyle products, among which many are leaders in their respective categories, such as Mi Band from Huami (HMI.N). Under its unique pricing strategies and determination to focus on the Internet service, Xiaomi pledges that its overall hardware net profit margin will never exceed 5%. Meanwhile, Xiaomi had built the world's largest IoT platform with over 100mn connected devices. MAU of MIUI (self-developed operating system based on Android operating system) exceeded 190mn who regularly used innovative Internet services. In March 2018, XIAOMI had 18 apps with more than 50mn MAU including Mi App Store, Mi Browser, Mi Music. It also provided services on other operating system such as Mi Store, Mi Fit and Mi Home, etc. Considering its abundant ecosystem and creative triathlon - connecting users with hardware, E-commerce& New Retail and Internet Services- business model, we are optimistic about XIAOMI s growth prospects in the long term and recommend investors to SUBSCRIBE the IPO.

3 Technical Ideas Name Stock Code Rating / Last Closing Price Our TP / Bloomberg TP Cut Loss Nine Dragons Paper 2689 HK Equity BUY $10.24 $11.26 $17.09 $9.73 MKT Cap ($Bn) / Free Float Turnover / 30D Avg ($Mn) Turnover vs 5D & 30D Avg Forward PER / PBR Net Debt (Cash) / Equity % % 217% 5.5X 1.13X 75% Technical Indicator SMA RSI (14) 19.9 SMA BB (Upper) SMA BB (Lower) Name Stock Code Rating / Last Closing Price Our TP / Bloomberg TP Cut Loss Dongyue Group 189 HK Equity BUY $6.80 $7.48 $12.00 $6.46 MKT Cap ($Bn) / Free Float Turnover / 30D Avg ($Mn) Turnover vs 5D & 30D Avg Forward PER / PBR Net Debt (Cash) / Equity % % 168% 5.6X 1.36X 5% Technical Indicator SMA RSI (14) 37.1 SMA BB (Upper) 7.54 SMA BB (Lower) 6.56 Source: Bloomberg, Mason Securities

4 Recent Recommendations Date of Issue Stock Pick Recommendation Highlights Rating (TP) 11/6/2018 IMAX China (1970) 12/6/2018 CCCC (1800) 13/6/2018 Colour Life Services (1778) 15/6/2018 Skyworth Digital (751) 19/6/2018 Luk Fook (590) 20/6/2018 Mengniu Dairy (2319) 21/6/2018 Shimao Property (813) 22/6/2018 CEG (1257) 25/6/2018 A-Living Services (3319) 26/6/2018 Kingsoft (3888) IMAX China (1970): Benefit from overall box office recovery and market share expansion For the first five months of 2018, the total box office reached RMB28.45bn compared to RMB23.26bn in the same period of last year, representing an increase of 22.4% yoy We believe IMAX China will benefit from the overall box office recovery and market share expansion due to new programming strategy Deserve a premium valuation against its peer Maintain BUY CCCC (1800) Strong growth in new contracts value and continued diversification into overseas markets will ensure CCCC to achieve earnings growth in coming years Valuation of CCCC is undervalued by historical standard Valuation remains attractive compared to peers Maintain BUY Colour Life Services (1778) Organic growth in existing business and maiden contribution from WXM will ensure strong earnings growth for 2018 Traded at 2018 P/E of 16.4x, CLS remains undervalued compared to peers Lower ASP assumption, Downgrade Skyworth Digital (751) to HOLD The high base effect on sales volume started to fade out this year, Skyworth s year-to-april sales volume in China returned to positive growth, growing 2.5% vs -21.4% in Although we expect Skyworth s profitability will normalize in FY19, the valuation is not attractive at current level given fierce competition and limited upsides on products ASP FY18 earnings are likely to beat market expectation - Maintain BUY Luk Fook (590) Recent underperformance was mainly triggered by lower-than-expected earnings for Chow Tai Fook (1929). However, Luk Fook has good track record in cost control compared with its peers Overall SSSG increased from 1% yoy in 3QFY18 to 16% yoy in 4QFY18.We believe Luk Fook will continue to achieve strong SSSG for 1QFY19 Mengniu Dairy (2319) - Recent share price weakness offers a buying opportunity, Upgrade to BUY In short-term, we believe Mengniu s fundamental still remains strong and expect it to deliver solid revenue and net profit growth in upcoming interim results Reallocation of capital flow to consumer staples sector which did not suffer from trade war between China and U.S. may provide support to share price in the near term Maintain BUY on Shimao Property (813) due to strong contracted sales in the first five months of 2018 Second-tier players such as Shimao Property (813) is expected to achieve outstanding contracted sales this year Acceleration in contracted sales and relatively low valuation will be key share price drivers China Everbright Greentech (1257): Bullish on the industry growth, Maintain BUY China biomass power operating capacity is expected to reach 13,442MW in 2020, growing at a CAGR of 19% from We expect CEG to outperform the market growth given its strong pipeline and potential project wins supported by China Everbright International (257) which holds 69.7% of CEG s stake A-Living Services (3319) is no longer undervalued after a strong run Downgrade to HOLD Outperformance driven by (i) a promising industry outlook, (ii) continuous market share expansion through M&A and (iii) high earnings growth visibility The pace of M&A will be key earnings risk for the second half of the year Three potential catalysts to drive up share price, maintain BUY on Kingsoft (3888) 1) new games are scheduled to launch in June and Sep. 2) Spinning off the WPS business in A- share market this year and 3) upcoming IPO of Xiaomi in July BUY ($31.40) BUY ($10.40) BUY ($9.33) HOLD ($4.00) BUY ($40.0) BUY ($30.2) BUY ($27.0) BUY ($9.60) HOLD($16.30) BUY ($30.8)

5 Disclosures of Interests Research Analyst Certification The views about any and all of the subject securities and issuers expressed in this report accurately reflect the personal views of the research analyst(s) primarily responsible for this report; and the analysts are paid in part based or the profitability of Mason Securities Limited ( MSL ) and its affiliates (collectively called Mason Group ) which includes revenue from investment banking activities. Research Analyst Conflicts Financial Interest: The research analyst(s) who prepared this report and/or his/her/their associates has/have no financial interests in relation to listed corporation(s) covered in this report. Relevant Relationships: The research analyst(s) who prepared this report and his/her/their associates do not serve as officer(s) of listed corporation(s) covered in this report. Mason Group s Financial Interests and Business Relationships Mason Group may make a market in, or may, as principal or agent, buy or sell securities (or derivatives thereon) of issuer(s) mentioned in this report. Mason Group may have a financial interest in the issuer(s) mentioned in this report, including a long or short position in its/their securities and/or options, futures or other derivative instruments based thereon, or vice versa. Likewise, Mason Group, including its officers or employees may serve or have served as an officer, director or in an advisory capacity for any issuer(s) mentioned in this report. Mason Group may also, from time to time, solicit, perform or have performed investment banking, underwriting or other services (including acting as adviser, manager, underwriter or lender) within the last 12 months for any issuer(s) referred to in this report. Affiliation Mason Group is a wholly owned subsidiary of Mason Group Holdings Limited (00273.hk). More Information can be obtained at the website, Disclaimer This report is provided for information and discussion purposes only. None of the views contained in this report constitute a solicitation or an offer by any member of MSL, their directors, representatives and / or employees to buy or sell, whether as principal or agent, any securities, futures, options or other financial instruments. This report is intended for receipt by those to whom it is supplied by MSL and is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject MSL to any regulatory requirement within such jurisdiction or country. Any person or entity who is in possession of this report and who intends to act or rely upon be information contained in it must satisfy himself / herself that he / she is not subject to any local requirement which restricts or prohibits him / her from doing so. Although the information in this report is obtained or compiled from sources that MSL believes to be reliable, it does not represent or warrant, whether expressly or impliedly, the accuracy, validity, timeliness or completeness of any such information. MSL expressly disclaims any warranties whether express or implied, of fitness for a particular purpose, or duties of care, in favor of any third party relying upon this reports. Information contained in this report may change at any time and MSL gives no undertaking to provide notice of any such change. Opinions and estimates stated in this report are a reflection of the judgment of MSL as at the date of this report and may also change at any time. MSL gives no undertaking to provide notice of any such change. The instruments and investments discussed in this report may not be suitable for investors, and this report has no regard to the specific investment objectives, investment experience, financial situation or needs of any particular recipient. Investors must make their own investment decisions based on their own investment objectives and financial position. The value of, and income from, an investment may vary because of changes in interest rates or foreign exchange rates, changes in the price of securities or indices, changes in operational or financial conditions of companies and other factors. There may be time limitations on the exercise of, or the exercise of rights associated with, the instruments and investments discussed in this report. Past performance is not necessary a guide to future performance. In no event will MSL or any other member of Mason Group be liable or have any responsibility for loss of any find, whether direct, indirect, consequential or incidental, resulting from the act or omission of any third party occurring in reliance upon the contents of this report even if Mason Group is aware of such act or omission at the time that it occurs MSL. All rights reserved. This report may not be reproduced or redistributed, in whole or in part, without the written permission of MSL and MSL accepts no liability whatsoever for the actions of third parties in this respect. Guide to stock ratings Note: Newly issued research recommendations and target prices supersede previously published research. BUY Based on a current 12-month view of total shareholder return (change in share price from current price + projected dividend yield), we expect a positive return of over 10%. HOLD Based on a current 12-month view of total shareholder return, we expect the return to range between +10% to -10%. SELL Based on a current 12-month view of total shareholder return we expect a negative return of over 10%. Research Team Contact Research Team, Mason Securities Limited, Portion 1, 12/F, The Center, 99 Queen s Road Central, Hong Kong Tel: (+852) research@masonhk.com