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

Transcription

1 19 October 2018 Hang Seng Index Performance Source: Bloomberg Major Market Indicators % Change Hong Kong Close 1-Day 1-Mth 6-Mth 12-Mth Hang Seng Index 25, % -7.1% -17.1% -9.6% HSCEI (H-Shares) 10, % -5.6% -17.2% -10.7% Mkt T/O ($ Mn) 87, % 1.6% -25.3% 0.2% Oversea DJIA 25, % -3.9% 2.9% 9.6% NASDAQ 7, % -5.8% 3.4% 13.3% Shanghai SE Composite 2, % -9.0% -20.2% -26.2% Shenzhen Component 7, % -12.9% -32.2% -35.8% Commodities and FX Crude Oil Futures (US$) % -3.2% 0.8% 34.2% Gold Futures (US$) 1, % 2.1% -8.9% -4.7% Baltic Dry Index 1, % 13.2% 29.4% -1.8% USD / Euro % -1.9% -7.2% -3.2% Yen / USD % 0.0% -4.4% 0.3% CNH / USD % -1.3% -9.7% -4.8% Market Overview Hang Seng Index closed down 7 points at 25,454. HSCEI dropped 0.6%. Heavily weighted Tencent (700) and HSBC (5) cut 0.1% and 0.4% respectively. AIA Group (1299) climbed 0.7%. HK banking, securities, automobile and oil stocks underperformed the market. BOC Hong Kong (2388) and Hang Seng Bank (11) slid 0.5%-1.0%. Five securities stocks in HSCEI dropped an average 1.1% among which GF Securities (1776) and Haitong Securities (6837) declined 1.7%-1.9%. Dongfeng Motor (489), Geely Automobile (175), Guangzhou Automobile (2238) and Great Wall Motor (2333) lost 2.0%-3.4%. Sinopec (386), CNOOC (883) and PetroChina (857) retreated 4.3%, 2.0% and 1.5% resepectively. Technology, property, insurance, telecom, railway, pharamaceutical and PRC banking stocks lacked clear direction. Sunny Optical (2382) soared 2.3% while AAC Technologies (2018) shrank 0.6%. China Overseas Land (688) surged 1.8%. China Evergrande (3333), Sunac China (1918) and Shimao Property (813) plunged 3.3%-3.7%. Link REIT (823) jumped 3.2% whilst Hang Lung Properties (101) fell 1.7%. PICC P&C (2328) and PICC Group (1339) rose 2.4%-3.0% while CPIC (2601) tumbled 1.6%. CSPC Pharmaceutical (1093) increased 1.1%. Sinopharm (1099) and Sino Biopharm (1177) decreased 1.3%-2.0%. Consumption, gaming and power stocks outperformed the market. Shenzhou (2313), Hengan (1044) and Want Want China (151) surged 1.1%-1.9%. Sands China (1928) and Galaxy Entertainment (27) advanced 1.0%-1.2%. Huaneng Power (902) and China Resources Power (836) added 1.7% and 0.9% respectively. We expect Hang Seng Index to maintain a technical rebound in near term. We expect Hang Seng Index to make a technical rebound in near term

2 Market in Focus Name China Overseas Property MKT Cap ($Bn) 6.3 Bloomberg Ticker 2669 HK Equity 52-week High/Low ($) Rating BUY Free Float (%) 38.8% Target Price $2.60 3M Avg Turnover ($, Mn) 25.7 Attractive valuation after a 33% drop in share price Maintain BUY China Overseas Property (2669) Since our BUY commentary dated August 24, China Overseas Property Holdings (2669, COPH, $1.93) has dropped 24.5% compared with a loss of 8.4% for Hang Seng Index over the same period. We believe the underperformance is partially due to worries about an increase in employee benefit expenses after a strict enforcement of China s social security taxs in With share price falling 32.6% in three months, the negative impact on 2019 s earnings should be fully discounted in share price in our view. As a recap, COPH currently provides property management services to 662 properties located across 73 cities and regions in Hong Kong, Macau and the PRC, with an aggregate GFA under management of 131.7mn sq.m. We remain optimistic about the growth prospects of COPH given strong support from parent company and ongoing industry consolidation. For the six months ended 30 June 2018, COPH s revenue increased by 19.8% yoy to $1,907mn thanks to increasing GFA under management, further expansion in the scope of the value-added services and the effect of average appreciation of Renminbi against HK dollar during the past twelve months. Revenue from property management services grew 18.8% yoy to $1,772mn accounting for 92.9% of total revenue. Revenue from the value-added services added 34.3% yoy to $135mn accounting for 7.1% of the total revenue. Overall gross margin slightly improved from 27.4% to 27.7%. As the ratio of selling & administrative expenses to sales declined from 14.5% to 12.6% driven by scale expansion, net profit attributable to shareholders surged 38.6% yoy to $220.8mn. Net margin improved from 10.0% to 11.6%. Average return on equity stood at relatively high of 36.7% in 2017 and 46.7% in 1H18 compared to peers. As at 30 June 2018, COPH owned net cash of $2.20bn or equivalent to $0.67 per share that should enable it to continue its strategy of expansion through acquisition. Fig1: 1 Year Share Price Source: Bloomberg, Mason Securities According to Bloomberg estimates, COPH s revenue is expected to grow 14% in 2018 and 14% in 2019 to $3.82bn and $4.35bn respectively. Net profit will increase by 30% to $400mn in 2018 and 23% to $492mn in This translates into forward P/E of 16.2x in 2018 and 13.3x in 2019 with a 2-year EPS CAGR of 25%. Current valuation is attractive to longterm investors in our view. We therefore maintain our BUY rating on COPH with a 6-month price target of $2.6 based on 2019 P/E of 18x. Technical Ideas

3 Name Stock Code Rating / Last Closing Price Our TP / Bloomberg TP Cut Loss Man Wah Holdings 1999 HK Equity BUY $4.33 $4.76 $6.05 $4.11 MKT Cap ($Bn) / Free Float Turnover / 30D Avg ($Mn) Turnover vs 5D & 30D Avg Forward PER / PBR Net Debt (Cash) / Equity % % 175% 8.8X 2.41X -6% Technical Indicator SMA RSI (14) 36.5 SMA BB (Upper) 5.31 SMA BB (Lower) 3.93 Name Stock Code Rating / Last Closing Price Our TP / Bloomberg TP Cut Loss HKBN 1310 HK Equity BUY $12.68 $13.95 $14.27 $12.05 MKT Cap ($Bn) / Free Float Turnover / 30D Avg ($Mn) Turnover vs 5D & 30D Avg Forward PER / PBR Net Debt (Cash) / Equity % % 59% 29.8X 12.49X 309% Technical Indicator SMA RSI (14) 44.2 SMA BB (Upper) SMA BB (Lower) Source: Bloomberg, Mason Securities

4 Recent Recommendations Date of Issue Stock Pick Recommendation Highlights Rating (TP) Long term growth prospects remain promising Upgrade Hua Hong Semiconductor (1347) to BUY 4/10/2018 HHS (1347) 5/10/2018 China Gas (384) 8/10/2018 Luk Fook (590) 9/10/2018 CGR (1193) 10/10/2018 CSCI (3311) 11/10/2018 COG (581) 12/10/2018 Anta Sports (2020) 15/10/2018 Kunlun Energy s (135) 16/10/2018 A-Living Services (3319) 18/10/2018 ENN Energy (2688) We believe the underperformance is sentiment driven rather than any change in the fundamentals HHS expects revenue to grow 3%-4% qoq in 3Q18 with a gross margin of 32%-33%. Based on this management guidance, we estimate the company s net profit to reach US$44.6mn in 3Q18, down 2.6% qoq and up 26.1% yoy China Gas Holdings (384): Concerns overdone, recommend BUY Market over-reacts news of connection fee cut under current weak market sentiments China Gas should be less impacted by any such connection fee cut given its larger portion of rural household connections and the recent share price weakness offers a buying opportunity SSSG for HK & Macau market will remain strong in 2Q FY19 - Maintain BUY Luk Fook (590) Weakness in share price was mainly due to concerns about a slowdown in consumption and Renminbi depreciation that may eventually affect sales performance YoY growth rate of China s retail sales value of gold, silver and jewellery goods accelerated from 6.8% in the April-June period to 8.2% in July to 14.1% in August China Resources Gas (1193): Focus on the LT trend, Good entry point for LT investors, Maintain BUY Weakness in share price was mainly due to concerns about Chongqing gas connection fee cut of Chinese downstream gas sector recently We do not believe the other regions will follow the same policy and the recent share price weakness offers a buying opportunity China s infrastructure investment is likely to increase in 4Q18 Maintain BUY CSCI (3311) Outperformance of CSCI is mainly driven by speculation that China will increase infrastructure spending in the fourth quarter Chinese government will substantially increase infrastructure spending in the fourth quarter that will certainly benefit CSCI COG (581): Expect increasing infra. spending in 4Q, re-rating on sustainable profitability, Maintain BUY Overall steel price and margin staying at high level which have proved our previous thoughts We believe the Chinese government will substantially increase infrastructure spending in the fourth quarter that will certainly benefit the overall steel industry Valuation looks attractive to long-term investors - Maintain BUY Anta Sports (2020) We believe the potential earnings dilution effect has been fully discounted in share price We believe current valuation of Anta Sports is still attractive to long term investors Benefit from sustainable LNG consumption growth in China, recommend BUY Kunlun Energy (135) We expect LNG imports will reach approximately 13% CAGR from 2018 to 2025 in China Kunlun Energy s LNG terminals and LNG processing business will benefit from the sustainable LNG import growth given its leading position in LNG industry Attractive valuation after a 35% drop in share price Maintain BUY on A-Living Services (3319) We believe the underperformance is partially due to worries about an increase in employee benefit expenses after a strict enforcement of China s social security taxs in 2019 The negative impact on 2019 s earnings should be fully discounted in share price in our view ENN Energy (2688) : Recent share price weakness offers a long-term buying opportunity; BUY Management guided a +20% yoy volume growth on natural gas sold and high-single-digit new connection growth for the next 2-3 years. Management also expect the core net profit growth in 2018 to reach +18% Valuation of ENN is still reasonable long term investors BUY ($20.0) BUY ($30.4) BUY ($32.5) BUY ($38.4) BUY ($10.0) BUY ($9.50) BUY ($42.0) BUY ($10.70) BUY ($14.30) BUY ($79.4)

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