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 28,881.40-0.3% - 5.6% - 2.4% 11.8% HSCEI (H- Shares) 11,118.89-0.8% - 7.7% - 4.3% 5.9% Mkt T/O ($ Mn) 124,771.76 16.3% 33.3% 73.7% 83.0% Ove rse a DJIA 24,283.11 0.1% - 1.9% - 2.0% 13.9% NASDAQ 7,561.63 0.4% 1.7% 9.0% 23.0% Shanghai SE Composite 2,844.51-0.5% - 9.4% - 13.2% - 10.9% Shenzhen Component 9,339.37 0.2% - 10.6% - 14.4% - 11.4% Commoditie s a nd FX Crude Oil Futures (US$) 70.61 0.1% 4.0% 18.4% 59.6% Gold Futures (US$) 1,260.10 0.0% - 3.3% - 2.4% 1.1% Baltic Dry Index 1,333.00-0.6% 23.8% - 2.4% 47.6% USD / Euro 1.17-0.1% 0.2% - 2.1% 3.0% Yen / USD 110.06-0.1% - 0.6% 3.0% 2.1% CNH / USD 6.59-0.1% - 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.
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 $17.0-22.0 per share to raise $37.1-48.0bn. 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 57.9. 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.
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 47.9 32.7% 339 156 163% 217% 5.5X 1.13X 75% Technical Indicator SMA10 11.29 RSI (14) 19.9 SMA20 11.85 BB (Upper) 13.28 SMA100 12.30 BB (Lower) 10.43 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 14.4 50.4% 156 93 289% 168% 5.6X 1.36X 5% Technical Indicator SMA10 7.01 RSI (14) 37.1 SMA20 7.05 BB (Upper) 7.54 SMA100 7.18 BB (Lower) 6.56 Source: Bloomberg, Mason Securities
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 2017. 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 2016-2020 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)
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