21 June 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 29,696.17 0.8% -4.9% 1.1% 15.6% HSCEI (H-Shares) 11,505.74 0.1% -6.8% -0.8% 10.7% Mkt T/O ($ Mn) 109,826.37-28.2% 17.4% 36.8% 64.5% Oversea DJIA 24,657.80-0.2% -1.4% -0.5% 15.2% NASDAQ 7,781.52 0.7% 5.2% 11.7% 24.8% Shanghai SE Composite 2,915.73 0.3% -9.3% -11.6% -7.6% Shenzhen Component 9,501.34 0.9% -11.7% -14.5% -8.4% Commodities and FX Crude Oil Futures (US$) 65.65-0.1% -9.1% 12.5% 54.4% Gold Futures (US$) 1,270.80-0.3% -1.6% 0.0% 2.0% Baltic Dry Index 1,419.00-1.6% 14.5% -0.8% 68.1% USD / Euro 1.16-0.1% -1.7% -2.5% 3.8% Yen / USD 110.43-0.2% 0.5% 2.7% 0.9% CNH / USD 6.48 0.0% -1.8% 1.4% 5.4% Market Overview Hang Seng Index closed up 0.8% at 29,696. HSCEI climbed 0.1%. Market turnover reduced to $109.8 billion. Heavily weighted AIA Group (1299), Tencent (700) and HSBC (5) surged 2.4%, 0.9% and 0.8% respectively. Gaming, oil, power, pharmaceutical and local property stocks outperformed the market. Sands China (1928) and Galaxy Entertainment (27) soared 1.4%- 2.3%. CNOOC (883) and Sinopec (386) added 2.6%. Huaneng Power (902) and CGN Power (1816) jumped 2.0%-2.6%. Sinopharm (1099) and CSPC Pharmaceutical (1093) rose 0.9%-1.7%. Nine local property stocks in Hang Seng Index all increased with an average gain of 1.3% among which Wharf REIC (1997) advanced 3.6%. Sino Land (83) and Swire Pacific (19) climbed 1.8%. Local banks, railway, telecom, consumption, automobile, insurance, PRC banking and PRC property stocks lacked clear direction. Want Want China (151) and Mengniu Dairy (2319) grew 3.7%-3.8% while WH Group (288) fell 1.4%. Geely Automobile (175) and Dongfeng Motor (489) rose 1.5%-2.0% while BYD Company (1211) slid 2.6%. Logan Property (3380) and Sunac China (1918) added 1.0%-1.2% but Shimao Property (813) and Longfor Properties (960) tumbled 2.0%-2.4%. Postal Savings Bank (1958) increased 2.1% while ABC (1288) retreated 1.0%. Technology stocks like Sunny Optical (2382) and AAC Technologies (2018) moved in line with the benchmark index. Five securities stocks in HSCEI all declined with an average loss of 0.7% among which Haitong Securities (6837) and GF Securities (1776) plunged 1.0%-1.3%. We expect Hang Seng Index to move within the range of 29,500 and 31,500 in near term. We expect Hang Seng Index to move within the range of 29,500 and 31,500 in near term.
Market in Focus Shimao Property MKT Cap ($Bn) 82.1 Bloomberg Ticker 813 HK Equity 52-week High/Low ($) 13.14-26.2 Rating BUY Free Float (%) 31.9% Target Price $27.00 3M Avg Turnover ($, Mn) 155.7 Maintain BUY on Shimao Property (813) due to strong contracted sales in the first five months of 2018 Since our BUY commentary dated 16 April 2018, Shimao Property (813, $24.25) has climbed 10.2% compared with an average drop of 6.3% for the remaining nine of the ten largest Chinese property developers and a loss of 3.6% for Hang Seng Index over the same period. We attribute the outperformance of Shimao Property to extremely strong contracted sales in the first five months of 2018. Whilst contracted sales of firsttier property developers are likely to slow this year due to high base effect, some second-tier players such as Shimao Property (813) and Logan Property (3380) are expected to achieve outstanding contracted sales this year leading to a positive re-rating. In fact, the share prices of Shimao Property and Logan Property have surged more than 40% yearto-date compared with a negative return for China Vanke (2202) and China Evergrande (3333). National property sales growth decelerated from 34.8% in 2016 to 13.7% in 2017 and 11.8% yoy in the first five months of 2018. However, Shimao Property achieved outstanding contracted sales growth since 2017 thanks to the improvement in product mix and abundant saleable resources. Shimao Property s contracted sales grew at a 3-year CAGR of only 1% compared to national growth of 13% from 2013 to 2016, but increased by 48% in 2017 and 53% yoy in the first five months of 2018. We believe the acceleration in contracted sales and relatively low valuation will be key share price drivers for Shimao Property. Fig1: 1 Year Share Price Source: Bloomberg, Mason Securities According to Bloomberg estimates, Shimao Property s underlying EPS is expected to grow 33% in 2018 and 24% in 2019. The counter is presently trading at 2018 P/E of 7.3x and 2018 P/B of 1.03x compared with an average 2018 P/E of 7.7x and 2018 P/B of 1.57x for the ten largest Chinese property stocks. We believe current valuation of Shimao Property is still attractive compared to peers. We therefore maintain a BUY on Shimao Property and raise price target from $24.4 to $27.0 based on 2018 P/B of 1.15x.
Technical Ideas Stock Code Rating / Last Closing Price Our TP / Bloomberg TP Cut Loss China Everbright Greentech 1257 HK Equity BUY $7.81 $8.59 $9.74 $7.42 MKT Cap ($Bn) / Free Float Turnover / 30D Avg ($Mn) Turnover vs 5D & 30D Avg Forward PER / PBR Net Debt (Cash) / Equity 16.1 26.4% 47 22 194% 209% 11.9X 1.63X 4% Technical Indicator SMA10 8.20 RSI (14) 34.3 SMA20 8.38 BB (Upper) 8.97 SMA100 7.67 BB (Lower) 7.79 Stock Code Rating / Last Closing Price Our TP / Bloomberg TP Cut Loss HKBN 1310 HK Equity BUY $11.90 $13.09 $13.11 $11.31 MKT Cap ($Bn) / Free Float Turnover / 30D Avg ($Mn) Turnover vs 5D & 30D Avg Forward PER / PBR Net Debt (Cash) / Equity 12.0 94.0% 38 15 174% 251% 26.9X 11.79X 309% Technical Indicator SMA10 11.28 RSI (14) 45.2 SMA20 11.02 BB (Upper) 11.67 SMA100 10.00 BB (Lower) 10.37 Source: Bloomberg, Mason Securities
Recent Recommendations Date of Issue Stock Pick Recommendation Highlights Rating (TP) 4/6/2018 Kingsoft (3888) 6/6/2018 China Overseas Property (2669) 7/6/2018 Angang Steel (2669) 8/6/2018 China Maple Leaf (1317) 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) 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 Room for further expansion through acquisition Maintain BUY China Overseas Property (2669) Thanks to the acquisition of CITIC Property Service, the GFA under management of COPH increased by 37.3% in 2017 to 128.3mn sq.m. comprising 646 properties located across 73 cities and regions in Hong Kong, Macau and the PRC Traded at 2018 P/E of 24.2x, valuation of COPH is still attractive to long term investors Maintain BUY Angang Steel (347): Re-rating on sustainable profitability Our simulated Angang s ASP-cost spread was slightly higher than it was in 1Q18 We believe Angang s 2Q18 earnings will maintain at a relatively high level and record a morethan-100% yoy growth due to higher ASP-cost spread and low base in 2Q17 Valuation is no longer attractive to short term investors Downgrade China Maple Leaf (1317) to HOLD We believe the recent outperformance is driven by its good earnings track record and continued expansion through acquisition Although we remain optimistic about the private education industry in China, current valuation of MLES is no longer attractive to short term investors 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 Traded at 2018 PER of 5.5x compared to 5-year average forward PER of 6.6x, valuation of CCCC is undervalued by historical standard expansion due to new programming strategy 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 BUY ($30.8) BUY ($3.25) BUY ($9.80) HOLD ($13.50) BUY ($31.40) BUY ($10.40) BUY ($9.33) HOLD ($4.00) BUY ($40.0) BUY ($30.2)
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