3 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 27,126.38-2.4% -2.7% -9.9% -1.6% HSCEI (H-Shares) 10,754.56-2.4% -1.1% -10.4% -1.4% Mkt T/O ($ Mn) 90,980.95 7.8% -15.8% -33.7% 24.0% Oversea DJIA 26,651.21 0.7% 2.6% 12.7% 18.1% NASDAQ 8,037.30-0.1% -0.9% 17.0% 23.3% Shanghai SE Composite 2,821.35 1.1% 3.5% -11.0% -15.8% Shenzhen Component 8,401.09 0.8% -0.8% -22.7% -24.2% Commodities and FX Crude Oil Futures (US$) 75.52 0.3% 8.2% 19.9% 49.3% Gold Futures (US$) 1,197.50 0.5% -0.3% -11.1% -6.1% Baltic Dry Index 1,555.00 1.0% -1.5% 47.4% 17.1% USD / Euro 1.15-0.4% -0.8% -6.2% -1.8% Yen / USD 113.73 0.2% -2.3% -6.8% -0.9% CNH / USD 6.89 0.0% -0.8% -8.9% -3.2% Market Overview Hang Seng Index closed down 2.4% at 27,126. HSCEI declined 2.4%. Heavily weighted Tencent (700), HSBC (5) and AIA Group (1299) cut 1.9%, 2.1% and 3.4% respectivley. Automobile, airline, cement, gaming, property and Chinese banking stocks underperformed the market. BYD Company (1211), Great Wall Motor (2333) and Guangzhou Automobile (2238) tumbled 4.7%- 7.3%. Air China (753) and Conch Cement (914) retreated 4.8%-5.0%. Galaxy Entertainment (27) and Sands China (1928) slid 3.9%-4.7%. Nine local property stocks in Hang Seng Index dropped an average 2.7% among which Link REIT (823), Sino Land (83) and Swire Pacific (19) lost 3.3%- 4.9%. Ten largest Chinese property developers fell an average 2.6% among which China Vanke (2202) and Shimao Property (813) plunged 4.2%-5.9%. Nine Chinese banks in HSCEI cut an average 2.5% among which ICBC (1398) and CCB (939) decreased 3.2%-3.3%. Securities, railway, power, oil and pharmaceutical stocks ended lower but outperformed the benchmark index. CITIC Securities (6030), China Railway Group (390), Huaneng Power (902), Sinopec (386), Sinopharm (1099) and Sino Pharm ( (1177) shrank 2.6%-3.3%. Consumption, insurance and telecom stocks lacked clear direction. WH Group (288), PICC Group (1339) and China Telcom (728) climbed 0.9%-2.0%. Ping An Insurance (2318), China Life (2628) and China Mobile (941) slumped 2.2%-2.8%. We expect Hang Seng Index to hover between 27,000 and 28,800 in October but the risk is on the upside. We expect Hang Seng Index to hover between 27,000 and 28,800 but the risk is on the upside.
Market in Focus China Everbright Greentech MKT Cap ($Bn) 13.9 Bloomberg Ticker 1257 HK Equity 52-week High/Low ($) 6.15-8.95 Rating BUY Free Float (%) 26.4% Target Price $8.60 3M Avg Turnover ($, Mn) 20.7 China Everbright Greentech (1257): Expect EPS CAGR growth to reach +20% in next 3 years, reiterate BUY China Everbright Greentech (1257, $6.71 CEG ), listed on the Hong Kong Stock Exchange in May 2017, is a leading environmental protection service provider in China. CEG focuses on biomass treatment, hazardous waste and wind/solar power. CEG is the largest biomass power operator in East China and in top five in China in terms of designed capacity. According to Frost & Sullivan, 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 revenue growth to outperform industry growth given its strong pipeline and potential project wins supported by China Everbright International (257) which holds 69.7% of CEG s stake. On August 8, the company announced a solid earnings results for the first half of 2018. For the first half of 2018, CEG s revenue surged 54.0% yoy to HKD3,152.9mn. Revenue from (i) Integrated biomass utilisation project, (ii) hazardous waste treatment project and (iii) solar energy and wind power projects and others grew approximately 47.6%, 139.3% and 18.3% yoy to HKD2,610.8mn, HKD396.8mn and HKD133.0mn respectively accounting for 82.8%, 12.6% and 4.6% of total revenue. Segment profit amounted to HKD682.4mn in 1H18, the abovementioned sectors grew approximately 36.1%, 56.8% and 26.6% respectively to HKD466.1mn, HKD142.3mn and 74.1mn. Overall net margin dropped from 22.3% in 1H17 to 20.4% in 1H18, mainly due to a 74% yoy surge on finance costs and higher contributions from hazardous waste treatment project construction which had lower margins than other segments and dragged down the overall net margins in 1H18. As at 30 June 2018, CEG s net debt amounted to HKD HKD2,259mn with approximately 24% net debt to equity ratio. We believe the relatively low gearing provides CEG sufficient rooms for future expansion. We remain our bullish views on CEG given on promising industry growth, its strong project pipeline and supports from China Everbright International (257). Fig1: 1 Year Share Price Source: Bloomberg, Mason Securities According to Bloomberg estimates, CEG s earnings are expected to reach $1.35bn in 2018 and $1.74bn in 2019 (EPS $0.66 and $0.85), up 41.9% yoy and 28.5% yoy respectively. NAV per share is expected to reach $4.78 and $5.48 in 2018 and 2019. Traded at 2018/19 P/E of 10.2x/7.9x and P/B of 1.40x/1.23x with EPS growth of more than 20% in next 3 years, we believe the current price of CEG is still attractive given the robust market growth. We maintain our BUY rating on CEG with 6- month price target of $8.6 based on 2018 P/B of 1.8x.
Technical Ideas Stock Code Rating / Last Closing Price Our TP / Bloomberg TP Cut Loss Lenovo Group 992 HK Equity BUY $5.76 $6.34 $5.47 $5.47 MKT Cap ($Bn) / Free Float Turnover / 30D Avg ($Mn) Turnover vs 5D & 30D Avg Forward PER / PBR Net Debt (Cash) / Equity 69.2 57.3% 378 250 119% 151% 16.8X 2.04X 43% Technical Indicator SMA10 5.40 RSI (14) 70.7 SMA20 5.33 BB (Upper) 5.61 SMA100 4.47 BB (Lower) 5.06 Stock Code Rating / Last Closing Price Our TP / Bloomberg TP Cut Loss China Unicom 762 HK Equity BUY $9.06 $9.97 $12.89 $8.61 MKT Cap ($Bn) / Free Float Turnover / 30D Avg ($Mn) Turnover vs 5D & 30D Avg Forward PER / PBR Net Debt (Cash) / Equity 277.2 19.3% 307 292 75% 105% 28.8X 0.76X 11% Technical Indicator SMA10 9.34 RSI (14) 46.6 SMA20 9.29 BB (Upper) 9.60 SMA100 9.82 BB (Lower) 8.98 Source: Bloomberg, Mason Securities
Recent Recommendations Date of Issue Stock Pick Recommendation Highlights Rating (TP) 13/9/2018 Anta Sports (2020) Earnings dilution from a possible acquisition of Amer Sports has been fully discounted in share price - Maintain BUY Anta Sports (2020) The sell-off is mainly due to concerns about a slowdown in revenue growth and earnings dilution from a possible acquisition of Amer Sports Corporation (ASC) We believe the potential earnings dilution effect has been fully discounted in share price SSSG for Mainland China market is likely to improve in 2Q FY19 - Maintain BUY Luk Fook (590) BUY ($42.0) 17/9/2018 Luk Fook (590) 19/9/2018 CRG (1193) 20/9/2018 Shimao Property (813) 21/9/2018 COG (581) 24/9/2018 CSCI (3311) 26/9/2018 ENN Energy (2688) 27/9/2018 Galaxy Entertainment (27) 28/9/2018 China Oilfield Services (2883) 2/10/2018 CCCC (1800) Industry data for July and August suggests that Luk Fook s SSSG in the Mainland China market may improve in 2Q FY19. Luk Fook is currently trading at FY19 P/E of 11.0x with EPS growth of 7.4% which is undervalued in our view. China Resources Gas (1193): Better-than-expected interim results, Maintain BUY We continue to take a long-term positive view on the CRG given the industry s long-term and stable growth. Traded at 2018 P/E of 17.9x and 2019 P/E 15.9x, we believe the valuation of CRG is fair. Robust contracted sales growth for 8M18 - Maintain BUY on Shimao Property (813) We believe the underperformance is mainly driven by macro factors such as renminbi depreciation and worries about a slowdown in property sales in China. However, the fundamentals of Shimao remain solid Shimao s contracted sales target of RMB140bn, up 39% yoy in 2018, is highly achievable China Oriental Group (581): Re-rating on sustainable profitability, Maintain BUY We believe COG is one of the best companies and most efficient steel producers in China in terms of profitability or execution capability We expect an upward revision on COG earnings consensus in 2018 and 2019 after its strong interim results China s infrastructure investment is likely to increase in 4Q18 Maintain BUY CSCI (3311) Chinese government will substantially increase infrastructure spending in the fourth quarter that will certainly benefit CSCI Taking into account its good track record, we believe full year new contracts value for 2018 is likely to exceed management s target ENN Energy (2688) : 1H18 core profit beat, maintain our LT bullish view on China gas operator; BUY We continue to take a positive view on China gas consumption market We believe the valuation of ENN is still reasonable long term investors Current valuation is cheap by historical average - Maintain BUY Galaxy Entertainment (27) We believe the opening of the Hong Kong-Zhuhai-Macau Bridge in the fourth quarter of 2018 will improve earnings outlook for gamings stocks in the medium-to-long term We maintain our bullish view on the gaming sector and believe any share price correction is a good buying opportunity for long-term investors Capture CNOOC s capex upcycle: BUY China Oilfield Services (2883) for short term trading purpose Capital flows into sectors which benefit from the investment theme of stagflation in China, such as oil related players COSL is a good proxy to capture the upcycle of CNOOC s capex in coming years China s infrastructure investments is likely to increase in 4Q18 Maintain BUY CCCC (1800) We believe the Chinese government will substantially increase infrastructure spending in the fourth quarter that will certainly benefit CCCC Traded at 2018 PER of 5.5x compared to 5-year average forward PER of 6.3x, CCCC is undervalued in our view BUY ($35.0) BUY ($40.9) BUY ($24.50) BUY ($9.50) BUY ($10.0) BUY ($83.0) BUY ($59.3) BUY ($9.20) BUY ($9.20)
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, http://www.hkexnews.hk. 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. 2018 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) 2218 2818 Email: research@masonhk.com