30 October 2018 Hang Seng Index Performance Major Market Indicators % Change Hong Kong Close 1-Day 1-Mth 6-Mth 12-Mth Hang Seng Index 24,812.04 0.4% -10.7% -19.5% -12.4% HSCEI (H-Shares) 10,012.63-0.5% -9.1% -18.8% -13.4% Mkt T/O ($ Mn) 94,664.63-1.0% 12.2% -2.9% -5.2% Oversea DJIA 24,442.92-1.0% -7.6% 1.2% 4.7% NASDAQ 7,050.29-1.6% -12.4% -0.2% 5.2% Shanghai SE Composite 2,542.10-2.2% -9.9% -17.5% -25.0% Shenzhen Component 7,322.24-2.4% -12.8% -29.1% -35.3% Commodities and FX Crude Oil Futures (US$) 66.67-0.6% -9.0% -2.8% 23.1% Gold Futures (US$) 1,232.40 0.4% 3.4% -6.6% -3.5% Baltic Dry Index 1,519.00 0.2% -1.4% 13.3% -1.0% USD / Euro 1.14-0.1% -1.7% -6.0% -2.2% Yen / USD 112.37 0.1% 1.4% -2.9% 0.7% CNH / USD 6.973-0.1% -1.3% -9.5% -4.8% Source: Bloomberg Market Overview Hang Seng Index closed up 0.4% at 24,812. HSCEI retreated 0.5% at 10,013. Heavily weight HSBC ( 5 ) and AIA Group ( 1299 ) was up 5.0% and 0.3% respectively. HSBC ( 5 ) was the best performer in HSI. Tencent ( 700 ) had no change. HK banking, power and utilities stocks outperformed the market. BOC Hong Kong ( 2388 ) climbed 1.0%. China Resources Power ( 836 ) and Huaneng Power International ( 902 ) increased 3.4% and 3.2%. Guangdong Investment ( 270 ) and CLP Holdings ( 2 ) added 2.2% and 1.9%. Consumption, insurance, securities, telecom, automobile and pharmaceutical stocks underperformed the market. WH Group ( 288 ) and Hengan International ( 1044 ) cut 2.6% and - 1.5%. Seven insurance stocks and five securities stocks in HSCEI slid an average 1.4% and 0.9% among which New China Life ( 1336 ) and China Pacific Insurance ( 2601 ) fell 3.1% and 2.7%, China Galaxy Securities ( 6881 ) and Haitong Securities ( 6837 ) slid -2.6% and -1.9%. China Mobile ( 941 ) and China Unicom ( 762 ) lost 1.7% and 1.6%. Great Wall Motor ( 2333 ) and Guangzhou Automobile ( 2238 ) decreased 8.1% and 4.3%. Great Wall Motor ( 2333 ) was the worst performer in HSCEI. Sino Biopharmaceutical ( 1177 ) and CSPC Pharmaceutical ( 1093 ) fell 3.2% and 1.7%. We expect Hang Seng Index to have a technical support at 24,000. Gaming, PRC property, local property, technology and PRC banking lacked clear direction. Sands China ( 1928 ) added 0.3% while Galaxy Entertainment ( 27 ) decreased 1.2%. China Overseas ( 688 ) and China Resources Land ( 1109 ) increased 1.9% and 1.1% while China Evergrande ( 3333 ) and Logan Property ( 3380 ) lost 3.4% and 2.2%. AAC Technologies ( 2018 ) increased 3.0% while Sunny Optical ( 2382 ) slid 1.4%. Bank of Communications ( 3328 ) and Postal Savings Bank of China ( 1658 ) added 2.1% and 0.4% while China Merchants Bank ( 3968 ) and Agricultural Bank ( 1288 ) slid 2.9% and 0.6%. Railway and oil stocks moved in line with Hang Seng Index. We expect Hang Seng Index to have a technical support at 24,000.
Market in Focus CCCC MKT Cap ($Bn) 189.1 Bloomberg Ticker 1800 HK Equity 52-week High/Low ($) 6.96-9.93 Rating BUY Free Float (%) 100.0% Target Price $10.00 3M Avg Turnover ($, Mn) 149.3 Third-quarter financial results could be a share price catalyst Maintain BUY CCCC (1800) Since our BUY commentary dated October 2, CCCC (1800, $7.22) has dropped 9.8% compared with a loss of 10.7% for Hang Seng Index over the same period. We believe the outperformance is mainly driven by speculation that China will increase infrastructure spending in the fourth quarter. China s fixed assets investment growth improved from record low of 5.3% yoy in the first eight months of 2018 to 5.4% yoy in the first nine months of 2018. In order to offset the impact from escalating trade war tension between China and the U.S. and sustain economic growth, we believe the Chinese government will substantially increase infrastructure spending in the fourth quarter that will certainly benefit CCCC. For the six months ended 30 June 2018, CCCC reported revenue of RMB207.6bn from continuing operations and net profits of RMB8,257mn representing an increase of 16.1% and 4.9% yoy respectively. Revenue from overseas markets surged 24.1% yoy to RMB43.0bn accounting for 20.7% of the total revenue. Gross margin was unchanged at 13.4%. Operating margin decreased from 7.9% to 7.2% due to rising administrative expenses. Unfinished contract value amounted to RMB1,546.7bn as at 30 June 2018 or equivalent to 3.4x revenue for 2017. Fig1: 1 Year Share Price Source: Bloomberg, Mason Securities In 2018, CCCC targets to achieve an 8% growth in new contracts value to RMB950bn and 6.5% growth in revenue to RMB490bn. However, the company s new contracts value declined 4% yoy to RMB583bn in the first nine months of 2018 and needs to increase 35% yoy to RMB367bn in the fourth quarter in order to meet its full year target. CCCC will announce third-quarter financial results today that could be a share price catalyst in near term. According to Bloomberg estimates, CCCC s net profits from continuing operations are expected to reach RMB21.3bn in 2018 and RMB24.3bn in 2019. Traded at 2019 P/B of 0.5x and 2019 P/E of 4.5x compared to 5- year average forward PER of 6.3x, CCCC is undervalued in our view. We therefore maintain our BUY rating on CCCC with a 12-month price target of $10.0 based on 2019 PER of 6.3x, same as the historical average.
Technical Ideas Stock Code Rating / Last Closing Price Our TP / Bloomberg TP Cut Loss Huadian Power International 1071 HK Equity BUY $2.75 $3.03 $3.74 $2.61 MKT Cap ($Bn) / Free Float Turnover / 30D Avg ($Mn) Turnover vs 5D & 30D Avg Forward PER / PBR Net Debt (Cash) / Equity 40.2 95.0% 17 37 75% 46% 10.7X 0.55X 212% Technical Indicator SMA10 2.72 RSI (14) 39.2 SMA20 2.80 BB (Upper) 3.03 SMA100 3.14 BB (Lower) 2.58 Stock Code Rating / Last Closing Price Our TP / Bloomberg TP Cut Loss GF Securities 1776 HK Equity BUY $9.67 $10.64 $12.12 $9.19 MKT Cap ($Bn) / Free Float Turnover / 30D Avg ($Mn) Turnover vs 5D & 30D Avg Forward PER / PBR Net Debt (Cash) / Equity 95.0 81.0% 98 44 127% 223% 10X 0.74X 90% Technical Indicator SMA10 9.14 RSI (14) 49.0 SMA20 9.38 BB (Upper) 10.17 SMA100 10.55 BB (Lower) 8.59 Source: Bloomberg, Mason Securities
Recent Recommendations Date of Issue Stock Pick Recommendation Highlights Rating (TP) 16/10/2018 A-Living Services (3319) 18/10/2018 ENN Energy (2688) 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. Valuation of ENN is still reasonable long term investors BUY ($14.30) BUY ($79.4) 19/10/2018 China Overseas Property (2669) Attractive valuation after a 33% drop in share price Maintain BUY China Overseas Property (2669) 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 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 BUY ($2.60) 22/10/2018 China Oilfield Services (2883) 23/10/2018 CEG (839) 24/10/2018 CRG (1193) 25/10/2018 Luk Fook (590) 26/10/2018 HHS (1347) 29/10/2018 Kunlun Energy s (135) Recent share price weakness offers a buying opportunity Maintain Buy on China Oilfield Services (2883) for short term trading purpose We expect the international crude oil spot price to maintain at a relatively high level which incentivize the oil explorer to increase their capex Current valuation of COSL is attractive because the P/B ratio historically ranged between 1x and 2x during the CNOOC s capex upcycle Major beneficiary from proposed personal income tax reduction Upgrade China Education Group (839) to BUY The proposed personal income tax reduction will be effective on 1st January 2019 and is likely to benefit CES which is a leading provider of private higher education service in China CES is also less affected by the Draft Amendments on the Implementation Rules for the Law for Promoting Private Education issued in August CRG (1193): Focus on long-term trend, Good entry point for long-term investors, Maintain BUY We maintain our long-term positive views on China gas market and expect the gas consumption in China to nearly triple by 2030 Recent share price weakness offers a buying opportunity for long term investor BUY Luk Fook (590) ahead of strong interim results We believe the outperformance was mainly driven by satisfactory same store sales growth for 2Q FY19 and anticipation of strong interim earnings to be released in late November We anticipate a strong interim earnings to be released in late November Long term growth prospects remain promising Maintain BUY Hua Hong Semiconductor (1347) The underperformance is mainly driven by a slowdown in the global semiconductor industry. However, we maintain our bullish view on HHS because the company relies on the fast-growing domestic market which is highly promoted by the PRC government 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 BUY ($9.20) BUY ($12.1) BUY ($38.4) BUY ($30.5) BUY ($16.0) BUY ($10.70)
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