19 th September, 2017 Hang Seng Index Performance Major Market Indicators % Change Hong Kong Close 1-Day 1-Mth 6-Mth 12-Mth Hang Seng Index 28,159.77 1.27 4.11 15.84 19.57 HSCEI (H-Shares) 11,195.98 1.16 4.70 6.49 14.86 Mkt T/O ($ Mn) 111,955.01-4.51 32.53-7.67 71.33 Source: Bloomberg Oversea DJIA 22,331.35 0.28 3.03 6.77 23.24 NASDAQ 6,454.64 0.10 3.83 9.38 23.30 Shanghai SE Composite 3,362.86 0.28 2.88 3.87 11.13 Shenzhen Component 11,153.53 0.82 5.08 6.07 5.65 Commodities and FX Crude Oil Futures (US$) 49.96 0.10 2.99 2.42 15.38 Gold Futures (US$) 1,308.00 0.08 1.53 6.32-0.44 Baltic Dry Index 1,385.00 1.76 9.92 15.80 65.67 USD / Euro 1.1963 0.24 1.18 11.51 7.03 Yen / USD 111.4800 0.06-2.39 0.97-8.74 CNH / USD 6.5732 0.03 1.51 4.80 1.41 Market Overview Hang Seng Index closed up 1.3% 28,159. Market turnover decreased to $112.0 billion. Heavily weighted AIA Group (1299), Tencent (700) and HSBC (5) surged 2.3%, 2.1% and 1.1% respectively. China Mobile (941) cut 0.5%. Geely Automobile (175) was top performer in Hang Seng Index, up 7.7%. AAC Technologies (2018), HKEx (388) and China Merchants Port (144) climbed 3.7%-4.5%. Of the ten largest Chinese property developers, China Vanke (2202) retreated 1.1% but the remaining nine companies grew an average 5.2%. Gaming operators Sands China (1928) and Galaxy Entertainment (27) advanced 2.0% and 1.1% respectively. Consumption and local banking stocks ended higher but underperformed the market. Local property stocks were mixed. New World Development (17) rose 2.3% whilst SHK Properties (16) slid 0.4%. Lenovo (992) was the worst performing index stock, down 0.7%. HSCEI advanced 1.2% led by securities, insurance and automobile stocks. BYD Company (1211) surged 9.4%, the most in HSCEI. Dongfeng Motor (489) added 2.4%. Postal Savings Bank (1658) plunged 0.6%. Other banking, insurance and securities stocks in HSCEI grew an average 0.7%, 1.5% and 5.5% respectively among which CITIC Securities (6030) jumped 8.5%. New China Life (1336) and CPIC (2601) increased 2.2%-2.6%. Power companies ended higher but underperformed the HSCEI. Railway related stocks lacked clear direction. China Railway Group (390) rose 0.4% whilst CCCC (1800) slumped 0.8%. Coal and cement stocks declined. China Shenhua (1088) lost 0.5%. Anhui Conch (914) tumbled 2.5%, the most in HSCEI. Hang Seng Index is expected to decline to 27,000-27,500 this month due to profit taking. Hang Seng Index is expected to decline to 27,000-27,500 this month due to profit taking.
Market in Focus Promising business outlook with strong growth potential in long term - ZhongAn Online P&C Insurance (6060) ZhongAn Online P&C Insurance (6060, ZhongAn ) is an online-only Insuretech in China. Since the company s inception in October 2013 up to December 2016, ZhongAn sold over 7.2bn insurance policies and served approx. 492mn policyholders and the insured, ranki ng the company the largest insurer in China by these measures over the period according to the Oliver Wyman Report. Furthermore, ZhongAn is the largest online insurance company in China with a Gross Written Premium (GWP) of RMB3.4bn in 2016. Differentiated from maj ority of the existing insurance peers listed on the HKEx, the company operates its core insurance system on its proprietary cloud -based platform and has developed advanced artificial intelligence capabilities to optimize product features instantly to enhance cu stomer experience and strengthen risk management. Through accumulating extensive user data originating from its large and expanding customer base as well as 3rd party data providers, the company can understand their customers behaviours and apply their big data analytics throughout the insurance value chain, create innovative products and solutions as well as offer dynamic pricing and ensure effective risk management within each ecosystems that they have tapped into (with lifestyle consumption and travel as the com pany s main ecosystems by GWP as at 2016 and 1Q2017). According to the IPO prospectus, ZhongAn aims to raise capital to strengthen its capital base and support future business growth. ZhongAn s net profits over the past few years were primarily dominated by net investment incom e. Its core operations, however, recorded consecutive underwriting losses over the track record period as the company primary focused on expanding and penetra ting into different ecosystems. Such operating strategy resulted in substantial expenses, primarily attributable to consulting fees and service charges paid (13.3%, 30.7% and 33.9% of the company s net premium earned in 2014, 2015 and 2016, respectively) to its ecosyst em partners in connection with sales of insurance policies through their platforms, handling charges and commissions paid to insurance agents for the distribution of the company s policies, and substantial R&D investment as a percentage of ZhongAn s GWP (2.8%, 2.8% and 6.3% in 2014, 2015 and 2016, respectively). Thus, ZhongAn reported a net loss of RMB202mn in 1Q2017 and expected to see a significant loss for the full year of 2017. The IPO of ZhongAn involves the issue of 199.3mn H shares at $53.7 to $59.7 per share to raise approx. $10.7bn to $11.9bn. Th is implies market capitalization of the company at approx. $77.3bn to $86.0bn and valuation of the company at 2016 P/E of 68.8x-76.4x and 2016 P/B of 4.3x-4.5x. Immediately after the listing, Ant Financial (74.3% held by Mr. Jack Ma), Tencent Computer System (54.3% held by Mr. Ma Huateng), Ping An Insurance (2318) and Shenzhen Jia De Xin Investment (controlled by Ou Yafei, the elder brother of Mr. Ou Yaping who is chairman of ZhongAn) are four largest shareholders of the company with an equity interest of 13.8%, 10.4%, 10.4% and 9.7% respectively. Given a strong background of its major shareholders, we believe ZhongAn s business outlook is promising in the medium to long term but operating performance will remain challenging in the short term. 1. IPO Statistics Number of Shares Offered 199.3mn H Shares (13.8% of enlarged capital) (5% public, 95% international) Total Number of Shares 1439.9mn shares Indicative Offer Price (HK$) 53.7-59.7 Implied Market Capitialisation HK$77.3bn - HK$86.0bn FY2016 P/E* 68.8x to 76.4x FY2016 P/B 4.3x to 4.5x *ZhongAn recorded a net loss in 1Q17 and expects to record net loss in FY17 2. Key Financial Ratios (Y/E Dec) FY14 FY15 FY16 1Q16 1Q17 Retention Ratio (%) 99.1 99.5 98.8 99.4 96.5 Loss Ratio (%) 73.4 68.5 42.0 46.7 44.7 Expense Ratio (%) 35.2 58.1 62.7 65.6 78.4 Combined Ratio (%) 108.6 126.6 104.7 112.3 123.1 ROA (%) 2.7 0.9 0.1-3.2-2.3 ROE (%) 3.7 1.1 0.1-3.8-3.0 Gearing Ratio (%) 25.5 14.5 26.5 16.5 22.3 Sources: IPO Propsectus, Mason Securities
Technical Ideas Pacific Textiles (1382, $8.44) Stock Rating: Target Price: $9.28 Company Description: Pacific Textiles manufactures customized knitted fabrics. The company's fabrics are used in a broad range of fabrics, including men's, women's, and children's clothing, sportswear, swimwear, and inner-wear. Commentary: Counter rose 4.8% yesterday, surpassing its critical resistance at $8.29 and SMA50, indicating the counter s strong uptrend momentum ahead. Recommendation:. Target at $9.28. Cover short at $7.81. Company Statistics Last Closing Price $8.44 Consensus 2017 P/E 12.7x Consensus Target Price $10.01 BAIC Motor (1958, $7.41) Stock Rating: Target Price: $8.15 Company Description: BAIC Motor designs, researches, develops, manufactures and sells a variety of passenger vehicles in China. Commentary: Counter surged 6.2% yesterday, surpassing its resistance at $7.30 and SMA100, indicating the counter may have further upside potential ahead. Recommendation:. Target at $8.15. Cut loss at $6.89. Company Statistics Last Closing Price $7.41 Consensus 2017 P/E 8.5x Consensus Target Price $8.02
Recent Recommendations Date of Issue Stock Pick Recommendation Highlights Rating (TP) Likely to post strong interim results and raise contracted sales target Yuzhou Properties (1628) Yuzhou Properties 21/08/2017 Gross margin stood at 36% in past three years versus industry average of below 30% (1628) Contracted sales up 63% with ASP up 33% in 7M17 implies higher gross profit in 2017/2018 Cheap valuation with 2-year earnings CAGR of 22% Reiterate on Yangtze Optical Fibre and Cable (6869) on positive gross margin surprise Yangtze Optical Interim earnings beat expectation amid strong gross margin expansion 22/08/2017 Fibre and Cable Capacity growth of preform in 2017 will continue to support gross margin recovery thanks to better (6869) internal supply ratio and lower outsourcing Management believe ASP of optical preforms and fibre will stay resilient in coming years amid strong demand Strong interim results accompanied with bright future outlook ahead - Maintain on Geely Auto (175) Interim results were in-line with market expectations plus satisfactory sales volume for July 23/08/2017 Geely Auto (175) Strong model cycle in 2018 should guarantee Geely's glamorous sales performance ahead Formation of JV with Volvo and parent co. in the development of Lynk & Co could potentially increase the possibility of success for the brand A laggard education service provider Maintain China Maple Leaf Education (1317) China Maple Leaf 24/08/2017 Growth in student enrollment is expected to accelerate from 20% in FY16 to 35% in FY17 Education (1317) Projected EPS growth of 30% in FY17 and 15% in FY18 Growing demand for high quality education service in China Reiterate on Techtronic Industries (669) amid solid interim results Techtronic Robust power tool sales in 1H17 is an indication that rollout of new DeWalt's FlexVolt series is not a 25/08/2017 Industries (669) threat to TTI Product innovation will lead to a new round of product upgrade cycle and hence margin expansion Home Depot's penetration into Pro segment will also help to expand TTI's market size A strong growth in new contracts improves earnings prospects Maintain CCCC (1800) 28/08/2017 CCCC (1800) Growth in new contracts value accelerated from 12.4% yoy in 2016 to 52.0% yoy in 1H17 Overseas expansion will be key earnings growth driver Undemanding valuation at 2017 PER of 7.5x Reiterate on AAC Technologies (2018) amid company s growth potential in optics business AAC Technologies Faster than expected capacity expansion of optical lens is a positive surprise 29/08/2017 (2018) Acoustic growth is sustainable in 2018 as adoption rate of high-end speaker box with waterproof and stereo sound feature continues to surge in android camp Valuation is undemanding given our estimates of 34% EPS CAGR from 2016-2018 Better-than-expected 2017 interim results Maintain Zhengtong Auto (1728) Zhengtong Auto Better-than-expected interim results reaffirms our positive stance and demonstrates strong earnings 30/08/2017 (1728) momentum ahead Innovative expansion model shall enable Zhengtong to expand more rapidly at a much less burdensome way compared to traditional M&A Reiterate on Lee & Man Paper (2314) on its robust interim results Interim earnings beat estimates, with net dollar margin of containerboard and tissue paper both Lee & Man Paper 31/08/2017 reached record high (2314) Environmental inspection in China see no signs of slow down, favouring the demand/supply dynamics in 2H17 More paper price upside in 2H17 amid peak season, which will be a positive share price catalyst Interim results indicated better-than-expected performance from BBA Maintain Brilliance China (1114) BBA's strong performance in 1H2017 reaffirms our view that the JV serves as a key beneficiary of the fast Brilliance China 12/09/2017 growing luxury PV in China; (1114) BBA's strong model cycle ahead should support the JV's operational performance in the future; and Proposed cooperation with Renault in forming a JV on Brilliance's minibus and Light Commercial Vehicle (LCV) segment may potentially cause a turnaround for the currently loss-making business. ($5.20) ($26.70) ($21.0) ($7.20) ($43.0) ($12.0) ($155.7) ($9.98) ($10.9) ($24.0)
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