IINVEESSTTMEENTT DAIILLY 4 Feb rrua rry 2016 Major Market Indicators 3 Feb 2 Feb 1 Feb Mkt. Turn.(mn) 78,700 69,600 69,500 Stock Advances 331 857 656 Stock Declines 1,246 692 902 HSI 18,991 19,446 19,595 Change -445-148 -87 HSI Turn.($bn) 30.98 22.36 22.73 HSCEI 7,858 8,058 8,144 Change -200-86 -96 HSCEI Turn.($bn) 13.44 10.88 11.63 HSI Technical Indicators 10-days MA 19,179 50-days MA 20,927 250-days MA 23,883 14-days RSI 37.8 Secondary resistance 20,000 Primary resistance 19,460 Primary support 18,534 Secondary support 18,000 HSI Chart Source: etnet HSCEI Technical Indicators 10-days MA 8,030 50-days MA 9,112 250-days MA 11,306 14-days RSI 33.7 Secondary resistance 9,500 Primary resistance 8,228 Primary support 7,400 Secondary support 7,000 HSCEI Chart Source: etnet. The Hang Seng Index is expected to trade at 18,900 to 19,300 today A sharp fall in oil price led the US and Europe market down, Hong Kong equities once declined nearly 700-point on Wednesday morning. The Hang Seng Index posted a narrow decline afterward. Hang Seng Index closed at 18,991 points, decreasing 455 points. HSCEI closed at 7,858 points, dropping 200 points. Turnover for the whole day was $78.9 billion. Lenovo slumped more than 10% after releasing the quarter results, which was the worst blue chip performer. The insurance sector took the lead since UnionPay placed cubs on policy purchases. AIA (1299) decreased more than 9% at opening, it closed down by 4.9%. Ping An (2318), China Life (2628) and CPIC(2601) fell around 3% to 4%. US service sector grew in January at the slowest pace in almost two years, together with selling pressure on banking and technology sector, US stock market fell on early Wednesday with the Dow once dropped 190 points. However, Federal Reserve Bank of New York president Dudley warned that financial condition has been tightened, while additional strength of US Dollar could have significant consequence for US economy. His comment strengthen investors belief that the Fed might slow its rate hike pace. US dollar decline while US stock market and oil price rebounded sharply rebound, the Dow closed 183 points higher (at 16,337) while the Nasdaq dropped 13 points (to 4,504). Local blue chips performed well in the US ADR market, it will provide support to HK market today. However, Union Pay tighten the restriction for overseas insurance payment, indicating Central government is imposing more measures to prevent capital outflow. Local market sentiment remain weak. We expect investors to be cautious ahead of the long holidays. Technical Analysis Hang Seng Index has been falling for three days already, and it seems that the index actually failed to surpass the middle of Bollinger Band 19,460 points again. Compared to the previous two rebounding waves, during the first wave in July, the 14-day RSI rose to almost 50, yet it failed to surpass the middle of the Bollinger Band. During the second wave in October, RSI surged to about 60, and it once surpassed the middle of the Band. At present the RSI of HSI is about 38, and MACD bearish gap is still large. Certainly it does have chance to surpass the middle line, yet after all it s the strongest resistance for the past three months, therefore the first resistance for HSI is 19,460 points, and the next resistance is 20,000 points.
HSI Futures 3 Feb 2 Feb 1 Feb Jan 18,978 19,442 19,469 Volume 118,047 112,466 111,755 Open interests 118,662 115,451 115,773 Feb 18,906 19,374 19,399 Volume 909 514 1,521 Open interests 9,275 8,772 8,769 On the other hand, the first support will be 18,800 points, and the next support is the trough of the declining wave 18,534 points. China Auyoan (3883) net debt will increase The group reported Jan contract sales was RMB150mn, increased 32.9%. The company completed 115% of sales target last year, with full year sales of HSCEI Futures 3 Feb 2 Feb 1 Feb Jan 7,852 8,063 8,102 Volume 97,681 76,893 91,945 RMB15.1nm, increased 24%yoy. The group 13.8% land bank come from Guangzhou, 36.3% from Guandong, the group acquired two pieces lands in Nanzningz and one piece from land in Open interests 282,137 272,567 265,550 Feb 7,860 8,073 8,111 Volume 2,044 683 1,200 Open interests 102,318 102,064 101,800 Ten Most Active Stocks Stock Code Chg Close Turn AIA 1299-1.950 39.00 5,433 TENCENT 700-4.000 141.6 3,157 HSBC 5-1.900 52.25 1,928 PING AN 2318-1.100 32.95 1,838 CHINA MOBILE 941 -- 85.75 1,590 CHINA LIFE 2628-0.760 17.36 1,549 CCB 939-0.070 4.51 1,336 ICBC 1398-0.030 3.88 1,192 HENDERSON LAND 12-1.700 39.55 1,192 BANK OF CHINA 3988-0.050 2.94 976 Anhui. The group plans to expand to central and eastern china. For its financial status, the net debt was 72.6% in 1H15, as the group acquired few pieces land in last year, its net debt ratio would increase to 85%-90%, higher than industry average. In terms of valuation, Auyoan estimated NAV would be HK$3.8, with current price of HK$1.38 implying 64% discount to NAV, which in line with historical average. Couple with its weaken financial status, valuation is not attractive, its short term share price would only range trading between HK$1.3 and HK$1.5. Union Pay Limits Purchases Of Insurance Products Overseas According to foreign news agency, Union Pay will set up an upper limit of US$5,000 per transaction for Chinese citizens using Union Pay credit card or debit card to buy insurance products overseas. Union Pay has informed several Hong Kong insurance companies like Prudential(2378)and Manulife(0945) already. Union Pay explained that it always strictly followed the requirements from the regulatory agencies to open business. Insurance belonged to limited business category so that there was an upper limit of US$5,000 per transaction. Recent investigations made them discover that partial companies didn t apply the relevant MCC. Hence, Union Pay demanded the companies to strictly apply the relevant MCC. According to data from Office of the Commissioner of Insurance, the new insurance premium for the first three quarters last year amounted to $97.2 billion, among which the overseas visitors accounted for 21.7% of the entire amount, which was about $21.1 billion. Mainland visitors possessed 20% to 30% of the premium income for local insurance companies like Prudential and Manulife. Some insurance specialists thought that such policies should exert certain impact for local insurance companies, yet they still have tactics to deal with it. If the officials don t limit the number of transaction, the insurance companies http://www.kgieworld.com 4 February 2016 2
can deal with the premium with several transactions. Internet payment and cash payment are other methods as well. On the other hand, many mainland visitors said that the policies wouldn t hinder their preferences to buy insurance products in Hong Kong. After all, Hong Kong insurance products are still more sophisticated and transparent in terms of compensation mechanism and insurance covered area. Hence, the insurance stocks performance during Wednesday overreacted the impact of the industry s premium income. It s believed that the new insurance premium won t slump generally this year. However, this incident indicated that the local insurance companies are exposed to risk from China official policies. If the officials further tighten the Union Pay transaction pay limit in the future, it may harshly dampen the industry s premium income. Therefore, except from the industry s fundamental factors, China official policies risks shouldn t be ignored. Union Pay Limits Purchases Of Insurance Products Overseas Lenovo (0992.HK) 3Q/FY16 (Oct-Dec 15) revenue dropped 8% yoy to US$12.9bn, which is mainly due to exchange rate impact and slow down of PC sales. Turnover is also below market expectation. However, its quarter net profit is US$300mn, it is better than expectation, which is due to strong cost control. PC business revenue dropped 12% yoy to US$8.03bn. Although its market share rose 1.5 percentage point to historical high at 21.6% but its PC sales volume dropped 4% yoy to 15.4mn. Its pre-tax operating profit dropped 18% yoy to US$405mn. Mobile business revenue dropped 4% yoy to US$3.25bn, handset shipment fell 18% yoy to 20.2mn. However, its shipment ex-china rose 15% yoy to 16.7mn units. If excluding the non cash cost raised from acquisition, mobile business achieved breakeven during the quarter. If include this non-cash cost, the business will have a US$30mn pre-tax loss. Geographically speaking, China pre-tax profit dropped 28.3% yoy to US$167mn, North America turned around to recognize US$76mn profit. For emerging market, it earnings dropped 53.3% yoy to US$57mn. Looking ahead, Lenovo expect Window 10 will drive a new round of commercial PC renewal demand. For cellular handset business, Lenovo has viewed EM market as the growth market, the Group expect the market to continue strong growth. Besides, the Group will launch new innoviate product for the developed market. Brokers comment for Lenovo quarter results quite divergence, but target price is either maintained or lowered. We believe that mobile phone market has http://www.kgieworld.com 4 February 2016 3
entered mature stage, while PC market even gradually shrank. Together with Lenovo does not have particular advantages at the smartphone market, we believe Lenovo revenue still experience strong pressure. Although excellent cost control will support its net profit sharply rebound in FY17 (Apr 2016 to Mar 2017), its long term earnings growth potential is limited. Although its current valuation is 9x FY17 prospective price to earnings ratio only, given anticipated limited share price upside, our recommendation is Neutral. http://www.kgieworld.com 4 February 2016 4
1. Company: GAC Group (2238.HK) The Group engages in research and development, manufacturing, sales and after-sales services of passenger vehicles, commercial vehicles, motorcycles, engines and other auto parts, the import and export of automobilerelated products, automobile leasing, logistics services, automobile disassembling and automobile credit, insurance, insurance brokerage services and equity interest investment. 2. Revenue breakdown: At the ended 30th June 2015, the vehicles and related operations accounted 95.7% of total revenue. 3. Reasons: Both production and sales volume increased for the year 2015: For the year 2015, production and sales volume increased 4.5% and 10.9% respectively. Net profit of FY2015 increased 20% to 45% yoy: Due to the stable development of core business and actively introduction new products, leading the net profit increased 20% to 45% yoy. Propose to corporate with Uber(China): The Group signed agreement with Uber (China). Both parties may corporate in car selling, repair services, etc. 4. Financial estimation and Analysts recommendation: The estimated net profit for 2015 would be RMB3.791 billion. The earning per share of 2015 and 2016 would be RMB0.581 and RMB0.692 respectively. RMB $bn FY14 FY15 FY16 FY17 Brokers Rating Target Report price issue date Revenue 21.592 26.406 31.877 35.292 DBS Buy 7.5 02/01/16 Net profit 3.186 3.791 4.541 5.123 Credit Suisse Outperform 9.3 01/28/16 EPS 0.500 0.581 0.692 0.786 BOC I Buy 7.6 01/28/16 5. Recommendation: The valuation is higher than peers, we recommend purchase when price drops around $6. Target price: HK$6.6, Stop Loss: HK$5.4. http://www.kgieworld.com Page 5 5
1. Company: 361 Degrees (1361.HK) The Group engages in manufacturing and selling of 361 Degree sports goods in PRC. 2. Revenue breakdown: At the ended 30th June 2015, the revenue from footwear and apparel accounted 43.8% and 43.9% of total revenue. 3. Reasons: 8 th consecutive quarterly order growth: The trade fair order value for 3Q16 recorded a high single-digit increase. It was the 8 th consecutive quarterly order growth. Same-store sales growth in fourth quarter: The same-store sales growth of for the 4Q15 increased by 7.9% on a year-on-year basis. Benefit from two-child policy: Two-child policy took effect on 1 January, 2016. It may stimulate the product demand of independently run 361 o Kids. 4. Financial estimation and Analysts recommendation: The estimated net profit for 2015 would be RMB496.3 million. The earning per share of 2015 and 2016 would be RMB0.242 and RMB0.283 respectively. RMB $mn FY14 FY15 FY16 FY17 Brokers Rating Target price Revenue 3906 4356 5012 5610 Net profit 397.6 496.3 583.3 665 Oriental Patron China Merchants Report issue date Buy 3.6 01/29/16 Buy 3.61 12/07/15 EPS 0.192 0.242 0.283 0.324 Guotai Junan Buy 3.4 10/19/15 5. Recommendation: The projected P/E ratio is lower than the one year average. Target price: HK$2.66, Stop Loss: HK$2.18. http://www.kgieworld.com Page 6 6
Company Stock Code Reasons Bank of China 3988 Lower P/B when compare to peers, share price still have upside Ping An 2318 First five months revenue increased 18%yoy, insures capital costs should be reduced by loosening monetary policy FORTUNE REIT 778 Positive prespective for for its asset growth, and become our industry top pick Anhui Conch 914 Government increased FDI favor cement sector. Anhui Conch start its merger and acquisition plan Sinopec 386 Interim result showed good cost control, selling price of retail operation is also good. Huaneng Renewable 958 China's wind resources to pick up significantly this year, as well as electricity quota mechanism is likely to be launched in this year, the wind power industry will also benefit CKI 1038 As a comprehensive enterprise, which gas business with restructuring incentives. Valuation at a reasonable level. ZTE 763 China will continue to increase its network infrastructure, it will favor telecom equipment manufacturers. Together with sizable investment on 4G, prospect is good CCB 939 Major mainland bank, valuations in term of P/E and dividend is mong the most attractive for the sector. Strong capital, less pressure to raise capital in the near term China Cinda 1359 the only listed non-performing asset management company. Valuation is attractive Economic Calendar Date Country Event Feb 4 Thu U.S. 01/30 Initial Claims Feb 4 Thu U.S. 01/23 Continuing Claims Feb 4 Thu U.S. Q4 Productivity-Prel Feb 5 Fri U.S. Jan Nonfarm Payrolls Feb 5 Fri U.S. Jan Nonfarm Private Payrolls Feb 5 Fri U.S. Jan Unemployment Rate Feb 5 Fri U.S. Jan Hourly Earnings Feb 5 Fri U.S. Jan Average Workweek Feb 5 Fri U.S. Dec Trade Balance Disclaimer Some of KGI Asia Ltd. equity research and earnings estimates are available electronically on KGIEWORLD.COM. Please contact your KGI representative for information. The information and opinions in this report are those of KGI Asia Ltd. internal research activity. KGI Asia Ltd. does not make any representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. The information and opinions contained in this report are subject to change without any notice. No person accepts any liability whatsoever for any loss however arising from any use of this report or its contents. This report is not to be construed as an invitation or offer to buy or sell securities and/or to participate in any investment activity. This report is being supplied solely for informational purposes and may not be reproduced or published (in whole or in part) for any purpose without the prior written consent of KGI Asia Ltd.. Members of the KGI group and their affiliates may provide services to any companies and affiliates of such companies mentioned herein. Members of the KGI group, their affiliates and their directors, officers and employees may from time to time have a position in any securities mentioned herein. http://www.kgieworld.com Page 7 7