20171117-广发证券_香港_-Dim_Sum_Express_6页_562kb

Summary of Equity Research Document – Nov 17, 2017

Core Content Overview

This document provides a comprehensive analysis of several sectors in the Chinese and global markets for the year 2018. It includes key performance indicators of major indices, sector outlooks, investment recommendations, and risk assessments. The analysis is conducted by GF Securities (Hong Kong) and highlights opportunities and challenges in the construction machinery, financial leasing, China insurance, and utilities sectors.

Key Index Performance (YTD: Jan–Nov 2017)

Sector Outlooks and Key Views

1. Construction Machinery

• Key Theme: Profitability improvement is expected to be a major theme in 2018.
• Trends:
  • Sales volume growth has driven improved profitability, especially in 1Q17.
  • Market concentration is increasing, with Chinese manufacturers gaining significant market share.
  • Utilization hours for construction machinery have increased, indicating strong downstream demand.
• Outlook: Continued replacement cycle of older machinery and steady FAI growth in urban infrastructure, property, and mining will drive demand.
• Top Pick: Lonking (3339 HK) – Expected to benefit from the upcycle, with potential for further business momentum and market share gains.
• Target Price: HK$4.30 based on 15x 2018E P/E and 2.0x 2018E P/B.
• Key Risks:
  • Heavy reliance on Chinese economic conditions.
  • Slowdown in FAI.
  • Weaker-than-expected replacement demand.

2. Financial Leasing

• Sector View: Neutral.
• Key Themes:
  • Rising market interest rates and financial deleveraging will likely narrow NIS (Net Interest Spread).
  • Possible tightening of industry regulation, especially with the potential replacement of MOC by CBRC.
• Valuation:
  • HK-listed leasing companies are trading below historical average valuations.
  • Industry P/E and P/B are at 9.5x and 1.3x, respectively.
• Top Pick: Universal Medical (2666 HK) – Strong growth potential in leasing and hospital operations, with a Buy rating and target price of HK$8.60.
• Investment Strategy: Recommend Universal Medical and Far East Horizon due to diversified operations. Aircraft leasing is also highlighted as an attractive sub-sector.
• Key Risks:
  • Upside: Stronger-than-expected policy support or decline in financing costs.
  • Downside: Surge in non-performing assets or sharper rise in borrowing costs.

3. China Insurance Sector

• Key Themes:
  • Improved regulatory environment and rising government bond yields are favorable for the sector.
  • Tax-deferred pension plans are expected to have a long-term positive impact.
• Performance:
  • Ping An's 10M17 life GWP increased by 35% YoY.
  • China Life, CPIC, and NCI saw mixed performance in 10M17 life GWP.
• Top Picks:
  • Ping An (2318 HK), China Life (2628 HK), CPIC (2601 HK), and NCI (1336 HK) all receive a Buy rating.
• Key Risks:
  • Deterioration in asset quality due to a weakening domestic economy.
  • Policy uncertainty and regulatory changes.

4. Utilities Sector

• Key Themes:
  • Policy support is expected to benefit specific sub-sectors.
  • Natural gas and environmental services (biomass, hazardous waste) are highlighted.
• Sub-sector Outlooks:
  • Natural Gas: Expected to grow at 15% CAGR during 2H17–2019. Coal-to-gas substitution in rural areas is a key driver.
  • Wind Power: Curtailment issues have improved, but new capacity installation is expected to remain flat in 2018.
  • Environmental: Biomass and hazardous waste treatment are showing strength; sewage treatment PPP projects are key to watch.
  • Solar: Low-cost grid-connection expected around 2020; upstream polysilicon materials industry is positive.
• Top Picks:
  • China Gas (384 HK), ENN Energy (2688 HK), China Resources Gas (1193 HK), Huaneng Renewables (958 HK), China Suntien Green Energy (956 HK), China Longyuan Power (916 HK), China Everbright International (257 HK), China Everbright Greentech (1257 HK), Beijing Enterprises Water (371 HK), China Water Affairs (855 HK), Xinte Energy (1799 HK), and Xinyi Solar (968 HK).
• Key Risks:
  • Natural gas: Disappointment in coal-to-gas substitution, policy control, oil prices, and gas supply.
  • Wind power: Deterioration in subsidies, curtailment issues, and power tariffs.
  • Environmental: Slower project progress and reduced returns due to competition.
  • Solar: Weaker capacity installation and smaller cost declines.

Rating Definitions

Analyst Certification

• The views expressed in the report accurately reflect the analysts' personal opinions.
• No part of the analysts' remuneration is directly or indirectly connected to specific recommendations.

Disclosure of Interests

• GF Securities (Hong Kong) and its affiliates do not hold any shares of the securities mentioned.
• There is a disclosure of interest regarding Xinte Energy (1799 HK), where GF Securities (Hong Kong) has acted as Compliance Adviser and may receive future compensation.
• No conflict of interest is declared for the analysts or their associates.

Disclaimer

• This report is for informational purposes only and does not constitute an offer to buy or sell securities.
• It is not intended to replace professional investment advice.
• GF Securities (Hong Kong) may issue other communications with different conclusions.
• The information and opinions are subject to change without notice.