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Dim Sum Express Summary

Core Content Overview

This document provides an equity research summary for the period ending August 1, 2018, focusing on the performance of key indices and the analysis of the Power and Electronics sectors in China. It also includes company ratings and sector ratings, along with disclaimers and certifications.

Key Index Performance (1D, 1M, YTD)

Power Sector Analysis

• Power Consumption:

  • 1H18 total power consumption increased by 9.4% YoY to 3,229.1bn kWh.
  • June saw an 8.0% YoY increase, driven by strong demand from the tertiary sector and households.
  • Secondary sector demand grew by 6.6% YoY, but declined by 4.3pp MoM.

• Power Generation:

  • 1H18 total power generation increased by 8.3% YoY to 3,194.5bn kWh.
  • Thermal power generation rose 6.7% YoY, while hydropower and wind power increased by 2.9% and 28.3% YoY, respectively.

• Utilization Hours:

  • Average utilization hours for power generators in China rose by 68 hours YoY to 1,859 hours.
  • Thermal power utilization hours increased by 116 hours YoY to 2,126 hours.

• Coal Prices:

  • 1H18 average thermal coal price was Rmb662/tonne, up Rmb51 from 1H17.
  • High inventory levels at power plants, due to strong demand and relaxed import policies, are expected to put downward pressure on coal prices in the near term.

• Investment Recommendation:

  • Favorable for thermal power leaders with undemanding valuations and resilient earnings, such as Huaneng Power (600011 CH) and Huadian Power (600027 CH).

Electronics Sector Analysis

• Panel Prices:

  • Large TV panel prices declined significantly since 2H17, with some down over 30%.
  • Since May, panel manufacturers have reduced production and shifted capacity between panel sizes, leading to stabilization of large panel prices and marginal price increases for 32-inch and smaller panels.

• Sector Performance:

  • The SW electronic index declined by 3.0% in June due to trade frictions and panel price declines.
  • Panel companies, both domestic and overseas, have seen share price declines, with overseas companies such as UniDevice (UDC) and Coherent (COHR US) dropping over 40% since early 2018.

• Investment Highlights:

  • Recommended to watch domestic manufacturers like BOE Technology Group (000725 CH), Tianma Microelectronics (000050 CH), and Visionox Technology (002387 CH).
  • Preferred upstream equipment and material sector names include Han's Laser (002008 CH), Sun Paper Industry JSC (002078 CH), Liande Automatic Equipment (300545 CH), and others.

• Risks:

  • Business downturn in the electronics sector.
  • Significant price hikes of raw materials.
  • Lower-than-expected penetration of new technologies.
  • Rapid decline in product prices.

Rating Definitions

• Company Ratings:

  • Buy: Stock expected to outperform benchmark by more than 15%.
  • Accumulate: Stock expected to outperform benchmark by more than 5% but not more than 15%.
  • Hold: Expected stock relative performance ranges between -5% and 5%.
  • Underperform: Stock expected to underperform benchmark by more than 5%.

• Sector Ratings:

  • Positive: Sector expected to outperform benchmark by more than 10%.
  • Neutral: Expected sector relative performance ranges between -10% and 10%.
  • Cautious: Sector expected to underperform benchmark by more than 10%.

Disclaimer and Certifications

• The research analyst(s) certifies that all views expressed reflect their personal opinions.
• No part of their remuneration is directly or indirectly linked to the specific recommendations or views in the report.
• GF Securities (Hong Kong) has no proprietary interest in the securities mentioned.
• The report is for informational purposes only and does not constitute an offer to buy or sell securities.
• The views, opinions, and analytical methods are solely those of the analysts and not of GF Securities (Hong Kong) or its affiliates.

Legal and Ethical Disclosures

• The report may not be allowed to be sold in certain jurisdictions.
• No representation or warranty is made regarding the accuracy or completeness of the information.
• GF Securities (Hong Kong) accepts no liability for any loss arising from the use of the materials.
• Investments involve risks, and past performance does not guarantee future results.

Contact Information

• GF Securities (Hong Kong) Brokerage Limited
• Address: 29-30/F, Li Po Chun Chambers, 189 Des Voeux Road Central, Hong Kong
• Tel: +852 3719 1111
• Fax: +852 2907 6176
• Website: http://www.gfgroup.com.hk