20161018-兴业证券-A-Share_Daily_Express_13页_911kb

Summary of Industrial Securities Co., Ltd. Report

Core Content

Industrial Securities Co., Ltd. provides a detailed market review and analysis for the Chinese A-share market and fixed income products as of October 18, 2016. The report highlights the market's recovery after a period of panic selloffs, with a broad-based rise in trading. Key indices such as the SSE Composite, SZSE Component, and ChiNext Index all recorded positive daily changes, indicating a strong rebound. The market volume increased by 4% compared to the previous day, with more winners than losers.

The report also includes a sector review, identifying construction and auto makers as key performers driven by the mixed-shareholder reform concept and the one belt one road policy. Chemical companies saw gains due to expectations of increased product prices following an explosion at a German factory. In contrast, IT names were relatively weak, with Inspur Electronic Information Industry Co. declining by 5.35%.

Main Market Indices

The aggregate market volume was CNY 483.43 billion, reflecting a positive market sentiment.

Key Financial Highlights

• The bond market showed ample liquidity, with yields expected to decrease further.
• The PBOC has started withdrawing funds from the money market but is unlikely to tighten monetary policy due to concerns over debt sustainability.
• The bond market may experience volatility due to various disturbances.
• Investors are advised to increase positions after a correction.

Sector Review

Winners

• Construction: Driven by mixed-shareholder reform and one belt one road policy.
  • China Railway Erju Co. (600528): +10.03%
  • China Communications Construction Co. (601800): +7.44%
• Auto Makers: Strong on mixed shareholder reform and new energy auto concept.
  • Faw Car Co. (000800): +10.01%
  • Faw Car Co. (000927): +10.00%
• Heavy Machinery: Outperformed the market.
  • Shantui Construction Machinery Co. (000680): +6.02%
  • Guangxi Liugong Machinery Co. (000528): +3.37%
• Chemicals: Expected to benefit from rising product prices due to the BASF incident.
  • Dymatic Chemicals, Inc. (002054): +4.88%
  • Wanhua Chemical Group Co. (600309): +4.23%

Losers

• IT: Relatively weak.
  • Inspur Electronic Information Industry Co. (000977): -5.35%

Daily Headlines

• Philippine President's Visit: Rodrigo Duterte will visit Beijing, marking a significant diplomatic engagement.
• Shenzhen-Hong Kong Link: Network tests will be conducted from October 22-23.
• CIMB & China Galaxy Securities: Planning a joint venture in the stockbroker business.
• UBS Expansion: Considering expanding underwriting teams for Chinese debt.
• Wang Yang's Comments: Warns about downward pressure on foreign trade.
• Financial News: Advises monitoring banks' asset quality.
• Honda Investment: Plans to build an automobile plant in Wuhan, investing several tens of billions of yen.
• Outbound Investment: Reached CNY 134.2 billion from Jan.-Sept. 2016, surpassing 2015 full-year level.

Company News

• Changshan Textile (000158.SZ): Probed by CSRC for suspected disclosure violation.
• China Coal (601898.SH): Sept. coal sales rose 7.3% y/y to 11.3m tons.
• China Life (601628.SH): Jan.-Sept. premium income reached CNY 376.3 billion.
• Guangzhou Auto (601238.SH): Plans A-share private placement.
• Huaneng Power (600011.SH): China generation fell by 3.5% over nine months.
• P2P Financial (600696.SH): Probed by CSRC for suspected disclosure violation.
• Ping An Life (601318.SH): Jan.-Sept. premium income reached CNY 218.5 billion.
• Yunnan Copper (000878.SZ): Plans private placement; shares will suspend trading from Oct. 18.
• Zhejiang Hisun (600267.SH): To sell up to 90.1 million shares for CNY 13 each.

Investment Research

Fixed Income Weekly - Stay Calm in Volatile Market

• Market Liquidity: Inter-bank liquidity eased, with PBoC withdrawing 569.5bn via open market operations.
• Repo Rates: Declined significantly, especially for 14-day rates.
• Bond Yields: Declined for medium-long terms and treasuries, with 5y and 10y treasury yields going down by 8bp and 3bp respectively.
• Government Bond Futures: Prices showed slight increases, with TF1612 at 101.81 and T1612 at 101.47.

Key Financial Indicators

• Kaidi Ecological and Environmental Technology (000939.SZ):

  • Revenue: 3496 Mn (2015), 4704 Mn (2016E), 5865 Mn (2017E), 6876 Mn (2018E)
  • Net Profit: 389 Mn (2015), 423 Mn (2016E), 655 Mn (2017E), 914 Mn (2018E)
  • Earnings Forecast: Maintain BUY rating with expected P/E ratios of 46x, 30x, and 21x for 2016, 2017, and 2018 respectively.
  • Private Placement: Expected to improve financial structure and reduce financial expenses.

• China Railway Group Ltd (601390.SH):

  • Revenue: 624,104 Mn (2015A), 632,781 Mn (2016E), 657,712 Mn (2017E), 678,029 Mn (2018E)
  • Net Profit: 12258 Mn (2015A), 13761 Mn (2016E), 15286 Mn (2017E), 16860 Mn (2018E)
  • Earnings Forecast: Maintain BUY rating with expected EPS of 0.6, 0.67, and 0.74 for 2016, 2017, and 2018 respectively.

Potential Risks

• Kaidi Ecological and Environmental Technology: Delay in the launch of private placement.
• China Railway Group Ltd: Prolonged downturn in macro economy or unexpected risks in overseas market or project progress failing expectations.

Conclusion

The report suggests a cautiously optimistic outlook for the Chinese A-share market, with positive momentum in key sectors such as construction and auto. Fixed income markets are expected to remain liquid with potential for further yield declines, despite some volatility. Kaidi Ecological and Environmental Technology and China Railway Group Ltd are highlighted as strong investment opportunities, with positive earnings forecasts and strategic growth initiatives. Investors are advised to maintain a cautious approach and consider increasing positions after market corrections.