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Document Summary

Core Content

This document is a weekly macroeconomic and market update from June 1, 2015, focusing on economic indicators, market performance, sector analysis, and specific company analysis (Sunac China). It outlines the government's efforts to stimulate economic growth by shifting focus from investment to consumption, and provides insights into the TMT (Technology, Media, and Telecommunications) sector.

Main Economic Trends

Consumption as the New Growth Driver

• PMI rebound: The flash HSBC China manufacturing PMI rebounded slightly in May, with the official number expected to follow. However, overall production remains sluggish due to a destabilizing cycle in key sectors like coal and steel.
• Government initiatives: The government is promoting the PPP (Public-Private Partnership) model to ease financial burden and support investment, but this is unlikely to have an immediate impact on growth.
• Tariff cuts: The government cut import tariffs on selected consumer goods (e.g., clothing, cosmetics) by an average of 50%, effective June 1, 2015, to stimulate consumption.
• Stock market wealth effect: The surge in the stock market is expected to generate a wealth effect, contributing to a gradual recovery in consumption in the second half of 2015.

Investment Growth Challenges

• Sluggish production: Despite a rise in new orders, production remains weak, and the government is under pressure to find a new growth engine.
• Infrastructure investment: While the PPP model is promoted, it is unlikely to significantly boost investment due to long investment periods and low returns.
• Property investment: Property investment remains sluggish, further limiting overall investment growth.

Stock Market Performance (29 May 2015)

• HK Equities: The Hang Seng Index and H-Share Index both saw a slight decline.
• China Equities: The Sh Composite Index and Sz Composite Index showed a small increase.
• US/European Equities: Most indices declined, with the DAX and CAC40 experiencing significant drops.
• Key indicators: The USD/RMB and USD/HKD exchange rates remained stable, while the Baltic Dry Index and WTI oil showed minor increases.

Sunac China Analysis

Company Overview

• Ticker: 1918.HK
• Current Price: HK$9.11
• Target Price: HK$12.45 (based on 55% NAV discount to 2015 NAV of HK$27.68)
• PE Ratio: 6.1x (2015F) / 4.5x (2016F), lower than sector average.
• PB Ratio: 1.3x (2015F) / 1.0x (2016F)
• Upside: 37%

Key Points

• Positive termination of Kaisa acquisition: This action is seen as beneficial to Sunac, eliminating potential financial and operational risks.
• Strategic landbanking: Sunac's cautious expansion strategy is expected to lead to solid future growth.
• Shanghai market position: The acquisition of the Sunac-Greentown platform reinforces Sunac's leading position in Shanghai, allowing it to benefit from the strong housing demand recovery.
• M&A openness: The company remains open to potential M&A opportunities.
• Rating: BUY with a target price of HK$12.45.

Peer Comparison Table

TMT Sector Highlights

Key News

• Alibaba's Online Bank: Secured launch approval.
• Didi Kuaidi: Spent $161M to offer free rides, indicating a price war in the taxi app market.
• Alibaba's Logistics Expansion: Expanding its logistics network to support next-day grocery deliveries in more cities.
• Lenovo Tech World: Showcased its latest technology.
• China Mobile's IoT Platform: Enhanced its services through the Internet of Things.

Major Economic Releases for the Week

Conclusion

• The Chinese government is focusing on consumption as the new growth driver, with tariff cuts and monetary easing expected to stimulate it.
• Sunac China is recommended as a BUY with a target price of HK$12.45, based on its prudent strategy and strong position in Shanghai.
• The TMT sector shows activity with Alibaba, Didi Kuaidi, and China Mobile as key players.
• Overall, the economic outlook remains cautious, with consumption being seen as the next growth engine under the new normal.