20181009-中国银河国际证券-Strategy__Large_caps_with_decent_valuation_and_share_price_trend_intact_8页_1mb

Summary of the Strategy Document

Core Content

The document provides an analysis of the Hang Seng Index (HSI) and its constituent large-cap stocks, focusing on valuation and share price trends as of October 9, 2018. It highlights that while the HSI is trading at historically low valuations based on price-to-earnings (PER) and price-to-book (PBR) ratios, its performance is being capped by the strength of the US dollar. The report also mentions that some stocks in the Hang Seng Large Cap Index are showing resilience against the trade dispute between China and the US, making them preferred investment choices.

Main Points

• HSI Performance: The HSI hit a new 52-week low, influenced by weakness in the A-share market and the continued strength of the US dollar.
• Valuation Metrics:
  • The HSI is trading at a rolling forward PER of 9.98x, close to the 7-year trough of 9x.
  • The PBR of the HSI is at 1.24x, lower than the 7-year average of 1.35x.
• Impact of US Dollar: The HSI has a negative correlation with the strength of the US dollar, which is a key factor limiting its performance.
• Dividend Yield: Some stocks offer a dividend yield of 4% or more, making them attractive from a yield perspective.
• Preferred Stocks: The following stocks are highlighted as preferred due to their strong valuation and share price trends:
  • CNOOC (0883.HK)
  • Beijing Enterprises (0392.HK)
  • NWS (0659.HK)
  • China Mobile (0941.HK)
  • HKT Trust (6823.HK)

Key Information

• Market Conditions:
  • The Shanghai Composite fell 3.7% due to the market suspension during the National holiday.
  • The PBOC cut the RRR by 100bps, but this did not prevent the HSI from declining.
• Trade Dispute Impact:
  • The report notes that the trade dispute has a structural impact on the market, though it is difficult to quantify.
• Bond Yields:
  • There is no observed negative correlation between US 10-year Treasury bond yields and the HSI over a 5-year horizon.
  • The correlation is positive, indicating that rising bond yields may not necessarily lead to a decline in the HSI.
• Company-Specific Notes:
  • Beijing Enterprises (0392.HK) may face some indirect risks due to its stake in China Gas (0384.HK), but its subsidiary Beijing Gas is not affected by regulatory risks related to gas connection fees.
  • The report includes detailed valuation metrics for various stocks in the Hang Seng Large Cap Index, including PER, PBR, and dividend yields.

Figures and Data

• Figure 1: Rolling forward PER of the HSI.
• Figure 2: PBR range of the HSI.
• Figure 3: Negative correlation between the strength of the US dollar and the HSI.
• Figure 4: Correlation between the HSI and the bond yield of 10-year US treasuries.
• Figures 5-14: Share price trends of selected Hang Seng Large Cap stocks.
• Figure 15a and 15b: Detailed valuation data for the Hang Seng Large Cap Index stocks, including price, 52-week low, market cap, PER, PBR, and dividend yield.

Disclaimer

• The report is intended for institutional clients and is not directed at individuals.
• It is based on reliable information sources, but no guarantees are made regarding accuracy or completeness.
• The report does not constitute an offer or solicitation to buy or sell securities.
• Past performance is not indicative of future results.
• Recipients are advised to consult independent financial advisers before making any investment decisions.

Disclosure of Interests

• China Galaxy International may have financial interests in the companies discussed, potentially equal to or exceeding 1% of their market capitalization.
• Some of its directors, officers, and employees may hold positions in the mentioned companies.
• The company may engage in financing transactions, provide services, or have other material interests in the securities of these companies.