20170606-中国银河国际证券-A-Share_Monthly_Portfolio_14页_1mb

A-Share Monthly Portfolio Summary - June 2017

Core Content Overview

The A-Share Monthly Portfolio for June 2017 highlights a cautious investment approach, emphasizing the selection of quality stocks rather than broad market exposure. The portfolio underwent changes, adding five stocks and removing four. The main focus is on identifying companies with sustainable growth potential and strong fundamentals, while being mindful of external market risks and macroeconomic stability.

Portfolio Changes

• Added Stocks:

  • Huadian Power International (600027.CH)
  • Invt Electric (002334.CH)
  • Jereh Oilfield Services Group (002353.CH)
  • Luzhou Laojiao (000568.CH)
  • Ping An Insurance (601318.CH)

• Removed Stocks:

  • Huangshan Tourism Development (600054.CH)
  • Jiuzhiyang Infrared System (300516.CH)
  • Noblelift Equipment JSC (603611.CH)
  • Northeast Pharmaceutical (000597.CH)
  • Shanghai Electric Power (600021.CH)

June Outlook

• External Factors: Political developments in North Korea, trade protectionism under the Trump administration, and RMB/USD exchange rate fluctuations may affect A shares.
• Domestic Factors: The economy is expected to remain stable, with stricter regulations in the financial sector.
• Market Trends: The property market's structural boom is likely to cool down due to government controls.
• Policy Environment: Monetary policy will stay prudent, and fiscal policy will continue to influence the market.
• Market Pattern: A range-bound trading pattern is expected, with investors advised to be cautious and watch for "black swan" events.

Investment Strategy

• A bottom-up stock-picking strategy is recommended for June 2017.
• The portfolio covers sectors such as media, food and beverages, power equipment, military machinery, automotive, IPP, military & defence, property, pharmaceuticals, and insurance.

Key Stocks in the Portfolio

Performance Highlights

• May Performance: The CGS Top 10 Portfolio had a loss of 5.11%, underperforming the CSI 300 Index by 6.29ppts.
• Cumulative Return: From January 2013 to May 2017, the portfolio returned 397.78%.

Stock Analysis Highlights

1. Focus Media (002027.CH)

• Performance: The company's advertising and out-of-home media businesses are expected to grow, with a market share of 95% in building-related media and 70% in framework media.
• Key Drivers: Expansion in elevator and building-related media, growth in theatre media advertising.
• Valuation: EPS forecasted at 0.59/0.71, corresponding to PER of 23.4x/19.7x.
• Recommendation: RECOMMEND.
• Catalysts: Growth in theatre media, expansion in building-related media, and differentiated products.
• Risks: Market competition, macroeconomic downturns.

2. Luzhou Laojiao (000568.CH)

• Performance: Q1 2017 revenue grew by 20.3% YoY, and net profit by 34.5% YoY.
• Key Drivers: Strong growth in high-end liquor sales, streamlining of low-end products.
• Valuation: EPS forecasted at 1.80/2.24/2.78, corresponding to PER of 25.9x/20.8x/16.8x.
• Recommendation: RECOMMEND.
• Catalysts: Strong fundamentals, high dividend payout, clear growth outlook.
• Risks: Macroeconomic downturn, food safety issues, lower-than-expected sales.

3. Jereh Oilfield Services Group (002353.CH)

• Performance: Revenue and net profit are expected to grow significantly in 2017-2018.
• Key Drivers: Stable fracking equipment business, expansion into overseas EPC, growth in oil and gas asset disposal returns.
• Valuation: EPS forecasted at 0.47/0.73, corresponding to PER of 34.3x/22.1x.
• Recommendation: RECOMMEND.
• Catalysts: Surge in oil prices, major breakthroughs in EPC orders, and growth in asset disposal.
• Risks: Sharp decline in crude prices, slower EPC project progress, weaker fracking demand.

4. Invt Electric (002334.CH)

• Performance: Revenue and net profit are expected to grow significantly in 2017-2019.
• Key Drivers: Growth in variable frequency transformers, power, and electric vehicle motor controllers.
• Valuation: EPS forecasted at 0.23/0.30, corresponding to PER of 29x/23x.
• Recommendation: RECOMMEND.
• Catalysts: First rail transit traction system order, big clients in new energy vehicle business, earnings beating expectations.
• Risks: Rising expense ratio, faster growth in accounts receivables.

5. Huadian Power International (600027.CH)

• Performance: Thermal power profit margin is at a historical low, but the industry is expected to bottom out.
• Key Drivers: Coal price decline, coal-electricity price linkage, asset injections from major shareholders.
• Valuation: EPS forecasted at 0.22/0.31, corresponding to PER of 21x/15x.
• Recommendation: RECOMMEND.
• Catalysts: Implementation of coal-electricity pricing linkage, asset injection announcements.
• Risks: Larger-than-expected coal price increase, lower-than-expected electricity demand.

6. China Merchants Shekou Industrial Zone (001979.CH)

• Performance: Strong net profit growth in 2016 and Q1 2017, with investment gains from land development.
• Key Drivers: Expansion in Tier-1/2 cities, land bank of 23m sq.m, and regional development projects.
• Valuation: EPS forecasted at 1.41/1.62, corresponding to PER of 13.7x/12.0x.
• Recommendation: RECOMMEND.
• Catalysts: Regional development progress, Qianhai Shekou land development, M&A activities.
• Risks: Tightened regulatory policies, weaker regional development.

7. Sun-Create Electronics (600990.CH)

• Performance: Revenue growth in Q1 2017, but profit growth was lacklustre.
• Key Drivers: Expansion in radar and smart city sectors, asset acquisitions and financing.
• Valuation: EPS forecasted at 0.95/1.55, corresponding to PER of 64.6x/39.6x.
• Recommendation: RECOMMEND.
• Catalysts: Smooth asset acquisition progress.
• Risks: Uncertainty in capital operations, competition in military-related sectors.

Key Analysts

• Wong Chi Man - Head of Research
  Contact: (852) 3698-6317 | cmwong@chinastock.com.hk

• Hong Liang - Strategy Analyst
  Contact: (8610) 66568750 | hongliang@chinastock.com.cn
  Practicing Certificate No.: S0130511010005

Summary

The June 2017 portfolio is characterized by a cautious approach and a focus on quality stocks. The report emphasizes the importance of a bottom-up strategy, highlighting companies with strong fundamentals, growth potential, and resilience to macroeconomic and policy changes. External risks such as geopolitical tensions and currency fluctuations are noted, alongside internal risks like regulatory tightening and operational challenges in new businesses. The portfolio is expected to perform in a range-bound market, with opportunities in sectors like property, media, and power equipment.