20230421-招银国际-HK_Market_Strategy__Treasure_Hunt_in_the_new_China_valuation_system_15页_2mb

The report analyzes the Hong Kong market strategy focusing on State-Owned Enterprises (SOEs) in China under the new "Valuation system with Chinese characteristics." It highlights SOEs' critical role in supporting China's economic development and their strong correlation with GDP growth over the past 16 years, which stood at around 60%. A key recommendation is the revised Key Performance Indicators (KPIs) for SOEs in 2023, emphasizing Return on Equity (ROE) and operating cash flow ratio instead of net profit growth, with an unchanged asset/liability ratio.

The analysis shows that ROE has improved since 2017 but remains lower than private companies. SOEs exhibit low gearing ratios and high resilience in asset quality. The new KPIs aim to drive operational efficiency, cash flow improvement, and enhanced capital return, fostering quality growth in sectors like energy, technology, military, and themed areas such as digital economy, national security, and One Belt One Road.

Hong Kong-listed SOEs, totaling 324, are dominated by financials (43% market cap), energy, and telecom. Valuation metrics, including P/E and dividend yield, indicate some stocks are undervalued, with financials like PICC P&C and China Life recommended for stable dividends and performance. Construction companies and coal miners are noted for resilient earnings and defensive characteristics. The report advocates for investing in SOEs with thematic alignment and positive ROE or cash flow ratios, with targeted sectors highlighted for potential re-rating.