20110816-申万宏源研究_香港_-SWS_Conviction_Buy_List_for_HK-listed_China_Stocks_Top_picks_for_the_next_3_months_19页_344kb

Summary of SWS Conviction Buy List for HK-listed China Stocks (August 16, 2011)

Core Content

This document provides an analysis of the performance and valuation of twelve HK-listed China stocks included in the SWS Conviction Buy List. It outlines the stock price movements from August 9 to August 15, 2011, and updates the list with Sinopec (0386.HK) added due to its attractive valuation and potential for re-rating. The report also includes detailed financial summaries and valuations for each stock, as well as key assumptions, differing views from the market consensus, catalysts for future performance, and major risks.

Main Points

• Performance: From August 9 to August 15, 2011, the twelve stocks in the Conviction Buy List gained 3.10%, outperforming the HSCEI index by 4.63%. Over the period from October 20, 2010 to August 15, 2011, they outperformed the HSCEI by 27.28% in absolute terms.
• Stocks in the Conviction Buy List:
  • Yanzhou Coal Mining (1171.HK)
  • Shanshui Cement (0691.HK)
  • CNBM (3323.HK)
  • Zhaojin Mining (1818.HK)
  • Jiangxi Copper (0358.HK)
  • Intime Department Store (1833.HK)
  • Silver Base (0886.HK)
  • Air China (753.HK)
  • China Unicom (0762.HK)
  • Kingdee Int'l (0268.HK)
  • PICC (2328.HK)
  • CMBC (1988.HK)
  • Sinopec (0386.HK) (added in the list)

Key Information

1. Share Price Performance

• Yanzhou Coal Mining (1171.HK):
  • Closing price (Aug 15): HKD 25.05
  • Target Price (TP): HKD 34.50
  • Potential Upside: 38%
  • Valuation: 11.9x 2010 PE, 9.8x 2011 PE
• Shanshui Cement (0691.HK):
  • Closing price (Aug 15): HKD 8.69
  • TP: HKD 13.50
  • Potential Upside: 55%
  • Valuation: 6.88x 2011 PE, 2.34x 2011 PB
• CNBM (3323.HK):
  • Closing price (Aug 15): HKD 14.00
  • TP: HKD 24.60
  • Potential Upside: 76%
  • Valuation: 6.92x 2011 PE, 1.98x 2011 PB
• Sinopec (0386.HK):
  • Closing price (Aug 15): HKD 6.79
  • TP: HKD 9.50
  • Potential Upside: 40%
  • Valuation: 6.71x 2011 PE, 1.08x 2011 PB
• Zhaojin Mining (1818.HK):
  • Closing price (Aug 15): HKD 16.64
  • TP: HKD 20.95
  • Potential Upside: 26%
  • Valuation: 19.14x 2011 PE, 5.35x 2011 PB
• Jiangxi Copper (0358.HK):
  • Closing price (Aug 15): HKD 23.45
  • TP: HKD 32.46
  • Potential Upside: 38%
  • Valuation: 7.28x 2011 PE, 1.55x 2011 PB
• Intime Department Store (1833.HK):
  • Closing price (Aug 15): HKD 12.38
  • TP: HKD 16.60
  • Potential Upside: 34%
  • Valuation: 23.1x 2011 PE, 3.0x 2011 PB
• Silver Base (0886.HK):
  • Closing price (Aug 15): HKD 7.50
  • TP: HKD 10.00
  • Potential Upside: 33%
  • Valuation: 17x 2011 PE, 4.4x 2011 PB
• Air China (753.HK):
  • Closing price (Aug 15): HKD 8.18
  • TP: HKD 8.80
  • Potential Upside: 8%
  • Valuation: 10x 2011 PE, 1.7x 2011 PB
• China Unicom (0762.HK):
  • Closing price (Aug 15): HKD 14.56
  • TP: HKD 17.50
  • Potential Upside: 20%
  • Valuation: 38x 2011 PE, 1.5x 2011 PB
• Kingdee Int'l (0268.HK):
  • Closing price (Aug 15): HKD 4.04
  • TP: HKD 5.53
  • Potential Upside: 37%
  • Valuation: 25x 2011 PE, 4.4x 2011 PB
• PICC (2328.HK):
  • Closing price (Aug 15): HKD 13.40
  • TP: HKD 18.00
  • Potential Upside: 34%
  • Valuation: 13x 2011 PE, 4.2x 2011 PB
• CMBC (1988.HK):
  • Closing price (Aug 15): HKD 6.23
  • TP: HKD 9.00
  • Potential Upside: 44%
  • Valuation: 6x 2011 PE, 1.0x 2011 PB

2. Performance and Valuation Overview

• The portfolio of these stocks outperformed the HSCEI by 3.10% in the last 3 weeks and by 27.28% over the past year.
• The cumulative return for the portfolio was 7.91%, while the HSCEI declined by 19.37%.
• Sinopec was added to the list due to its historical low P/E and limited downside risk, with expectations of re-rating due to potential pricing mechanism reform.

Main Views

• Outperforming Stocks: The Conviction Buy List includes stocks that have shown strong performance relative to the HSCEI, particularly due to strong fundamentals, growth expectations, and favorable valuations.
• Valuation Analysis: The report uses DCF (Discounted Cash Flow) models to derive target prices, emphasizing earnings growth, profitability improvements, and potential for re-rating.
• Catalysts: Each stock has specific catalysts, such as improved earnings, policy changes, demand increases, and market sentiment shifts, which could drive their share prices.
• Risks: The main risks include economic slowdown, policy tightening, and market volatility, particularly in sectors like energy, retail, and telecommunications.

Conclusion

The SWS Conviction Buy List for HK-listed China stocks highlights companies with strong fundamentals and growth potential. The addition of Sinopec reflects the firm's belief in the company's undervaluation and the potential for re-rating due to policy reforms. The overall portfolio has shown strong performance, outperforming the HSCEI in both short-term and long-term periods. Investors are advised to consider the specific risks and catalysts associated with each stock before making investment decisions.