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Industrial Securities Co., Ltd. Summary

Core Content Overview

Industrial Securities Co., Ltd. provides a comprehensive market review and analysis, focusing on the Chinese and global financial markets, including indices, sector performance, company news, and investment strategies. The report highlights the positive market sentiment, sector-specific movements, and macroeconomic factors influencing the bond market and financial instruments.

Main Market Indices

Market Volume: CNY 734.879 billion (USD 109.87 billion), up 5.0% from Monday.
Performance: Winners outnumbered losers by 1,944 to 631.

Main Market Review

• The Shanghai Composite index started the day slightly lower but saw a short rally, then surged in the afternoon to end at a 10-week high.
• Investors are bullish on the Chinese economy, anticipating positive economic data to be released.
• Key sectors contributing to the market's upward movement include Steel, Transportation, and Building Materials.
• The overall market sentiment is positive, with increased trading activity and optimism about economic performance.

Sector Review Highlights

• Coal Sector: Continued strong performance due to supply-side reforms and reduced coal production in Australia and Indonesia caused by La Nina.
• Home Appliances and Steel: Top contributors to the market's growth.
• Non-ferrous Metals: Minimal rise compared to other sectors.
• National Defense Sector: Strong performance with companies like Sichuan Chengfei Integration Technology Co. (002190.SZ) reaching the ceiling price.

Daily Headlines

• Vanke and Blackstone: Vanke is set to acquire Blackstone's property assets, but the deal will not be funded by issuing shares.
• PBOC and MLF: The PBOC is likely to roll over MLF as the amount due in July is higher than in May and June.
• IMF Concerns: The IMF urges China to tackle corporate debt quickly, citing the potential risks of rising debt levels.
• Natural Disasters: Weeks of torrential rain in central and southern China have caused severe flooding, potentially affecting economic growth.
• Yuan Depreciation: The Yuan is expected to gradually depreciate to 6.8/USD this year due to slowing growth, but it will remain stable in the medium term.

Latest Company News

• BYD (002594.SZ): Shenzhen Western Bus canceled an electric bus bid; rating raised to Buy by Daiwa Securities.
• China Coal (601898.SH): Expected to report a 6-month net profit of up to 520 million yuan, up from a loss in the previous year.
• Everbright Sec. (601788.SH): June unconsolidated net profit reached 540 million yuan.
• New China Life (601336.SH): Rumors suggest the company will appoint three new vice presidents.
• Sichuan Chengfei (002190.SZ): Plans a private share sale of up to 1.75 billion yuan.
• Sunrise Technology (300360.SZ): Launches private placement for up to 1.05 billion yuan to develop energy consumption services and a demand-side data platform.

Investment Strategy for Rates Products

• Trend: The risk-free rate is expected to trend downward in the long run due to reform and transformation efforts.
• Recommendation: Invest in shorter-term rates products, as long-term yields may decrease further in the third quarter.
• Market Conditions: The bond market is growing on weaker economic fundamentals and reduced risk appetite. The yield curve remains relatively flat.
• Advice: Investors with high positions are advised to reduce holdings, while those with low positions can retain. If the market drops, consider increasing positions.
• Reasoning: The increasing use of financial leverage has amplified market sentiment and volatility. The PBOC is withdrawing funds, indicating a shift in monetary policy.

Bond Market Weekly Review (July 4 - July 8)

• Primary Market: New bond issuance decreased to 205.6 billion yuan, while net supply increased to 81.5 billion yuan.
• Secondary Market: Yields declined, especially for short-end bonds. Credit spreads narrowed, but trade volume decreased for most credit products.
• Liquidity: Inter-bank liquidity eased, especially for longer terms, due to reduced demand and FX outflow pressure.
• Rates Trends: Shibor and repo rates declined, with some fluctuations in IRS and offshore liquidity.

Key Data (July 9, 2016)

Revenue Breakdown (2015)

Sino Great Wall (000018 SH) - Private Placement Analysis

• Private Placement: The company raised up to 2.5 billion yuan through the issuance of 240,153,697 shares.
• Subscribers: 50% by Sino Great Wall Investment (Beijing) Co., Ltd., 40% by Beijing Anben Medical Investment Holdings, and 10% by ZHENG Jihua.
• Use of Funds: To replenish working capital and repay bank loans, with a 3-year lock-up period.
• Earnings Forecast:
  • 2016: CNY 0.37 (PE: 29.5x)
  • 2017: CNY 0.52 (PE: 21.0x)
  • 2018: CNY 0.68 (PE: 16.1x)
• Valuation: Strong optimism about the company's growth and business transformation, leading to a "Buy" rating.
• Outlook: Expected to secure more overseas contracts, which will support future sustainable growth.

Potential Risks for Sino Great Wall

• Lower-than-expected new contracts
• Slower progress in overseas projects
• Delayed fund collection

Analyst and Translator

• Analyst: MENG Jie (mengjie@xyzq.com.cn), TANG Yue (tangyue@xyzq.com.cn), HUANG Weiping, WANG Han, LU Yanjin, JIA Xiaojun, WANG Yijun, ZUO Dayong, LI Huiquan, CHI Guangsheng
• Translator: PAN Mengchen (panmengchen@xyzq.com.cn)

Conclusion

The report outlines a positive market environment with increased investor confidence and sector-specific growth. It emphasizes the importance of short-term rates products due to the flat yield curve and the potential for long-term yield declines. Sino Great Wall is highlighted as a strong investment opportunity due to its private placement and strategic business transformation into the medical industry, supported by expected revenue growth and improved financial metrics. However, risks such as slower overseas project progress and fund collection should be monitored.