20131220-南华金融-Hong_Kong_Stock_Market_Outlook_14页_436kb

Hong Kong Stock Market Outlook – 2014 Summary

Core Content

The document provides a comprehensive outlook on the Hong Kong stock market for 2014, analyzing global and regional market conditions, economic reforms in China, and the potential performance of key sectors and stocks.

Main Points

1. Market Views

• Low interest rates support asset prices: The low interest rate environment in the US and Eurozone supports higher stock valuations. Stocks are more attractive than bonds due to better earnings and dividend yields.
• Global Fund Flows: The Chinese and Hong Kong bourses were underperformers in 2013, but with the expected success of economic reforms, global funds may return to Chinese stocks, benefiting the Hong Kong market.
• HSI and HSCEI Targets:
  • The Hang Seng Index (HSI) is expected to reach a high of 28,000.
  • The Hang Seng China Enterprises Index (HSCEI) is projected to hit 13,400 in 2014.
• Index Valuation: The HSI is derived from the 25th, 50th, and 75th percentile target prices of its constituent stocks. The base case for HSI is 26,000.
• US and European Markets:
  • US stocks are expected to continue rising due to low interest rates, low inflation, and improving economic conditions.
  • European stocks are anticipated to perform well as the ECB adopts various measures like LTRO, asset purchases, and negative interest rates to stimulate growth.

2. China – Economic Reforms and Outlook

• Economic Reforms: The 18th CPC Central Committee's Third Plenary Session introduced 60 major initiatives across 16 areas, aiming to shift the economy from investment-led to consumption-driven.
• Positive Impact on Confidence: These reforms are expected to boost business and consumer confidence, which in turn supports stock market performance.
• Avoiding Economic Hard Landing: The reform package is designed to improve efficiency, increase farmers' income, speed up urbanization, and stimulate demand, reducing the risk of an economic slowdown.
• GDP Growth Expectations: The market expects China's GDP to grow at 7.6% in 2013, 7.5% in 2014, and 7.2% in 2015.
• Sector Benefits:
  • Consumer (driven by rising rural income and urbanization)
  • Healthcare (reforms and anti-corruption measures)
  • Natural Gas (demand growth and policy support)
  • Property (reforms and urbanization)
  • Solar Energy (environmental policies and investment)

3. Key Sectors and Stock Picks

Consumer

• Café de Coral (341 HK):
  • Share price: HK$25.00
  • Target price: HK$30.50 (+23.7% upside)
  • Market Cap: HK$14.4bn
  • ROE: 17.1%
  • Market Consensus: PER 20.3X, PEG 1.5X, PB 3.8X, Yield 3.2%
• Reasons for Selection: Strong mainland growth, improving operating efficiency, and potential for expansion.

Healthcare

• Shineway (2877 HK):
  • Share price: HK$11.06
  • Target price: HK$13.78 (+24.6% upside)
  • Market Cap: HK$9.1bn
  • ROE: 17.0%
  • Market Consensus: PER 9.0X, PEG 0.8X, PB 1.6X, Yield 3.8%
• Reasons for Selection: Strong growth in rural markets and restructuring of sales channels.

Natural Gas

• Zhongyu Gas (3633 HK):
  • Share price: HK$2.12
  • Target price: HK$2.81 (+32.5% upside)
  • Market Cap: HK$5.4bn
  • ROE: 17.3%
  • Market Consensus: PER 17.0X, PEG 0.9X, PB 3.6X, Yield 0%
• Reasons for Selection: Strong industrial demand in inner regions, expansion of CNG stations, and improving financial position.

Property

• Sunac China (1918 HK):
  • Share price: HK$4.79
  • Target price: HK$6.85 (+43.0% upside)
  • Market Cap: HK$15.9bn
  • ROE: 26.9%
  • Market Consensus: PER 2.7X, PEG 0.1X, PB 10.9X, Yield 2.9%
• Reasons for Selection: Lower government intervention, focus on market mechanisms, and support from the second child policy.

Solar Energy

• GCL-Poly (3800 HK):
  • Share price: HK$2.21
  • Target price: HK$2.99 (+35.3% upside)
  • Market Cap: HK$34.2bn
  • ROE: 26.3%
  • Market Consensus: PER 10.9X, PEG N/A, PB N/A, Yield N/A
• Comtec (712 HK):
  • Share price: HK$1.35
  • Target price: HK$1.93 (+43.0% upside)
  • Market Cap: HK$1.8bn
  • ROE: N/A
  • Market Consensus: PER N/A, PEG N/A, PB N/A, Yield 0.8%
• Reasons for Selection: Easing of one-child policy and financial sector reforms are expected to drive growth in this sector.

4. US Market Outlook

• Low Interest Rates: The US economy is recovering moderately, but the low consumer confidence may limit growth.
• Fed Policy: The Fed is expected to taper QE progressively, and interest rates will remain low until mid-2015.
• Dow Jones:
  • Expected to reach 17,800 in 2014.
  • Currently trading at a PER of 15.3X, between 5 and 10-year averages.
• Debt Ceiling Issue: May cause market volatility in early 2014.

5. European Market Outlook

• ECB Measures: The ECB has several tools to stimulate growth, including LTRO, asset purchases, and negative interest rates.
• Eurozone Recovery: Expected to continue with improving current account and GDP growth.

Key Information

• The Hang Seng Index (HSI) is projected to reach 28,000, while the Hang Seng China Enterprises Index (HSCEI) is expected to hit 13,400.
• The US and European markets are expected to remain supportive due to low interest rates and improving economic conditions.
• China's economic reforms are seen as a key driver for long-term growth and confidence, especially in the consumer, healthcare, natural gas, property, and solar energy sectors.
• The document highlights the importance of monitoring default risks in China's financial system, particularly with regard to wealth management products.
• The second child policy is expected to stimulate housing demand, with the strongest impact in second-tier cities.