20161102-中国银河国际证券-Updates_on_SZ-HK_Stock_Connect__Northbound__16页_1mb

Summary of Strategy: SZ-HK Stock Connect (Northbound) Updates

Core Content

This document outlines the updated list of stocks eligible for northbound trading under the Shenzhen-Hong Kong Stock Connect (SZ-HK Stock Connect), which is expected to launch in late November or early December 2016. The updated list is based on the latest criteria from the authorities, specifically the calculation of the minimum required market cap of RMB6bn using the average daily market cap over the six months prior to the regular review cut-off date. It is estimated that 879 stocks will be eligible for northbound trading.

The document also provides a list of 15 stock ideas from the A-share research team, categorized into different sectors, along with key financial metrics and projected earnings growth.

Main Points

Updated Eligibility List

• Eligible Stocks: Over 879 stocks are estimated to be eligible for northbound trading under SZ-HK Stock Connect.
• Clarified Criteria: The minimum required market cap of RMB6bn is calculated based on the average daily market cap over six months.
• Purpose: To assist investors in identifying potential stocks for cross-border investment.

Stock Ideas Based on Two Angles

1. Stocks from A-share Team's Latest Model Portfolio
2. Top 15 Stocks Based on Market Cap

Key Stocks and Their Details

(A) Stocks from A-share Team's Latest Model Portfolio

1. Anhui Zhongding Sealing Parts (000887.CH)

   • Sector: Industrial
   • Description: Produces and sells rubber sealing parts, used in automobiles, engineering machinery, and other industries.
   • Market Share: About 10% of the non-tire rubber market in China.
   • Growth Drivers: Expansion into new energy vehicle charging piles and UAV engines.
   • EPS Growth: 34% in 2016E, 28% in 2017E.

2. Chaozhou Three-Circle Group (300408.CH)

   • Sector: Advanced Ceramics
   • Description: Manufactures and sells ceramic products for optic telecommunication, machinery, and new energy industries.
   • Growth Drivers: Fiber optic ferrules, ceramic packaging substrates, and zirconia ceramic rear covers.
   • EPS Growth: 25% in 2016E and 25% in 2017E.

3. All Winner Technology Co Ltd (300458.CH)

   • Sector: TMT
   • Description: A fabless design company focused on smart application processors and analog ICs.
   • Growth Drivers: Expansion into VR, UAVs, and other downstream applications.
   • EPS Growth: 60% in 2016E, 38% in 2017E.

4. Shenzhen Sunway Communication (300136.CH)

   • Sector: TMT
   • Description: Develops, produces, and markets mobile terminal antenna systems.
   • Growth Drivers: Strong position as a leading manufacturer of mobile terminal antennas.
   • EPS Growth: 43% in 2016E, 83% in 2017E.

5. Shenzhen Sunlord Electronics (002138.CH)

   • Sector: TMT
   • Description: Specializes in chip passive components and supplies to the military.
   • Growth Drivers: Fingerprint identification cover glass and power electronic transformers.
   • EPS Growth: 39% in 2016E, 32% in 2017E.

(B) Top 15 Stock Picks Based on Market Cap

(i) TMT

6. Tianqi Lithium Industries (002466.CH)

   • Sector: Automotive
   • Description: Develops, manufactures, and sells lithium products.
   • Growth Drivers: Benefiting from the growth of the electric vehicle market.
   • EPS Growth: 76% in 2016E, 12% in 2017E.

7. Weifu High-Technology (000581.CH)

   • Sector: Automotive
   • Description: Manufactures fuel-injection pumps and related parts.
   • Growth Drivers: Recovery of the heavy truck market.
   • EPS Growth: 10% in 2016E, 10.3% in 2017E.

(ii) Healthcare

8. Yifan Pharmaceutical (002019.CH)

   • Sector: Healthcare
   • Description: Produces biochemicals and offers technology development and transfer.
   • Growth Drivers: Surge in calcium pantothenate prices and new drug acquisitions.
   • EPS Growth: RMB0.63/0.59/0.73 for 2016E/2017E/2018E.

9. Tianjin Chase Sun Pharmaceutical (300026.CH)

   • Sector: Healthcare
   • Description: Researches, develops, and sells medicines.
   • Growth Drivers: Chinese medicine dispensing granules and online treatment platform.
   • EPS Growth: 30% in 2016E, 23% in 2017E.

10. Aier Eye Hospital (300015.CH)

• Sector: Healthcare
• Description: Provides ophthalmological services across 27 provinces.
• Growth Drivers: Low penetration rate of refractive surgery and stable demand for cataract surgery.
• EPS Growth: 33% in 2016E, 40% in 2017E.

(iii) Oil Services

11. China Oil HBP Science & Technology (002554.CH)

• Sector: Oil Services
• Description: Designs and develops oil and gas field development technology.
• Growth Drivers: Expected revenue recognition from Pakistan Nashpa project and joint ventures.
• EPS Growth: -27% in 2016E, 45% in 2017E.

12. LandOcean Energy Services (300157.CH)

• Sector: Oil Services
• Description: Provides software and services for oil and gas exploration.
• Growth Drivers: Acquisitions and transformation into an integrated oil services provider.
• EPS Growth: 160% in 2017E, 38% in 2018E.

(iv) Agriculture

13. Fujian Sunner Development (002299.CH)

• Sector: Agriculture
• Description: Processes and markets poultry.
• Growth Drivers: Favorable industry cycle and improved cost management.
• EPS Growth: RMB0.8 in 2016E, 100% growth in 2017E.

14. Muyuan Foodstuff (002714.CH)

• Sector: Agriculture
• Description: Breeds and sells boars and commodity pigs.
• Growth Drivers: Favorable industry cycle and tight supply in 2H16.
• EPS Growth: 252% in 2016E, 2% in 2017E.

(v) Others

15. Sichuan Haite High-tech (002023.CH)

• Sector: Aerospace/Defense
• Description: Maintains and repairs aircraft equipment, with a focus on military-civilian integration.
• Growth Drivers: Military equipment sales and high-end RFID chip project.
• EPS Growth: 60% in 2016E, 150% in 2017E.

Key Financial Metrics

Conclusion

The document highlights the updated list of eligible stocks for northbound trading under SZ-HK Stock Connect, emphasizing the growth potential of various sectors. The recommended stocks span across TMT, automotive, healthcare, oil services, agriculture, and others, each with distinct growth drivers and projected EPS growth. Investors are advised to consider these stocks based on their financial performance and sector-specific opportunities.