20170411-中国银河国际证券-Investment_Portfolio_for_April_2017：Stay_Cautious_and_Identify_Quality_Stocks_18页_1mb

A-Share Monthly Portfolio Summary - April 2017

Core Content

This report outlines the investment portfolio for April 2017, emphasizing a cautious approach and a bottom-up stock-picking strategy. It highlights key sectors such as petrochemicals, power equipment, military machinery, financials, military & defence, property, and pharmaceuticals. The report also provides detailed analysis of individual stocks, including their financial performance, growth prospects, and risk factors.

Main Points

• March Performance: The CGS Top 10 portfolio had a loss of 2.45% in March 2017, underperforming the CSI 300 Index by 2.53ppts. From January 2013 to March 2017, the cumulative return of the CGS monthly portfolio was 425.76%, significantly outperforming the CSI 300 Index by 387.84ppts and surpassing the ChiNext Index's 159.20% surge.
• April Outlook: External markets, particularly US trade policies and RMB/USD exchange rate fluctuations, are expected to influence A shares. A stable RMB exchange rate is crucial to avoid market concerns. Domestic policies from the NPC and CPPCC Sessions are anticipated to keep the economy relatively stable. The property market's structural boom may cool down, and monetary policy will remain prudent with slightly tight liquidity. The report advises investors to be cautious and prepare for potential "black swan" events.

April Stock Portfolio

The following stocks are recommended for inclusion in the April portfolio (in alphabetical order):

• Invt Electric (002334.CH)
• Jiuzhiyang Infrared System (300516.CH)
• Northeast Pharmaceutical (000597.CH)
• RiseSun Real Estate (002146.CH)
• Shanghai AJ Group (600643.CH)
• Shanghai Electric (600021.CH)
• Sun-Create Electronics (600990.CH)
• Zhengzhou Coal Mining (601717.CH)
• Zhenhai Petrochemical Engineering (603637.CH)
• ST Zhenxing Biopharmaceutical and Chemical (000403.CH)

Company Analysis

Zhenhai Petrochemical Engineering (603637.CH)

• Investment Rating: Recommend
• Driving Factors:
  • Favorable crude oil and chemical prices.
  • Market opening up to private enterprises.
  • Expansion in scale through large-scale refining bases and SOE projects.
• Catalysts:
  • Continued rise in coal prices.
  • Exceeding capex expectations of coal companies.
  • Faster-than-expected progress in SOE reforms.
• Valuation:
  • Forecast net profit: RMB51m (2016), RMB72m (2017), RMB145m (2018), RMB280m (2019).
  • Corresponding EPS: RMB0.5, RMB0.7, RMB1.4, RMB2.7.
  • PER: 63.7x (2014A), 91.7x (2015A), 65.5x (2017E).
• Main Risks:
  • Smaller-than-expected industry investments.
  • Less-than-expected new orders.

Shanghai AJ Group (600643.CH)

• Investment Rating: Recommend
• Driving Factors:
  • Strong trust business with AUM growth.
  • Leasing business offering new growth opportunities.
  • M&A activities to build a financial holdings platform.
• Catalysts:
  • Juneyao Group becoming the largest shareholder.
  • Private placement facilitating business expansion.
• Valuation:
  • Forecast EPS: RMB0.62 (2017E), RMB0.85 (2018E).
  • Corresponding PER: 22.5x (2017E), 16.4x (2018E).
• Main Risks:
  • Slower-than-expected progress in private placement.
  • Slower-than-expected development in financial holdings business.

Zhengzhou Coal Mining Machinery (601717.CH)

• Investment Rating: Recommend
• Driving Factors:
  • Coal price recovery driving equipment upgrades.
  • Earnings growth from declining accounts receivable.
  • Acquisition of auto component assets.
• Catalysts:
  • Continued rise in coal prices.
  • Exceeding capex expectations of coal companies.
  • Faster-than-expected SOE reforms.
• Valuation:
  • Forecast net profit: RMB228m (2016), RMB538m (2017), RMB873m (2018).
  • Corresponding EPS: RMB0.14 (2016E), RMB0.33 (2017E), RMB0.54 (2018E).
  • PER: 61.7x (2016E), 26.2x (2017E), 16.0x (2018E).
• Main Risks:
  • Coal companies cutting capex due to macroeconomic conditions.

Jiuzhiyang Infrared System (300516.CH)

• Investment Rating: Recommend
• Driving Factors:
  • Growth in infrared and laser range finder businesses.
  • Benefits from SOE reform and asset restructurings.
• Catalysts:
  • Faster-than-expected growth in infrared and laser range finder businesses.
  • Promotion of SOE reform.
  • Securitization of parent's military assets.
• Valuation:
  • Forecast net profit: RMB141m (2016), RMB209m (2017), RMB294m (2018).
  • Corresponding EPS: RMB1.17 (2016E), RMB1.75 (2017E), RMB2.45 (2018E).
  • PER: 89x (2016E), 59x (2017E), 42x (2018E).
• Main Risks:
  • Slower-than-expected growth in infrared and laser range finder businesses.
  • Slower-than-expected resource consolidation by CSIC.

RiseSun Real Estate Development (002146.CH)

• Investment Rating: Recommend
• Driving Factors:
  • Strong earnings and sales performance in 2016.
  • Expansion in major second- and third-tier cities.
  • Development of new businesses such as health tourism and financial services.
• Catalysts:
  • Undervalued high-yield stock with excellent performance.
  • Breakthroughs in new business development.
• Valuation:
  • Forecast EPS: RMB0.94 (2016E), RMB1.05 (2017E), RMB1.21 (2018E).
  • Corresponding PER: 13.6x (2016E), 12.2x (2017E), 10.6x (2018E).
• Main Risks:
  • Stricter-than-expected regulatory policies.
  • Lower-than-expected sales.
  • Slower-than-expected new business development.

Sun-Create Electronics (600990.CH)

• Investment Rating: Recommend
• Driving Factors:
  • Expansion through organic and inorganic growth.
  • Strong performance in radar products.
  • Capital operations progressing smoothly.
• Catalysts:
  • Smooth progress in asset acquisition.
• Valuation:
  • Forecast EPS: RMB1.0 (2016), RMB1.60 (2017), RMB1.94 (2018).
  • Corresponding PER: 76x (2016), 47x (2017), 39x (2018).
• Main Risks:
  • Lower-than-expected growth in consumer product sales.

Northeast Pharmaceutical (000597.CH)

• Investment Rating: Recommend
• Driving Factors:
  • Strong performance in the pharmaceutical sector.
  • Potential for growth in the medical field.
• Catalysts:
  • Continued growth in the pharmaceutical sector.
• Valuation:
  • Forecast EPS: RMB1.79 (2017E).
  • Corresponding PER: 7.9x (2017E).
• Main Risks:
  • Slower-than-expected growth in the pharmaceutical sector.

Invt Electric (002334.CH)

• Investment Rating: Recommend
• Driving Factors:
  • Strong earnings growth.
  • Expansion in the power equipment sector.
• Catalysts:
  • Continued growth in the power equipment sector.
• Valuation:
  • Forecast EPS: RMB0.23 (2017E).
  • Corresponding PER: 36.6x (2017E).
• Main Risks:
  • Slower-than-expected growth in the power equipment sector.

Shanghai Electric (600021.CH)

• Investment Rating: Recommend
• Driving Factors:
  • Expansion in new energy and overseas projects.
  • Improvement in public heat generation market share.
• Catalysts:
  • Implementation of overseas and new energy projects.
  • Rapid extension of smart lighting systems.
• Valuation:
  • Forecast EPS: RMB0.77 (2016E), RMB0.93 (2017E), RMB1.15 (2018E).
  • Corresponding PER: 16.6x (2016E), 13.7x (2017E), 11.1x (2018E).
• Main Risks:
  • Rise in coal prices.
  • Slower-than-expected implementation of overseas projects.

ST Zhenxing Biopharmaceutical and Chemical (000403.CH)

• Investment Rating: Recommend
• Driving Factors:
  • Strong growth in the biopharmaceutical and chemical sector.
• Catalysts:
  • Continued growth in the biopharmaceutical and chemical sector.
• Valuation:
  • Forecast EPS: RMB1.79 (2017E).
  • Corresponding PER: 7.9x (2017E).
• Main Risks:
  • Slower-than-expected growth in the biopharmaceutical and chemical sector.