20180918-广发证券_香港_-Weekly_HK_Market_and_Sector_Views_5页_423kb

Weekly HK Market and Sector Summary

Core Content Overview

This report provides a comprehensive analysis of the Hong Kong market and key sectors, focusing on macroeconomic factors, investment strategies, and sector-specific performance. It highlights the ongoing impact of the Sino-US trade war, monetary policy changes, and industry dynamics, offering insights into investment opportunities and risks.

Macro Sector Analysis

Key Points

• Fiscal and Social Financing Stabilization: China's fiscal expenditure increased by 3.3% in August, and social financing rose by 9.7%, aligning with July levels. This stability is attributed to new asset regulations, constraints on implicit debts, delayed credit contraction, and the approval of most new infrastructure projects.
• FAI Growth Slowdown: The factory output index (FAI) for China, excluding agriculture, hit a record low increase of 5.3% YoY in August. This slowdown is primarily due to weak infrastructure investment and the ongoing trade war, which is expected to reduce exports.
• Trade War Impact: The trade war affects the Hong Kong stock market in three ways: (1) the resolution of the $200bn tariff issue, (2) the potential for additional tariffs on $267bn of US exports, and (3) the risk of technical sanctions. These uncertainties are particularly affecting the telecommunications and optoelectronic equipment sectors.
• Market Liquidity: Improved liquidity in the Hong Kong market is observed, with the US dollar index declining from a high of 97. Net southbound outflow was Rmb300m, while net northbound outflow reached Rmb3.85bn.
• Investment Strategy: A cautious medium-term outlook is maintained due to persistent risks. Short-term, the trade war is a core variable. Recommended sectors include utilities, insurance, leading local stocks, building materials, and textiles and apparel.

Consumer Sector Analysis

Key Points

• F&B Sector: Mengniu Dairy showed strong topline growth in 1H18 but missed expectations on S&D ratio. The company is considered undervalued, with a potential decline in the S&D ratio expected in 2H18.
• Gaming Sector: The Macau gaming sector continued to decline, with valuations near historical lows. However, the opening of the Hong Kong-Macau-Zhuhai Bridge is expected to drive tourism and GGR growth in 2019. A short-term rebound is anticipated.
• Consumer Discretionary: Retail sales in Hong Kong grew 7.8% YoY in July, down from 12% in June. Jewelry sales remained the strongest, at 16.8% YoY. The slowdown is attributed to a high comparable base and reduced mainland visitor arrivals. We expect HK retail sales to slow to single digits in 2H18 due to macro uncertainties.
• Education Sector: A revised law on private schools was announced, restricting private education groups from acquiring not-for-profit schools. This is expected to negatively impact compulsory education but not higher education. The regulation increases uncertainty in the sector.

Auto Sector Analysis

Key Points

• Auto Sales: Auto sales declined in August, with retail sales down 2% YoY. The slowdown is attributed to reduced purchasing power in third/fourth-tier cities and the impact of the Sino-US trade war. The State Council's tax exemption for NEVs is expected to boost sales.

• Geely Auto (175 HK):

  • August sales rose 30% YoY and 4% MoM to 125,000 units.
  • 8M18 sales increased 41% YoY to 1.01m units.
  • Strong performance in 1H18, with revenue up 36% YoY and net profit up 54% YoY.
  • New models launched since May, including the Lynk & Co 02 and 01 PHEV, are expected to improve sales volume and ASP.
  • Overseas expansion is progressing, with the Boyue available in Malaysia and Belarus.
  • We maintain a long-term positive stance on the China auto sector and recommend watching for entry points.

• BAIC Motor (1958 HK):

  • 1H18 revenue grew 15.3% YoY to Rmb76.9bn.
  • Net profit surged 187% YoY to Rmb2.8bn, driven by Beijing Benz.
  • Strong product cycle with the upcoming long wheelbase GLC SUV and A-class sedan in 2H18.
  • Collaboration with Daimler on NEVs will introduce the EQC model in 2019, enhancing its competitive position.

• Auto Dealers: Retail sales declined in September, with the auto dealer inventory alert index at 52.2% in August. Luxury brands showed better performance, while JV and own-brands lagged. Relaxed monetary policy may help dealers by easing financing pressure and improving consumer buying power.

New Energy & Utilities Sector Analysis

Key Points

• Wind Power: Subsidies for established wind power plants remain unchanged, and valuations are considered undervalued.
• Natural Gas: Sales volume exceeded expectations due to coal-to-gas substitution. Connection fees are expected to remain stable.
• Environmental: Strong demand is anticipated for hazardous waste treatment services.

TMT Sector Analysis

Key Points

• Hardware: Tech stocks in HK and Taiwan remained flat, with the new iPhone launch not significantly impacting sentiment. Prices for new models exceeded expectations, leading to muted shipment momentum. Older models (iPhone 7 and 8) saw better-than-expected demand due to price cuts.
• Internet: The sector maintained 37% YoY revenue growth in 1H18. Leading companies are expected to outperform. The trade war and regulatory pressures have brought valuations back to historical lows.
• Game Regulations: New regulations on the total number of online games will take effect on September 30, focusing on quality games and shortening approval times.

Sector Ratings

Company Ratings

Key Recommendations

• Geely Auto is the top pick due to strong sales and margin improvements.
• BAIC Motor is recommended for its strong product cycle and NEV collaboration.
• Zhongsheng Holding is highlighted for its resilience to trade tensions and upcoming product launches.
• Tencent, China Literature, and IGG are suggested for their strong fundamentals and low valuations.

Important Disclosures

• The views expressed reflect the analysts' personal opinions.
• No conflicts of interest are disclosed.
• The report is for informational purposes only and does not constitute investment advice.
• GF Securities (Hong Kong) accepts no liability for any loss arising from the use of this report.