Document Summary
Core Content Overview
This document provides a comprehensive market analysis and investment outlook for the week of 8 September 2014, with a focus on macroeconomic trends, equity performance, and specific company insights. The key areas of discussion include the Chinese economy's mixed performance in August, the shipping sector's potential growth, and the financial outlook of Haitong International Securities (665.HK).
Main Points and Key Insights
Weekly Macro Monitor
- Export Outlook: Expected to maintain double-digit growth in August due to increased demand for Chinese goods, supported by a surge in freight rates and improved external demand.
- Domestic Demand: Remains weak, with manufacturing PMI dropping to 51.1 from 51.7 in July and non-manufacturing PMI rising slightly to 54.4 from 54.2.
- Consumption Growth: A modest rebound is anticipated due to increased spending ahead of the Mid-Autumn Festival.
- Shipping Sector: Likely to benefit from the export growth and ECB's quantitative easing (QE) policy, which may boost demand for Chinese capital and consumer goods in Europe.
- ECB QE Impact: The ECB's QE measures aim to combat deflation, with a benchmark interest rate at 0.15% and deposit rate at -0.20%. This could lead to increased liquidity and support the shipping sector.
- Economic Indicators: Chinese trade data, PPI, and CPI are expected to be released, with a focus on export growth and consumer price trends.
Haitong International Securities (665.HK)
- Rating: BUY
- Target Price (TP): HK$5.68 (1.5x target PBR)
- Capital Raising: HTI issued a 5-year USD 600 million bond at 3.99% interest rate and 98.809% of face value, raising approximately USD 592.9 million.
- Valuation: Currently trading at 9.1x FY14F PER and 1.3x FY14F PBR, lower than the average of its peers (16.6x PER, 1.6x PBR), making it undervalued.
- Business Growth: Strong business pipeline and increased RQFII quota (RMB 10.7 billion) support growth in 2H14. The company is involved in multiple IPOs and M&A activities.
- Financial Performance: Generated HK$1,077 million revenue and HK$351.7 million net profit in 1H14. Full-year revenue and profit estimates of HK$2,212 million and HK$732.9 million are achievable.
- Debt Structure: The issuance of long-term debt is expected to improve the company's debt structure and support further business expansion.
- Peer Comparison: HTI is below the average PER and PBR of its peers, indicating potential for upside in valuation.
TMT Sector Highlights
- Alibaba IPO: Announced a price range of $60 to $66 per ADS, with a total offering size of approximately USD 20 billion.
- Regulation on Foreign TV Content: Chinese authorities plan to limit foreign TV programs to no more than 30% of total content, down from current levels exceeding 50% on some platforms.
- Smartphone Market: Domestic companies dominate the market, with Chinese-made phones accounting for 74.8% of total sales in Q2, showing a 1.6% growth over Q1.
- Online Finance Expansion: Expected to enhance household investment and credit accessibility for small businesses.
- Sohu's Loan Platform: Launched an online loan platform, Souyidai, to expand its financial services offering.
Market Indices and FX Rates
Equity Indices
| Index |
Price (5 Sep) |
Abs Chg |
% Chg |
| HSI |
25,240 |
-58 |
-0.2 |
| H-Share Index |
11,368 |
-18 |
-0.2 |
| CSI 300 Index |
2,449 |
+23 |
+0.9 |
| Sh Composite Index |
8,215 |
+38 |
+0.5 |
| Sz Composite Index |
1,274 |
+5 |
+0.4 |
| Nikkei 225 |
15,669 |
-8 |
-0.0 |
| Korea KOSPI |
2,049 |
-7 |
-0.3 |
| Taiwan TWSE |
9,408 |
-21 |
-0.2 |
| India Sensex 30 |
27,027 |
-59 |
-0.2 |
| DJIA |
17,137 |
+68 |
+0.4 |
| S&P 500 |
2,008 |
+10 |
+0.5 |
| NASDAQ |
4,583 |
+21 |
+0.5 |
| UK FTSE 100 |
6,855 |
-23 |
-0.3 |
| Germany DAX |
9,747 |
+23 |
+0.2 |
| France CAC40 |
4,486 |
-8 |
-0.2 |
Commodity Prices and Interest Rates
| Indicator |
Price (5 Sep) |
Abs Chg |
% Chg |
| WTI oil |
$93.3 |
-1.2 |
-1.2 |
| Gold |
$1,265.7 |
-1.0 |
-0.1 |
| Copper |
$6,975.0 |
+45.0 |
+0.6 |
| Aluminum |
$2,093.0 |
-12.0 |
-0.6 |
| CRB Index |
288.0 |
-0.6 |
-0.2 |
| Baltic Dry Index |
1,155.0 |
+8.0 |
+0.7 |
| UST 3m Yield |
0.03 |
+0.01 |
- |
| UST 10y Yield |
2.46 |
+0.009 |
- |
| HIBOR 3m |
0.36 |
0.000 |
- |
| USD LIBOR 3m |
0.23 |
-0.001 |
- |
Key Financial Metrics for Haitong International
Income Statement (HK$ million)
| Metric |
2011A |
2012A |
2013A |
2014F |
2015F |
2016F |
| Revenue |
- |
- |
- |
2,212.2 |
2,410.2 |
2,768.9 |
| Net Profit |
153.2 |
293.5 |
529.2 |
732.9 |
854.8 |
986.3 |
| EPS (HK cents) |
19.3 |
32.1 |
37.9 |
53.4 |
62.3 |
73.1 |
Balance Sheet (HK$ million)
| Metric |
2011A |
2012A |
2013A |
2014F |
2015F |
2016F |
| Total Assets |
10,962 |
14,628 |
29,438 |
32,817 |
36,259 |
39,982 |
| Total Current Assets |
10,544 |
13,383 |
26,715 |
29,094 |
31,536 |
34,259 |
| Total Non-Current Assets |
418 |
1,245 |
2,723 |
3,723 |
4,723 |
5,723 |
Key Ratios
| Ratio |
2011A |
2012A |
2013A |
2014F |
2015F |
2016F |
| Cost-to-Income Ratio (%) |
79.0 |
69.3 |
57.0 |
59.0 |
56.0 |
57.0 |
| Effective Tax Rate (%) |
14.5 |
12.7 |
11.4 |
11.4 |
11.4 |
11.4 |
| ROE (%) |
5.9 |
9.3 |
12.9 |
14.3 |
15.5 |
16.2 |
| ROA (%) |
1.4 |
2.3 |
2.4 |
2.4 |
2.5 |
2.6 |
| Dividend Payout (%) |
47.8 |
48.3 |
49.7 |
48.3 |
48.3 |
47.4 |
| Net Leverage (x) |
1.61 |
2.42 |
3.26 |
3.47 |
3.63 |
6.19 |
Summary
The document highlights a mixed economic outlook for China in August, with weak domestic demand but improving export trends. The shipping sector is seen as benefiting from increased export growth and ECB's QE policy, which could boost demand for Chinese goods. Haitong International Securities (665.HK) is viewed positively with a BUY rating and a target price of HK$5.68, supported by strong business pipeline, capital raising, and favorable valuation. The TMT sector saw notable developments, including Alibaba's IPO, regulatory changes on foreign TV content, and the expansion of online finance and Sohu's new loan platform. Key market indices and FX rates showed mixed performance, with some indices showing slight declines and others showing modest gains.
