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A-Share Daily Express Summary - September 12, 2014

Core Content Overview

This document provides a detailed analysis of the Chinese stock market and key company events on September 12, 2014, focusing on Inner Mongolia Yili Industrial Group (600887 CH), as well as broader market and industry trends.

Main Company Events

• China Pacific (601601 CH): Reported 8-month life premiums of 71.9 billion yuan.
• Industrial Bank (601166 CH): Anticipates a slight widening of the net interest margin in the second half of the year.
• Shanghai Bairun (002568 CH): Announced a $900 million acquisition of a cocktail company.

Daily Headlines

• SOEs and Mixed Ownership: The Chinese government is pushing for state-owned enterprises (SOEs) to go public as part of mixed ownership reforms.
• Online Insurance Regulations: The China Insurance Regulatory Commission (CIRC) is drafting rules for online insurance.
• Petroleum and Chemical Industry Plan: A five-year plan is being developed to eliminate outdated capacity and promote mixed ownership in the sector.
• Antitrust Fines: Hubei province fined FAW Volkswagen China sales unit 248.6 million yuan for price fixing.
• Auto Sales Slowdown: Passenger-vehicle sales in China slowed to the lowest pace since March, attributed to economic slowdown and increased antitrust scrutiny.
• IMF Outlook: IMF officials see no immediate risk of a hard landing in China's economy over the next one to two years.

Market Review

• Indices Performance:
  • SSE Composite Index closed at 2331.95, up 0.88%.
  • SZSE Component Index closed at 8146.99, up 0.36%.
  • CSI 300 closed at 2438.36, up 0.61%.
  • ChiNext Index closed at 1524.12, up 0.73%.
• Market Volume: Significantly decreased to RMB 431.41 billion, down 19.64% from the previous day.
• Stock Performance: Advancing issues outnumbered declining ones by a ratio of 4.96:1.

Sector Review

• Military Defense: Strongest performers, with Zhonghang Heibao surging to the daily limit.
• Commerce and Retail: Chengdu Hongqi Chain and Harbin Churin Group Jointstock also hit the daily uplimit.
• Light Manufacturing: Resumed upward movement, led by Great Wall Group's 9.98% rally.
• Textile and Garment: Taiya Shoes and Kaiser Holding jumped to the daily limit.
• Telecommunications: Reversed early losses, with Beijing Zhongchuang Telecom Test rising 8.85%.
• Machinery and Energy: China First Heavy Industries led the gains in the machinery sector, while utilities stocks rose, with Guangxi Guiguan Electric Power capped at the daily uplimit.
• Carmakers and Developers: Also contributed to the market trend.

Today's Research: Inner Mongolia Yili Industrial Group (600887 CH)

• Performance: Yili reported CNY 27.3 billion in revenue for the first half of 2014, up 13.6% YoY. Net profit attributable to shareholders reached CNY 2.3 billion, up 32% YoY.
• Key Metrics:
  • EPS: CNY 0.75, beating market expectations.
  • Revenue growth: 16% YoY in 14Q2, after a slowdown in 14Q1.
  • Gross margin: Increased to 33.4% in 14H1, driven by product upgrades and price raises.
• Market Position:
  • Yili ranks first in the dairy sector.
  • Its market share in liquidity milk, room-temperature, and low-temperature dairy products exceeds that of its key competitor, China Mengniu Dairy.
• Outlook:
  • Revenue growth is expected to continue at a steady pace.
  • Net profit rate is projected to outperform expectations.
  • EPS forecasts are revised upward to CNY 1.47 (2014), CNY 1.65 (2015), and CNY 1.82 (2016), with corresponding P/E ratios of 18x, 16x, and 15x.
• Rating: OUTPERFORM, reiterating confidence in the company's growth potential.
• Risks: Potential food safety issues and unexpected increases in raw milk prices.

Investment Highlights

• Yili is expected to benefit from the Shanghai-Hong Kong Stock Connect, potentially boosting its earnings growth.
• The company has a strong financial position and is likely to pursue M&A in the future.
• With a large market cap, valuation improvement is limited, but the company remains attractive as a blue-chip entity.

Key Financial Ratios and Projections

Investment Rating Definitions

• Industry Investment Rating:
  • Overweight: Industry outperforms the market.
  • Neutral: Industry performs similarly to the market.
  • Underweight: Industry underperforms the market.
• Company Investment Rating:
  • Buy: Stock outperforms the market by more than 15%.
  • Outperform: Stock outperforms the market by 5% to 15%.
  • Neutral: Stock performs within 5% of the market.
  • Underperform: Stock underperforms the market by more than 5%.

Information Disclosure and Disclaimer

• The report is based on public information and does not guarantee its accuracy or completeness.
• The Company reserves all rights to the report and prohibits unauthorized copying or redistribution.
• The views expressed are based on the analysts' personal opinions and are subject to change without notice.
• The report is not an invitation to buy or sell securities, and investors are advised to make decisions independently.