20171218-广发证券_香港_-Dim_Sum_Express_5页_521kb

Summary of Equity Research Document (Dec 18, 2017)

Key Index Performance

The document provides a summary of the performance of various global and regional indices as of December 18, 2017. The key indices and their changes are as follows:

Market	1D (%)	1M (%)	YTD (%)	EPS 17E (%)	EPS 18E (%)	P/E 17E	P/E 18E
HSI	-1.1	-1.2	31.1	24.4	9.8	12.9	11.8
HSCEI	-1.4	-2.1	21.0	12.0	10.0	8.5	7.7
MXCN	-1.0	-3.5	47.6	28.1	15.4	14.9	13.0
SHSZ300	-1.1	-3.4	20.3	17.4	14.9	15.3	13.4
SHCOMP	-0.8	-3.5	5.2	24.4	13.3	14.4	12.7
SZCOMP	-0.7	-2.7	-3.4	44.2	26.6	25.4	20.0
INDU	0.6	5.5	24.7	15.8	9.6	19.6	17.9
SPX	0.9	3.8	19.5	23.0	10.1	20.0	18.2
CCMP	1.2	2.3	28.9	55.5	9.4	24.5	22.4
UKX	0.6	1.5	4.9	140.4	6.5	15.2	14.3
NYK	-0.6	0.7	18.0	39.6	12.5	19.0	16.9

The indices show mixed performance, with some experiencing positive growth and others declining. The SPX and CCMP indices showed strong performance, while the SHCOMP and SZCOMP indices had negative returns.

Investment Strategies

A-Share Market Strategy (2018)

• Focus on Mid-Cap Stocks: The A-share market is expected to see opportunities in certain sectors rather than a broad market rally. Mid-cap stocks with faster earnings growth are more attractive due to lower discount rates.
• Earnings Growth and ROE: A-share earnings growth is expected to be 8% in 2018, with a decline in ROE due to lower sales margins and asset turnover.
• Sector Allocation: Favor sectors optimizing existing capacity (e.g., technological upgrades, financial risk reduction) and increasing product/service quality (e.g., midstream manufacturing, retail, healthcare).
• Themes: Deleveraging, technological innovation (AI, fintech, 5G), and consumption upgrades ("beautiful life").
• Risks: Unexpected inflation, rising interest rates, and regulatory changes.

Hong Kong Market Strategy

• Southbound Trading: Southbound trading volume decreased slightly but net buying increased, indicating renewed interest from mainland investors. Total net buying for 2017 is expected to exceed HK$350bn.
• Sector Performance: Banks and tech stocks were favored, with banks showing a return to popularity in the Shanghai Southbound Connect and tech stocks preferred in Shenzhen.
• Tax Policy and Liquidity: The Central Economic Work Conference will focus on indirect financing, financial risk control, tax cuts, and housing reform. Tight liquidity and rising interbank rates favor large banks.
• Risks: Geopolitical tensions and potential delays in US tax reform.

Sector-Specific Insights

Construction Machinery

• Environmental Policies: Stricter environmental regulations in Shandong and other cities are driving replacement demand for outdated machinery.
• Market Outlook: The construction machinery sector is viewed positively, with expected growth in excavator and loader sales.
• Key Players: The market is expected to benefit from the replacement cycle and recovering FAI.

Rail Equipment

• Tender Results: CRCC High-Tech Equipment won 74 out of 99 large-track maintenance vehicle tenders, while CRRC TE won 94 out of 103 catenary maintenance vehicle tenders.
• Growth Estimates: CRRC TE's railway maintenance vehicles segment is expected to grow by 55% in 2017 and 15% in 2018.
• Sector Preference: CRRC TE is preferred over CRCCE in the rail maintenance vehicles theme.

Tian Lun Gas (1600 HK)

• Company Overview: A leading urban gas operator with extensive projects and a strong strategy for industrial client development.
• Growth Drivers: Organic growth from coal-to-gas substitution and external M&A.
• Financial Outlook: Gas sales gross margin is expected to rise and stabilize over the next three years.
• Investment Recommendation: Initiate with a Buy rating and a target price of HK$7.5 based on 13x 2018E P/E.

Rating Definitions

• Buy: Stock expected to outperform benchmark by more than 15%.
• Accumulate: Stock expected to outperform benchmark by more than 5% but not more than 15%.
• Hold: Expected stock relative performance ranges between -5% and 5%.
• Underperform: Stock expected to underperform benchmark by more than 5%.

Analyst Certification and Disclosure

• The research analysts certify that the views expressed reflect their personal opinions and that their compensation is not directly linked to specific recommendations.
• No conflicts of interest are disclosed, and the proprietary trading division may have different views from the research report.

Disclaimer

• The report is for informational purposes only and does not constitute an offer to buy or sell securities.
• GF Securities (Hong Kong) accepts no liability for losses arising from the use of the report.
• The report may be inconsistent with other communications and is subject to change without notice.

Conclusion

The document outlines a strategic outlook for the A-share and Hong Kong markets in 2018, emphasizing mid-cap growth, sector optimization, and environmental and regulatory trends. It also provides detailed insights into specific sectors like construction machinery and rail equipment, with a focus on replacement demand and growth potential. Tian Lun Gas is highlighted as a strong buy due to its growth prospects and stable performance.