20180709-广发证券_香港_-Weekly_HK_Market_and_Sector_Views_6页_415kb

Weekly HK Market and Sector Views Summary

Core Content Overview

This report provides a detailed analysis of the Hong Kong market and key sectors, focusing on macroeconomic factors, investment strategies, and sector-specific outlooks. It highlights the ongoing Sino-US trade tensions, the performance of the Hong Kong stock market, and the potential for recovery in the third quarter. It also evaluates the auto, consumer, TMT, and financial sectors, along with the utilities and other related industries.

Main Points

Macro View

• Sino-US Trade War:
  • Mutual tariffs were imposed on July 6, with the US levying a 25% import tariff on $34bn of Chinese goods and China retaliating with a 25% tariff on similar US products.
  • The trade war may escalate further, with potential for $200bn in tariffs.
  • The US aims to curb China's rise, increasing the risk of a financial war.
• DXY Index:
  • The DXY index fell slightly but remains on an upward trend for the year.
  • The US economic data and trade tensions are key factors influencing the DXY.
  • A strong US and weak Europe is expected to continue in the second half of the year, supporting the DXY's rise.

Investment Strategy

• Market Performance:
  • Hong Kong stocks fell significantly last week, with the Hang Seng Index down 2.21% and the Hang Seng China Enterprises Index down over 4%.
  • Investor sentiment has been pessimistic due to trade tensions.
• RMB Exchange Rate:
  • The RMB trend eased but devaluation pressure remains.
  • A narrowing Sino-US spread could increase RMB devaluation risks.
• Stock Connect Funds:
  • Northbound funds showed net inflow of RMB5.5bn, while southbound funds had a net outflow of RMB6.55bn.
  • The RMB's rapid depreciation has dampened investor confidence.
• Recovery Outlook:
  • The market may rebound in the third quarter if trade tensions ease.
  • A moderate optimism is advised, with caution if trade tensions worsen.
• Sector Allocation:
  • Recommended to watch consumer goods with stable growth (medicine, education, textiles & clothing).
  • Suggested to monitor China property stocks and industrial cyclical products (heavy trucks, construction machinery, building materials).

Key Sectors Analysis

Consumer Sector

• F&B:
  • Yihai Int'l and Mengniu Dairy are highlighted.
  • Yihai Int'l is expected to benefit from the accelerated opening of Haidilao stores and increased offline sales.
  • Mengniu Dairy is projected to see improved revenue and net profit growth.
• Gaming:
  • Macau GGR in June was below expectations, attributed to RMB depreciation and World Cup-related sports lottery spending.
  • The sector is expected to rebound with improved tourist arrivals and eased monetary policy in China.
• Consumer Discretionary:
  • Maple Leaf increased tuition and boarding fees, leading to higher GPM consensus.
  • Wisdom Education reported 35% net profit growth, but GPM and OPM were below expectations.
  • Xstep reported mid-teen SSSG growth and showed strong demand for its models.
  • The Chairman of Xstep purchased shares in the secondary market.

Auto Sector

• Trade Impact:
  • US tariffs on Chinese goods and China's counter-tariffs are affecting high-end OEMs like Tesla, Lincoln, BMW, and Mercedes-Benz.
  • Auto import tariffs (except US) were cut, which should benefit luxury JV automakers.
• Market Outlook:
  • Auto sales volume is expected to benefit from domestic economic growth and consumption upgrades.
  • Auto stock prices are mainly impacted by market-wide pessimism rather than fundamentals.
• Top Picks:
  • Geely Auto (175 HK):
    • May sales up 60.8% YoY; 5M18 sales up 44% YoY.
    • Strong demand for Lynk & Co 01/02 models; no discounts.
    • New product lineup and economies of scale expected to improve ASP and gross margins.
    • Long-term benefits from platform sharing with Volvo and Lynk & Co.
  • BAIC Motor (1958 HK):
    • May sales up 44% YoY; 5M18 sales up 10.5% YoY.
    • Strong performance in Beijing Benz and BAIC Hyundai.
    • Expected to benefit from tariff cuts and new product launches.
• Auto Dealers:
  • CPCA data shows a decline in auto retail sales, but premium auto sales are up.
  • Lower import duties on auto parts should reduce procurement costs and improve margins.
  • Zhongsheng Holding (881 HK) is highlighted as a key beneficiary of tariff cuts due to its lower exposure to US-made models.

TMT Sector

• Hardware:
  • Sunny Optical (2382 HK):
    • Gross margin declined in H118 due to increased BOM costs, improved dual-cam algorithms, and new product challenges.
    • Expected to improve in H218 with new technologies and product penetration.
• Handset Lenses:
  • Orders are strong; monthly production capacity expected to reach 90-100kk by year-end.
  • Full-year shipments expected to grow by 50-55% YoY.
• Vehicle Lenses:
  • 5M18 sales growth at 17%, below full-year guidance of 30-35%.
  • Delayed orders are expected to be booked in H218.
• Internet:
  • User-base dividends are decreasing; time spent online is becoming a key competitive area.
  • WeChat mini-programs and short videos are growing.
• Games:
  • Domestic game approval channels are temporarily closed, slowing new game launches.
• Advertising:
  • AI and information flow upgrades are driving growth.
• Video:
  • Subscriptions and advertising are driving income growth.
  • MAU and paid users are stabilizing; content differentiation is key.
• Digital Reading:
  • User pay rate is still low at 5.8% for Chinese Literature, but growth is expected.
  • IP management is developing, leading to income growth.
• Live Streaming:
  • Market landscape is becoming clearer; platforms are securing their positions.

Financials Sector

• Market Performance:
  • Financial names fell due to pessimistic sentiment, RMB depreciation, and asset quality concerns.
• Debt Default Risk:
  • Risk is attributed to deleveraging rather than economic deterioration.
• Investment Opportunities:
  • Insurers, banks, and brokers are near historical lows.
  • The insurance sector is highlighted as an absolute return opportunity due to better asset quality and potential FYP growth.

Rating Definitions

Analyst Certification & Disclosure

• Analysts certify that their views accurately reflect personal opinions.
• No direct or indirect remuneration is linked to specific recommendations.
• GF Securities (Hong Kong) and its affiliates do not hold any shares in the mentioned securities.
• No investment banking relationships with the companies discussed in the past 12 months.
• No financial interests in the securities mentioned.

Disclaimer

• This report is for informational purposes only and does not constitute an offer to buy or sell securities.
• The information is current as of the date of the report and may change.
• No liability is accepted for any losses arising from the use of the materials.
• Investments involve risks; past performance does not guarantee future results.