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Dim Sum Express Summary (Sept 12, 2018)

Core Content Overview

This report provides an analysis of equity research for various markets and stocks, focusing on performance metrics, investment trends, and company-specific insights. It includes market indices, Hong Kong ADRs, and detailed commentary on the A-Share and Hong Kong markets, particularly highlighting infrastructure investment and Yongda Auto (3669 HK).

Key Market Indices Performance

• The HSI and HSCEI indices show negative performance over the short and medium terms, with significant YTD declines.
• MXCN and SHSZ300 indices also declined, though SHSZ300 had the steepest YTD drop.
• SHCOMP and SZCOMP show mixed performance, with SZCOMP showing a slight positive change in 1D.
• The SPX and CCMP indices have seen positive changes, with CCMP showing the highest YTD growth.
• The UKX and NYK indices are down, with NYK having a slight positive change in 1M.

Hong Kong ADRs Performance

• TENCENT and CHINA MOBILE ADRs show positive daily changes, while ICBC and HSBC ADRs are down.
• The ADRs of PING AN and BANK OF CHINA are significantly lower than their local counterparts.

Main Views and Key Information

A-Share Market: Infrastructure Investment Acceleration

• Local government special bond issuance in August was more than double that of July, with 83% of the issuance concentrated in the second half.
• The risk weighting of local government bonds is being reduced from 20% to zero, increasing their attractiveness and demand from banks.
• 12 western provinces, including Ningxia, Sichuan, and Yunnan, are accelerating major infrastructure projects in line with the "Develop the West" initiative.
• In 2H18, infrastructure investment will focus on railways, highways, and transits in central and western regions, as well as environmental protection for rural revitalization.
• Social insurance premium changes are expected to have a limited impact (less than 10%) on construction companies, with SOEs less affected.
• The State Council has emphasized the need to reduce social insurance rates to ease the burden on companies.

Yongda Auto (3669 HK)

• 1H18 Performance: Revenue rose 12.5% YoY to Rmb22.56bn, and net profit increased 10.3% YoY to Rmb700m.
• New Car Sales: Grew 10.7% YoY to 80,377 units, with luxury brands accounting for 61% of sales. However, new car gross profit margin (GPM) fell 11.4% YoY to Rmb715m due to customer delays caused by tariff cuts and economic uncertainty.
• After-sales Services: Revenue increased 20.5% YoY to Rmb3.7bn, with GPM improving to 46.76%.
• Proprietary Finance: Gross profit rose 91.2% YoY to Rmb163m, but GPM dropped to 66.45% due to increased leverage.
• Auto Rental Services: Gross profit grew 7.5% YoY to Rmb46m.
• Recommendation: Maintain "Buy" rating with a target price (TP) of HK$8.62, based on 7.5x FY18E P/E.
• Risks: Potential slowdown in new car sales, particularly for the BMW X3; after-sales growth may lag; sluggish auto sales in China; trade tensions may impact valuation.

Rating Definitions

Company Ratings

• 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%

Sector Ratings

• Positive: Sector expected to outperform benchmark by more than 10%
• Neutral: Expected sector relative performance ranges between -10% and 10%
• Cautious: Sector expected to underperform benchmark by more than 10%

Disclaimer and Disclosure

• This report is for informational purposes only and does not constitute an offer to buy or sell securities.
• The research analyst(s) certifies that the views expressed reflect their personal opinions.
• No financial interest in the securities mentioned, and no investment banking relationships in the past 12 months.
• The report may contain different views from other communications issued by GF Securities (Hong Kong).