20161202-中国银河国际证券-Finalized_Stock_Picks_for_SZ-HK_Stock_Connect__Northbound__16页_1mb

Finalized Stock Picks for SZ-HK Stock Connect (Northbound)

Overview

The Shenzhen-Hong Kong Stock Connect (SZ-HK Stock Connect) is set to launch officially on December 5, which expands the investment universe for northbound trading. The eligible stock list includes 881 A-shares, representing approximately 71% of the total market capitalization and 66% of the daily trading volume of Shenzhen A-shares. These stocks are divided among the Shenzhen Main Board (267 stocks), SME Board (411 stocks), and ChiNext (203 stocks). This addition provides a much wider range of investment options compared to the existing 569 tradable stocks in the Shanghai-Hong Kong Stock Connect (northbound).

Core Content

The recommended stock list is based on two criteria:

1. Stocks from the A-share research team's latest model portfolio.
2. Top 14 stocks recommended by the A-share team in the past few weeks based on market cap.

Main Stock Picks

(A) Stocks from A-share Team's Latest Model Portfolio

• North Huajin Chemical Industries (000059.CH):
  • Business: Manufactures and markets fertilizers, including urea, liquid ammonia, and compound fertilizers. Also operates petrochemical products and restaurants.
  • Growth Drivers: Low oil prices benefit refinery business; price recovery of natural rubber benefits 1,3-Butadiene business.
  • EPS Growth: 352% in 2016E, 24% in 2017E.

(B) Top 14 Stock Picks Based on Market Cap

1. Tianqi Lithium Industries (002466.CH):

   • Business: Develops, manufactures, and sells lithium products, including industrial and battery lithium carbonate, lithium chloride, and lithium hydroxide.
   • Growth Drivers: Rapid growth in the Chinese electric vehicle market.
   • EPS Growth: 76% in 2016E, 12% in 2017E.

2. Aier Eye Hospital (300015.CH):

   • Business: Provides ophthalmological services, including diagnosis and treatment, and operates over 120 hospitals across 27 provinces.
   • Growth Drivers: Low penetration rate of refractive surgery, stable demand for cataract surgery, and optometry.
   • EPS Growth: 33% in 2016E, 40% in 2017E.

3. Shenzhen Inovance Technology (300124.CH):

   • Business: Develops, manufactures, and sells automated control products such as low-frequency converters, servo drives, and PLCs.
   • Growth Drivers: Strong revenue growth in 1H16 (31.75% YoY), new energy vehicle motor controller growth (75% YoY), and urban rail-related products.
   • EPS Growth: 21% in 2016E, 20% in 2017E.

4. Hualan Biological Engineering (002007.CH):

   • Business: Produces and markets human serum albumin, gamma globulin, frozen prothrombin, and other biological products.
   • Growth Drivers: Supply shortage in blood products.
   • EPS Growth: 36% in 2016E, 36% in 2017E.

5. Zhejiang Semir Garment (002563.CH):

   • Business: Designs, develops, and markets casual wear and children's apparel.
   • Growth Drivers: Leadership in children's apparel, e-commerce growth, and improved inventory turnover.
   • EPS Growth: 20% in 2016E, 20% in 2017E.

6. Chaozhou Three-Circle Group (300408.CH):

   • Business: Manufactures advanced ceramics, including ferrules, sleeves, substrates, and capacitors.
   • Growth Drivers: Strong demand for fibre optic ferrules due to optical communication tenders, ceramic packaging substrates from consumer electronics growth, and smartphone rear covers.
   • EPS Growth: 25% in 2016E, 25% in 2017E.

7. AVIC Electromechanical Systems (002013.CH):

   • Business: Manufactures precision punching products for auto seats and related components.
   • Growth Drivers: Asset injections from the parent company.
   • EPS Growth: 21% in 2016E, 14% in 2017E.

8. Global Top E-Commerce (002640.CH):

   • Business: Engages in cross-border e-commerce and sells trousers.
   • Growth Drivers: Strong revenue growth in 1H16 (186% YoY), and continued growth from export B2C business.
   • EPS Growth: 220% in 2016E, 100% in 2017E.

9. Shenzhen Zhongjin Lingnan Nonfemet (000060.CH):

   • Business: Mines and refines lead and zinc; produces aluminium windows and doors, and glass curtain walls.
   • Growth Drivers: Price rally of lead and zinc.
   • EPS Growth: 100% in 2016E, 94% in 2017E.

10. Fujian Sunner Development (002299.CH):

    • Business: Processes and markets poultry, including frozen chicken meat.
    • Growth Drivers: Improved ASPs and cost management.
    • EPS Growth: 23% in 2016E, 40% in 2017E.

11. Yuan Longping High-tech Agriculture (000998.CH):

    • Business: Produces and markets agricultural seeds and chemicals; operates hotels and real estate.
    • Growth Drivers: Strong market reception for new Asian rice products; M&A progress post-CITIC acquisition.
    • EPS Growth: 20% in 2016E, 31% in 2017E.

12. Guangdong Haid Group (002311.CH):

    • Business: Manufactures and markets animal feed.
    • Growth Drivers: Expected rise in fish prices due to Yangtze River flooding.
    • EPS Growth: 23% in 2016E, 40% in 2017E.

13. Zibo Qixiang Tengda Chemical (002408.CH):

    • Business: Manufactures rubber products, including methyl ethyl ketone and 1,3-Butadiene.
    • Growth Drivers: Bullish outlook on natural rubber prices; potential asset injections.
    • EPS Growth: 114% in 2016E, 72% in 2017E.

14. Org Packaging (002701.CH):

    • Business: Develops, designs, and sells food and beverage metal packaging.
    • Growth Drivers: Recovery in Q3 from heavy rainfall impact; potential growth from two-piece can business.
    • EPS Growth: 18% in 2016E.

Key Information

• The investment universe covers 881 A-shares, significantly expanding the options for investors.
• The recommended stocks are selected based on two criteria: the latest model portfolio and top market cap recommendations.
• The valuation table (Figure 1) provides key financial metrics including price, market cap, PER, and PBR for the listed stocks.
• Figure 2a and 2b detail the eligible stocks for northbound trading, including their financial data and sectors.

Summary of Financial Metrics

Conclusion

The SZ-HK Stock Connect will provide a broader range of investment opportunities, with 881 A-shares now eligible for northbound trading. The stock picks are based on both the A-share research team's model portfolio and market cap performance. Each stock has specific growth drivers and projected earnings growth, making them attractive for investors looking to capitalize on the new trading platform.