20151219-招商证券_香港_-Hong_Kong_Equity_Investment_Strategy_2016_Sailing_Against_Current_61页_3mb_3mb

Hong Kong Equity Investment Strategy 2016 Summary

Core Views

• Short-term Challenges: The Hong Kong stock market faces limited upside due to systematic risks in the short run. These include:

  • China's economic slowdown
  • Uncertainty around Fed rate hikes and balance sheet changes
  • Strong RMB depreciation expectations affecting valuations of HK-listed Chinese companies
  • Persistent capital outflows hindering capital project progress
  • Debt default risks due to capacity downsizing and deleveraging
  • International relations and black swan events affecting the market

• Long-term Opportunities: The market is expected to remain range-bound with HSI hovering between 18,000-25,000 and HSCEI between 8,000-12,000. Structural opportunities are anticipated due to:

  • Possible launch of the Strategic Emerging Industries Board in 2Q16
  • Simultaneous or subsequent implementation of Shenzhen-Hong Kong Stock Connect and QDII2
  • Acceleration of SOE reforms following the start of the “13th Five-Year Plan” and “Two Sessions” in March
  • Supply-side reforms speeding up capacity downsizing and deleveraging with PPI bottoming out
  • Strengthening fiscal policies stimulating structural investment opportunities

Investment Themes and Asset Allocations

• Key Themes:

  • SOE Reform
  • Capital Market Reform & Opening Up
  • The “13th Five-Year Plan” Begins

• Recommended Overweight Sectors:

  • TMT (Technology, Media, Telecommunications)
  • Insurance
  • Pharmaceuticals
  • Environmental Protection
  • New Energy
  • Consumer Staples
  • Property
  • Automobiles

• Sector with Trading Opportunities:

  • Banks
  • Brokers
  • Petrochemicals
  • Gaming
  • Ports
  • Cement

Market Performance and Valuation in 2015

• Market Performance:

  • HK market performance was moderate in 2015
  • HSI outperformed HSCEI
  • Asset volatility increased due to diverging monetary policies
  • Expectations on Fed rate hikes swung wildly throughout the year

• Valuation Trends:

  • Valuations were far from historical periods
  • New economies still had an edge
  • The Hang Seng Software & Services Index (HSSSI) and Hang Seng IT Hardware Index (HSITHI) showed strong performance
  • The HSI and HSCEI indices faced challenges with earnings and valuations

HK Market's Strategic Investment Value

• Historical Returns:

  • HK market returns over the past half-century were among the best
  • Despite current challenges, the market still holds long-term strategic investment value

• Market Activity:

  • Average daily turnover was HK$78.8 billion, higher than in 2000
  • Futures and options turnover reached a historical high
  • Fund raising and IPO activity were comparable to 2014

• Global Context:

  • Financial markets in the Asia-Pacific region grew rapidly
  • European markets saw a decline
  • HK market remained active despite its size

Crisis as Opportunity: Black Swans in 2016

• Fed Rate Hikes:

  • The pace and extent of Fed rate hikes have a greater impact on the HK market than the first hike
  • Historical performance shows mixed results before and after rate hikes

• Balance Sheet Impact:

  • The Fed's balance sheet changes pose a concern for the HK market

• Liquidity Index:

  • The CMS liquidity index indicates the market is still bottoming

• Currency Depreciation:

  • Strong depreciation pressure on both CNY and CNH

• Global Elections:

  • 2016 is a global election year, with significant events in various countries, including:
    • Presidential elections in the US and UK
    • Parliamentary elections in several countries
    • Legislative Council election in Hong Kong

Investment Logic and Recommendations

• SOE Reform:

  • Supply-side reforms aim to optimize production factors, upgrade economic structures, and improve growth quality
  • SOE reforms are a key catalyst in the HK market, offering numerous investment opportunities
  • SOE weight in the market is significant across various sectors
  • SOEs with higher ROE and NPM are more attractive, but those with lower efficiency may underperform

• Investment Strategy:

  • Recommend a bottom-up approach, with Beta strategy for “Old Economy” sectors and Alpha strategy for “New Economy” sectors
  • Focus on sectors with strong earnings growth and potential for improvement

• Stock Recommendations:

  • BOC: Expected EPS growth of 20%, P/E ratio of 4.8, ROE of 12%, NPM of 23.3
  • Minsheng Bank: EPS growth of 20%, P/E ratio of 4.9, ROE of 14%, NPM of 23.3
  • Springland: EPS growth of 20%, P/E ratio of 5.5, ROE of 10%, NPM of 10%
  • Mengniu: EPS growth of 20%, P/E ratio of 14.6, ROE of 9%, NPM of 11%
  • Biostime: Expected EPS growth of 462%, P/E ratio of 14.8, ROE of 15%, NPM of 15%
  • CTF: EPS growth of 10%, P/E ratio of 13.2, ROE of 17%, NPM of 37%
  • Sands: EPS growth of 4%, P/E ratio of 18.6, ROE of 29%, NPM of 17%
  • CNOOC: EPS growth of 47%, P/E ratio of 11.0, ROE of 7%, NPM of 37%
  • CMEC: EPS growth of 37%, P/E ratio of 7.5, ROE of 17%, NPM of 37%
  • Lonking: EPS growth of 20%, P/E ratio of 9.3, ROE of 4%, NPM of 20%
  • Country Garden: EPS growth of 12%, P/E ratio of 5.5, ROE of 14%, NPM of 20%
  • Agile Property: EPS growth of 20%, P/E ratio of 3.5, ROE of 10%, NPM of 20%
  • Kingsoft: EPS growth of 115%, P/E ratio of 23.6, ROE of 12%, NPM of 115%
  • NetDragon: EPS growth of 667%, P/E ratio of 93.8, ROE of 2%, NPM of 17%
  • Boyaa: EPS growth of 72%, P/E ratio of 5.2, ROE of 11%, NPM of 72%
  • Lenovo Group: EPS growth of 450%, P/E ratio of 9.9, ROE of 25%, NPM of 450%
  • Truly: EPS growth of 17%, P/E ratio of 4.8, ROE of 13%, NPM of 17%
  • TCL: EPS growth of 5%, P/E ratio of 6.2, ROE of 20%, NPM of 15%
  • Coolpad: EPS growth of 150%, P/E ratio of 13.9, ROE of 7%, NPM of 150%
  • Fuyao Glass: EPS growth of 7%, P/E ratio of 12.4, ROE of 16%, NPM of 7%
  • Brilliance: EPS growth of 15%, P/E ratio of 8.5, ROE of 33%, NPM of 15%
  • China Harmony: EPS growth of 7%, P/E ratio of 10.8, ROE of 11%, NPM of 7%
  • BAIC Motor: EPS growth of 20%, P/E ratio of 9.7, ROE of 14%, NPM of 20%
  • Ping An: EPS growth of 15%, P/E ratio of 10.1, ROE of 16%, NPM of 16%

Conclusion

The 2016 Hong Kong equity investment strategy emphasizes the importance of navigating through short-term systematic risks while identifying long-term structural opportunities. The market is expected to remain range-bound with fluctuating performance, but reforms and policy changes offer potential for recovery and growth. Investment themes such as SOE reform, capital market opening, and the “13th Five-Year Plan” are highlighted as key drivers. The recommended sectors include TMT, insurance, pharmaceuticals, and consumer staples, with a focus on both Beta and Alpha strategies. The report also underscores the importance of monitoring global events and market liquidity to make informed investment decisions.