20181210-中国银河国际证券-Pick_Quality_Stocks_as_Market_Consolidates–Investment_Portfolio_for_December_2018_12页_828kb

2018 December A-Share Investment Portfolio Summary

Core Content

This report outlines the investment strategy for December 2018, focusing on the selection of quality stocks and the "Cash Cow" portfolio, while analyzing the performance of the November portfolio and market outlook. The report also provides detailed analysis of several listed companies in the A-Share market, including their financial performance, investment rationale, and risk factors.

Main Investment Portfolios

• Monthly Portfolio (December 2018):

  • Added: China Railway Group (601390.CH), Guangzhou Automobile Group (601238.CH), Hikvision Digital (002415.CH), Huayu Automotive Systems (600741.CH), Midea Group (000333.CH), and Sangfor Technology (300454.CH)
  • Removed: China Yangtze Power (600900.CH), Daqin Railway (601006.CH), Future Land Holdings (601155.CH), Guanghui Energy (600256.CH), Shaanxi Coal (601225.CH), and Yantai Jereh Oilfield Services (002353.CH)

• Cash Cow Stock Portfolio:

  • Replaced: Gemdale Corp (600383.CH), Huolinhe Opencut Coal (002128.CH), Sinopec Shanghai Petrochemical (600688.CH), and Weichai Power (000338.CH)
  • Added: Chongqing Water Group (601158.CH), CNHTC Jinan Truck (000951.CH), New Hope Liuhe (000876.CH), and Shengyi Technology (600183.CH)

November Performance and December Outlook

• Monthly Portfolio:

  • Loss of 4.74% in absolute terms and 6.75% relative to the market.
  • Sharpe ratio: -2.14, Volatility ratio: 1.16%

• Cash Cow Portfolio:

  • Loss of 2.70%, relative loss of 4.70%
  • Sharpe ratio: -1.38, Volatility ratio: 1.02%

• Market Outlook:

  • Valuation is expected to improve if the market believes corporate earnings have bottomed out.
  • Stabilizing policies and no further liquidity or risk appetite deterioration are assumed.
  • Investors are advised to monitor social financing data in December.

Key Companies Analysis

1. China Railway Construction Corp (601186.CH)

• Investment Rating: Recommend
• Key Drivers:
  • Expected recovery in railway and infrastructure investments.
  • Strong order backlog (RMB2.4tn as of end-2017).
• Earnings Forecast:
  • 2018E EPS: 1.41
  • PER: 8.58x
• Risk Factors:
  • Slowdown in infrastructure investment growth.
  • Slowdown in railway investment growth.

2. China Railway Group (601390.CH)

• Investment Rating: Recommend
• Key Drivers:
  • Expected rebound in infrastructure investment growth.
  • Benefit from the State Council's policy support.
• Earnings Forecast:
  • 2018E EPS: 0.81
  • PER: 9.28x
• Risk Factors:
  • Slowdown in infrastructure investment growth.
  • Slowdown in railway investment growth.

3. Guangzhou Automobile Group (601238.CH)

• Investment Rating: Recommend
• Key Drivers:
  • Japanese series brands entering upcycle.
  • Launch of new self-developed car models.
  • Increase in R&D expenses.
• Earnings Forecast:
  • 2018E EPS: 1.25
  • PER: 8.46x
• Risk Factors:
  • Auto market remains sluggish.

4. Guizhou Space Appliance (002025.CH)

• Investment Rating: Recommend
• Key Drivers:
  • Military reform leading to increased orders.
  • 5G applications and asset securitization.
• Earnings Forecast:
  • 2018E EPS: 0.84
  • PER: 29.69x
• Risk Factors:
  • Lower-than-expected growth in civilian goods sales.

5. Hikvision Digital (002415.CH)

• Investment Rating: Recommend
• Key Drivers:
  • Sharp Eyes Project boosting AI development.
  • Strong security and defense data.
• Earnings Forecast:
  • 2018E EPS: 1.28
  • PER: 22.03x
• Risk Factors:
  • Slower-than-expected progress in Sharp Eyes Project.
  • Weaker-than-expected development in AI technology.

6. Huayu Automotive Systems (600741.CH)

• Investment Rating: Overweight
• Key Drivers:
  • Strong earnings growth from the acquisition of Shanghai Koito Automotive Lamp.
  • Expansion into new energy and digital business.
• Earnings Forecast:
  • 2018E EPS: 2.56
  • PER: 7.11x
• Risk Factors:
  • Auto market remains sluggish.

7. Midea Group (000333.CH)

• Investment Rating: Recommend
• Key Drivers:
  • Diversified product range and strong market share.
  • Acquisition of KUKA for industrial robots.
  • "T+3" production model for efficiency.
• Earnings Forecast:
  • 2018E EPS: 3.10
  • PER: 12.94x
• Risk Factors:
  • Unsuccessful privatization of Little Swan.
  • Higher raw materials prices.
  • Stricter property controlling measures.

8. Renhe Pharmacy (000650.CH)

• Investment Rating: Recommend
• Key Drivers:
  • Cluster branding strategy for major products.
  • Strong distribution channels.
• Earnings Forecast:
  • 2018E EPS: 0.43
  • PER: 14.93x
• Risk Factors:
  • Not explicitly listed in the report.

9. Sangfor Technology (300454.CH)

• Investment Rating: Recommend
• Key Drivers:
  • Strong growth in EPS and PER.
  • Strategic position in cybersecurity.
• Earnings Forecast:
  • 2018E EPS: 1.73
  • PER: 51.12x
• Risk Factors:
  • Not explicitly listed in the report.

10. WUS Printed Circuit (002463.CH)

• Investment Rating: Recommend
• Key Drivers:
  • Strong EPS growth.
  • Potential for new energy vehicle production.
• Earnings Forecast:
  • 2018E EPS: 0.33
  • PER: 22.21x
• Risk Factors:
  • Not explicitly listed in the report.

Summary of Investment Strategy

• Focus on quality stocks and market consolidation.
• Configuration of the portfolio is emphasized before selecting individual stocks.
• Infrastructure and railway sectors are expected to recover in H2 2018.
• Auto and technology sectors are highlighted for growth potential.
• AI and cybersecurity are seen as key drivers for future performance.
• Risk management is important, with potential risks including slowdowns in infrastructure and auto sectors.

Conclusion

The report suggests that despite the November losses, the market is expected to consolidate and improve valuation as corporate earnings stabilize. The recommended stocks are selected based on their strong fundamentals, growth potential, and strategic advantages in their respective sectors. Investors are advised to focus on companies with solid earnings, strong order backlogs, and potential for future expansion.