20131107-巴黎银行证券-CCPCC_Reforms_–_sector_perspectives_16页_408kb

CCPCC Reforms - Sector Perspectives Summary

Core Content

The 3rd plenary session of the 18th CCPCC, scheduled from 9 to 12 November, will debate and approve a comprehensive reform program. This report provides insights from sector analysts on how these reforms will affect share prices in the banking, oil & gas, power, property, and insurance sectors.

Main Points by Sector

Banking Sector

• Interest Rate Liberalization:

  • May reduce net interest margins (NIMs) in the short term, but long-term benefits include better loan pricing and a shift towards private/retail lending.
  • Banks with less exposure to retail deposits and strong loan pricing power, such as Minsheng, are less vulnerable.
  • ABC is expected to be the key victim due to its large exposure to retail deposits and weaker loan pricing power.

• Fiscal Reform:

  • Centralization of government spending and local tax increases could reduce local government financing vehicle (LGFV) debt concerns.
  • Banks with high LGFV exposure, like BoCom and CRCB, may benefit from improved asset quality.

• Capital Market Reforms:

  • Encouraging private and internet companies to enter the banking sector may increase competition.
  • Large banks, including BoCom, Minsheng, and CRCB, are expected to benefit from more sustainable funding and lower costs.

• Rural Land Circulation:

  • Could increase collateral value and improve rural loan demand.
  • ABC and Chongqing Rural Bank are likely to benefit from this reform.

• Valuation Impact:

  • ICBC, CCB, and BoCom are rated BUY or REDUCE.
  • CRCB and Minsheng are highlighted as strong performers due to lower NIM impacts and better cost control.

Oil & Gas Sector

• Refining Deregulation:

  • New pricing mechanism and removal of import restrictions may increase competition.
  • Impact on Sinopec is expected to be limited, while PetroChina may face challenges due to potential pipeline business separation.

• Unconventional Oil & Gas:

  • Improved market access and mineral rights systems could help in the long term.
  • However, shale gas drilling is still slow due to geographic and technological barriers.

• Pipeline Separation:

  • Likely to be implemented in the future, but PetroChina may face valuation challenges due to the low return nature of the pipeline business.
  • CNOOC is not expected to be impacted by these reforms.

• Valuation Impact:

  • PetroChina and Sinopec are rated BUY, while CNOOC is also a BUY.
  • PetroChina could benefit from a fair valuation of its pipeline assets, leading to improved ROE and ROCE.

Power Sector (IPP)

• Competitive On-Grid Power Prices:

  • Introduce a bidding system to allow low-cost power producers to gain more market share.
  • Huaneng Power is expected to be the biggest beneficiary due to its thermal power dominance.
  • CR Power is the next beneficiary as it is a leading cost controller.

• Direct Power Purchases:

  • Enables large users to negotiate directly with power producers, increasing flexibility and potentially leading to price premiums or discounts based on supply conditions.

• Valuation Impact:

  • Huaneng Power and CR Power are top picks.
  • Huadian Power and Datang Power are also expected to benefit from the reforms.

Property Sector

• Structural Changes:

  • Shift towards a more market-based approach, with increased supply to address sector issues.
  • Land reform is uncertain in scope and depth.

• Property Tax:

  • Likely to be extended to more cities, affecting property values and investment demand.

• Stock Price Impact:

  • Short-term impact is limited; investors are waiting for execution of reform blueprints.
  • COLI is highlighted as a top pick due to its parent asset injection strategy.

Key Information

• Reform Timeline:

  • Interest rate liberalization and RMB internationalization are expected to be implemented over the next few years.
  • Pipeline separation is a long-term discussion, with PetroChina likely to be the most impacted.

• Sector Winners and Losers:

  • Banking: Minsheng, CRCB, and CMB are less vulnerable; ABC is the key victim.
  • Oil & Gas: PetroChina may face challenges; Sinopec and CNOOC are less impacted.
  • Power: Huaneng Power and CR Power are top beneficiaries.
  • Property: COLI is the top pick; uncertainty remains around reform execution.

• Valuation Metrics:

  • Banks like Huaneng Power and CR Power are expected to see significant valuation improvements.
  • ABC and PetroChina may face short-term valuation pressure.

Summary of Reform Impact

Conclusion

The CCPCC reforms aim to promote market-driven growth across multiple sectors. While the banking sector faces short-term challenges, particularly for ABC, long-term benefits are expected for Minsheng, CRCB, and CMB. In the oil & gas sector, Sinopec and CNOOC are likely to benefit, while PetroChina may face more uncertainty. The power sector is expected to see significant improvements for Huaneng Power and CR Power. In the property sector, COLI is the top pick due to its asset injection strategy, despite the overall uncertainty in policy execution.