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Summary of Industrial Securities Co., Ltd. Report

Core Content

Industrial Securities Co., Ltd. provides a comprehensive market review and analysis for Chinese and Hong Kong stocks on July 5–7, 2016. The report includes key market indices, sector performance, daily headlines, company news, and investment research.

Market Indices Overview

• Aggregate Market Volume: CNY 734 billion
• Market Performance: A-shares closed mixed with more losers than winners (1388:1145)
• Expectations: Monetary policy easing and reforms are expected to support further upward movement in A-shares over the next few weeks.

Sector Review

• Positive Sectors:

  • Precious Metals: Zhongjin Gold Corp. and Sino-Platinum Metals Co. hit ceiling prices.
  • Non-ferrous Metals: China Molybdenum Co. and Tianqi Lithium Industries, Inc. rose by 6.03% and 6.19%, respectively.
  • Healthcare: Kangmei Pharmaceutical Co. and Zhangzhou Pientzehuang Pharmaceutical Co. rose by 6.53% and 3.77%, respectively.
  • Thematic Investments: Tianma Microelectronics Co. and Tianqi Lithium Industries, Inc. drove up OLED and lithium battery-related stocks.

• Negative Sectors:

  • Military: China Avionics Systems Co. fell 2.53%.
  • IT and Real Estate: Hundsun Technologies Inc. and China Vanke Co. fell by 2.23% and 4.95%, respectively.

Daily Headlines

• Foreign Exchange Reserves: Expected to drop to $3.167t in June.
• Yuan Stability: Yuan will remain stable against a basket of currencies and see two-way moves against the USD based on market demand.
• Vanke Shareholding: Vanke's shareholder Jushenghua and Foresea Life Insurance increased their A-share holdings to 25%.
• Hedge Fund Activity: A top hedge fund manager used social media to short sell Vanke shares.
• Silk Road Fund: Discussing a joint bid for Glencore Plc's gold mine in Kazakhstan.
• CBRC: Seeking feedback on bank risk management rules.
• Internet Car: Alibaba and SAIC showcased an Internet car to challenge Apple and Google.
• Welfare Lottery: China plans to improve R&D and explore online sales.
• U.S. Trade Deficit: Widened by 19.4% in May, the largest increase in nearly a year.
• Apple's Market Share: Declined in China as local smartphone brands gained traction.

Latest Company News

• Avic Real Estate (000043.SZ): Announced property business restructuring and halted trading.
• Shandong Fengyuan Chemical (002805.SZ): Debuted in trading.
• Sinopec Shanghai Petrochemical (600688.SH): Expected 70%-90% rise in 1H net income.
• Vanke (000002.SZ): Shareholders increased holdings to 25%, and a hedge fund is exploring short sales.
• Wanda Cinema Line (002739.SZ): 1H box office revenue rose 40.6% y/y.
• Zijin Mining (601899.SH): Suspended trading in Shanghai and considers private A-share sale, with potential H-share listing.

Investment Research Highlights

Shandong Hi-Speed Road&Bridge (000498.SZ)

• Rating: OUTPERFORM (Maintained)
• Key Points:
  • Revised private placement scheme with higher offering price (CNY 5.49) to protect investors.
  • New orders reached CNY 17 billion, contributing to CNY 10.9 billion in 2016 revenue.
  • Earnings forecast: CNY 499 million in 2016, CNY 596 million in 2017, CNY 679 million in 2018.
  • EPS forecast: CNY 0.45 in 2016, CNY 0.53 in 2017, CNY 0.61 in 2018.
  • Valuation: 12.9x 16E PE / 10.8x 17E PE / 9.5x 18E PE.
  • Potential Risks: Macro-economic downturn, slower assets integration, and construction delays.

Chongqing Changan Automobile (000625.SZ)

• Rating: OUTPERFORM (Maintained)
• Key Points:
  • Sales volume hit bottom in June, with a recovery expected in Q316.
  • Q316 sales growth is expected to exceed 10%.
  • New car models, including the updated Kuga, will boost sales.
  • Earnings forecast: CNY 2.24 in 2016, CNY 2.35 in 2017, CNY 2.47 in 2018.
  • Potential Risks: Weak sales for Changan Ford series, intensified competition for self-developed SUV models.

Suning Universal (000718.SZ)

• Rating: No Rating (Maintained)
• Key Points:
  • Entered the medical beauty business by acquiring 80% stake in Shanghai Ever Care Ganghua Cosmetic Hospital.
  • Invested CNY 1 billion to establish a medical beauty fund.
  • Expected net income for the hospital: CNY 23 million in 2016, CNY 27.6 million in 2017, CNY 30 million in 2018.
  • Valuation: 11.3x / 9.4x / 8.6x.
  • Trading may resume in late July.

Zhejiang Kingland Pipeline and Technologies (002443.SZ)

• Rating: OUTPERFORM (Maintained)
• Key Points:
  • Main products: Galvanized steel pipe, steel-plastic composite pipe, helical weld pipe.
  • Strategic cooperation with Lingtu Software, acquiring 46% stake.
  • Earnings forecast: CNY 0.29 in 2016, CNY 0.40 in 2017, CNY 0.56 in 2018.
  • Valuation: 49x / 35x / 25x.
  • Potential Risks: Not explicitly mentioned.

Key Financial Data

Shandong Hi-Speed Road&Bridge (000498.SZ)

• Closing Price: CNY 5.76
• Total Shares (Mn): 1120.14
• Shares Outstanding (Mn): 354.17
• Market Cap (CNY/Mn): 6452.00
• Market Float (CNY/Mn): 2040.02
• Net Assets (CNY/Mn): 3030.87
• Total Assets (CNY/Mn): 9379.21
• BVPS: 2.71

Chongqing Changan Automobile (000625.SZ)

• Closing Price: CNY 14.1000
• Total Shares (Mn): 4663
• Shares Outstanding (Mn): 1937
• Market Cap (CNY/Mn): 61353
• Market Float (CNY/Mn): 47561
• Net Assets (CNY/Mn): 34174
• Total Assets (CNY/Mn): 89414
• BVPS: 7.37

Analysts and Translators

• Shandong Hi-Speed Road&Bridge (000498.SZ): Huang Shitao, Pan Mengchen
• Chongqing Changan Automobile (000625.SZ): Wang Guanqiao, Zhai Wei, Lu Yang
• Suning Universal (000718.SZ): Li Yuebo, Li Xing

Conclusion

The report highlights the mixed performance of the Chinese A-share market, with some sectors showing resilience while others face headwinds. Key companies such as Shandong Hi-Speed Road&Bridge and Chongqing Changan Automobile are recommended as OUTPERFORM due to strong earnings forecasts, strategic moves, and positive outlooks. Suning Universal's entry into the medical beauty sector is also noted as a significant development. The overall sentiment remains cautiously optimistic, driven by potential policy support and market recovery.