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报告摘要

Summary of Industrial Securities Co., Ltd. Report

Core Content

This report provides an overview of the Chinese stock market performance and a detailed analysis of the Dong-E-E-Jiao company (000423.SZ), including market indices, sector performance, macroeconomic commentary, and investment ratings.

Market Indices Overview

Index	Closing Price	Daily Change	% Change	Market Volume
SSE Composite	3351.92	↓ 78.54	↓ 2.29%	CNY 554.47 billion
SZSE Component	11175.47	↓ 385.33	↓ 3.33%	-
CSI 300	4102.40	↓ 125.17	↓ 2.96%	-
ChiNext	1794.78	↓ 58.60	↓ 3.16%	-
HSI	29707.94	↓ 295.55	↓ 0.99%	-
HSCEI	11737.06	↓ 221.57	↓ 1.85%	-

The SSE Composite and SZSE Component indices fell sharply, with the SME index experiencing the biggest decline of 3.55%.
Market volume decreased by 2.03% compared to the previous day.
Losers outnumbered winners by 2899-to-304.

Main Market Trends

The market experienced a quick slump after a brief fluctuation, with home appliance, spirit, and insurers being the top losers.
The SME index dropped the most, indicating weakness in small-cap stocks.
The stock connect (Northbound) saw capital inflow of 2.1 billion yuan (SH) and outflow of 75.4 million yuan (SZ), suggesting foreign investors are favoring large-cap stocks during market volatility.
The sell-off is interpreted as profit-taking, not a sign of a bearish trend, due to regulatory transition periods and market digestion.

Sector Review

Top Losers

Home Appliance: Qingdao Haier Co., Ltd. (-6.75%), Midea Group Co., Ltd. (-5.30%)
Electric Components: Hangzhou Hikvision (-8.79%), Wuhu Token Science (-7.35%)
Spirit: Anhui Golden Seed Winery (-9.29%), Sichuan Swellfun (-9.29%)
Insurers: New China Life Insurance (-4.15%), Ping An Insurance (-4.04%)

Key Headlines

Anbang Insurance Group is asked to reduce stakes in China Minsheng Banking Corp. and China Merchants Bank to comply with new bank shareholding rules.
China plans to phase out subsidies for new-energy vehicles by 2020.
Standard Chartered is spinning off its real estate finance business to Actis.
The U.S. condemned Myanmar's treatment of Rohingya as ethnic cleansing.
The yuan's overnight rate in Hong Kong hit a five-month high, indicating increased demand for the currency.

Macroeconomic Commentary (October 2017)

Industrial production slowed in October, but the decline was in line with market expectations.
Real estate market remains chilling, with sales area growth dropping to -6%.
Consumer demand showed structural divergence, with real estate, automobiles, and fuels experiencing material slowdowns, while household consumption remained relatively stable.
Donkey-hide gelatin demand is expanding, and price hikes are helping to alleviate cost pressures.

Dong-E-E-Jiao (000423.SZ) Analysis

Company Overview

A privately held company specializing in traditional Chinese medicine.
Products include Chinese herb medicine, health products, and the well-known E-Jiao.

Recent Developments

The company announced price increases for its key products: Dong-E donkey-hole gelatin (+10%), compound donkey-hole gelatin pulp (+5%).
These increases are expected to support future growth and maintain profitability.

Earnings Forecast

EPS is forecasted to be CNY 3.13 (2017E), CNY 3.54 (2018E), and CNY 4.06 (2019E).
PE ratio is expected to decrease from 22.44 (2017E) to 15.64 (2019E).
ROE is projected to decline from 22.2% (2016) to 18.0% (2019E).

Key Financial Indicators (FY 2016 to 2019E)

Metric	2016	2017E	2018E	2019E
Revenue (Mn/CNY)	6317	7064	8017	9192
Net Profit (Mn/CNY)	1852	2046	2314	2657
Gross Margin (%)	67.0%	67.3%	67.8%	68.7%
Net Profit Margin (%)	29.3%	29.0%	28.9%	28.9%
ROE (%)	22.2%	20.8%	19.1%	18.0%
EPS (CNY)	2.83	3.13	3.54	4.06
OCFPS (CNY)	0.95	2.76	2.68	2.56

Company Outlook

The price increase strategy is expected to consolidate the company's position in the high-end TCM market.
Donkey-hide supply continues to tighten, and the price hike is a necessary measure to compensate upstream farmers and maintain profitability.
The donkey-hole gelatin series is expected to achieve rapid growth in the fourth quarter due to consumer season and targeted promotions.
The company is expected to attract more funds from the consumer sector due to its leading position and value proposition.

Investment Rating

Industry Investment Rating

Overweight: Industry outperforms the market.
Neutral: Industry performs in line with the market.
Underweight: Industry underperforms the market.

Company Investment Rating

Strong Buy: Company outperforms the market by >15%.
Buy: Company outperforms the market by 5% to 15%.
Neutral: Company's performance is within 5% of the market.
Underperform: Company underperforms the market by >5%.

Industrial Securities Co., Ltd. maintains a BUY rating for Dong-E-E-Jiao, citing strong fundamentals, price increase momentum, and sector growth potential.

Potential Risks

Sharp increases in the price of donkey-hide and other raw materials.
Fourth quarter earnings growth may fail expectations.

Conclusion

The Chinese stock market showed declining momentum in October, with major sectors like home appliances and spirits experiencing significant losses. However, the sell-off is seen as profit-taking rather than a trend reversal. The Dong-E-E-Jiao company is positioned well for future growth due to its price increase strategy, strong market position, and expanding demand for its products. The investment rating remains BUY, with positive outlook on its profitability and market potential.