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Summary of Industrial Securities Co., Ltd. Document

Core Content

This document provides a comprehensive market review and analysis of the Chinese stock market and specific listed companies, focusing on market indices, sector performance, company news, and investment strategies. It includes insights on the broader economic environment, policy changes, and financial data for selected firms.

Market Overview

• Market Indices: The Chinese stock market closed slightly higher on Monday, with the Shanghai Composite Index (SSE) up 0.10% to 3015.83, and the Shenzhen Component Index (SZSE) up 0.09% to 10718.36. The ChiNext Index fell 0.18% to 2245.89. The aggregate market volume was CNY 492 billion, a 8.9% decrease from the previous week.
• Investor Behavior: Investors are shifting towards short-term trading opportunities due to the lack of strong market-moving news.
• Market Outlook: The stock index was driven by improved risk preference rather than fundamentals. The market is expected to continue its rally after short-term retreats, with many shares having risen by 5%–10%.
• Policy Environment: The government is focusing on fiscal and structural policies to boost growth, with a renewed emphasis on inclusiveness. SOE reform is progressing, and there is a push for mixed-ownership pilot reforms.
• Investment Strategy: Investors are advised to focus on growth stocks with strong flexibility and cyclical stocks that provide trading opportunities. The strategy suggests a "band operation" approach, identifying neglected targets and avoiding traps.

Sector Performance

Winners:

• Building Materials: Anhui Conch Cement Co. (600585) +2.46%; China Jushi Co. (600176) +1.52%.
• Food and Beverage: Wuliangye Yibin Co. (000858) +1.55%; Inner Mongolia Yili Industrial Group Co. (600887) +1.65%.
• Graphene Theme: Kangde Xin Composite Material Group Co. (002450) +5.23%; China Baoan Group Co. +6.52%.

Losers:

• Nonferrous Metals and Gold: China Molybdenum Co. (603993) -0.71%; Shandong Gold Mining Co. (600547) -2.84%.
• Automotive: Great Wall Motor Co. (601633) -1.75%; BYD Co. (002594) -1.59%.
• Military Sector: China Spacesat Co. (600118) -1.79%; China Avionics Systems Co. (600372) -1.47%.

Daily Headlines

• G20 Meeting: Delegates emphasized fiscal and structural policies to boost growth and promote inclusiveness.
• Yuan Stability: The PBWC aims to keep the yuan stable against a basket of currencies and improve offshore market policies.
• U.S.-China Dialogue: U.S. Treasury Secretary Jacob J. Lew raised the issue of excess industrial capacity in China.
• IPO Approvals: 14 companies received written approvals for IPOs, expected to raise up to CNY 12 billion.
• Hong Kong Stock Auction: A new stock closing auction system started on Monday.
• China-U.K. Trade Talks: Discussions on a free-trade deal began.
• Afrexim Bank & CEB Deal: A $1 billion finance deal signed to support African industrial development.
• Anti-Dumping Tax: China imposed 37.3%–46.3% anti-dumping tax on electrical steel from Japan, South Korea, and EU.
• Company News: Highlighted changes in several listed companies, including share buybacks, recalls, and financial performance updates.

Thematic Opportunities

• SOE Reform: Pilot programs are being rolled out for state-owned enterprises, including mixed-ownership reforms and the establishment of state-owned asset investment companies.
• Quantum Communication, Nuclear Power, and Education: These sectors are noted as potential growth areas.

Investment Highlights

Tibet Summit Industry (600338: SH)

• Financial Performance: 16H1 revenue was CNY 649 million (down 33.3% YoY), net profit was CNY 264 million (up 59.5% YoY), EPS was CNY 0.40.
• Forecast: Expected net income of CNY 658 million in 2016, CNY 778 million in 2017, and CNY 887 million in 2018. EPS forecasted at CNY 1.01, CNY 1.19, and CNY 1.36, with PE ratios of 33x, 28x, and 25x, respectively.
• Outlook: The company is expected to achieve significant growth in the second half of the year due to new facilities and increased production capacity.
• Risks: Price decline in lead and zinc, and potential risks from overseas mining operations.

Huangshan Novel Co., Ltd (002014.SZ)

• Financial Performance: 16H1 revenue was CNY 842 million (down 2.6% YoY), net profit was CNY 86.96 million (up 2.1% YoY), EPS was CNY 0.26.
• Forecast: Expected EPS for 2016–2018 at CNY 0.63, CNY 0.73, and CNY 0.84. The company is noted for its strong industry integration and stable performance.
• Outlook: Positive outlook due to its leadership in the composite flexible packaging industry and key customer resources.

Key Financial Data

Tibet Summit Industry (600338: SH)

• Balance Sheet: Total assets increased from CNY 1207 million in 2015 to CNY 3402 million in 2018. Shareholders' equity rose from CNY 670 million to CNY 2977 million.
• Cash Flow: Net profit increased significantly from CNY 160 million in 2015 to CNY 887 million in 2018. Operating cash flows improved, while investment and financing cash flows showed mixed trends.
• Financial Ratios: ROE increased from 24.0% in 2015 to 49.7% in 2016, with a declining trend in subsequent years. The company's PE ratio dropped from 135.8x in 2015 to 24.5x in 2018.

Huangshan Novel Co., Ltd (002014.SZ)

• Balance Sheet: Total assets rose from CNY 5707.66 million in 2016 to CNY 2017.45 million in 2016, with net assets increasing to CNY 1611 million.
• Revenue Breakdown: Color printing composite packaging materials contributed the largest portion of revenue, accounting for 85.52% in 2016.
• Financial Ratios: ROE increased from 11.1% in 2015 to 14.7% in 2018. The company's PE ratio dropped from 33.0x in 2016 to 24.5x in 2018.

Key Recommendations

• Outperform Rating: Maintained for Tibet Summit Industry and Huangshan Novel Co., Ltd.
• Share Buy-backs: A significant trend in the Hong Kong market, with companies like Evergrande (3333) and Forgame (0484) being highlighted as potential beneficiaries.
• Investment Strategy: Focus on companies with strong fundamentals and those involved in share buy-backs that signal undervaluation. Investors are also advised to look for neglected targets and avoid overvalued stocks.

Analysts and Translators

• Analysts: Wang Delun, Zhang Yidong, Ren Zhiqiang, Luo Yamei, Wu Feng, Li Yanlin, Weng Tian, Zhou Lin, Zhang Qiyao, Han Yijia.
• Translators: Li Xing, Lu Yang, Pan Mengchen.

Conclusion

The document outlines a mixed performance in the Chinese stock market, with some sectors showing strength and others underperforming. The focus is on the potential of SOE reforms, share buy-backs, and specific companies like Tibet Summit Industry and Huangshan Novel Co., Ltd. Investors are advised to adopt a cautious approach, focusing on growth and undervalued stocks, while being mindful of potential risks in the market.