20180628-广发证券_香港_-Dim_Sum_Express_4页_447kb

Dim Sum Express Summary

Core Content Overview

This document provides an equity research summary focusing on the performance of various financial markets and specific companies, particularly Ping An Insurance (601318 CH) and Luk Fook (590 HK). It includes market indices, ADR performance, insurance sector outlook, and investment recommendations, alongside risk factors and legal disclosures.

Market Index Performance (June 28, 2018)

• HSCEI and SHCOMP showed the most significant declines in the year-to-date performance.
• CCMP had a strong performance in the 1M and YTD periods.
• UKX showed a positive 1D change, indicating some recovery in the UK market.
• SPX had a slight positive YTD change, suggesting a more stable performance compared to other indices.

Hong Kong ADRs Performance

• Most major Hong Kong-listed companies showed negative daily changes.
• PETROCHINA and AIA were exceptions with positive or mixed performance.
• ADRs reflect similar trends to local stock prices, with some differences in magnitude.

Insurance Sector Outlook (2H18)

Key Points:

• The insurance industry experienced weak performance at the start of 2018, with new policy premiums declining by 10–40% YoY.
• In May 2018, growth turned positive, with Ping An Insurance reporting 9.45% YoY growth in new policy premiums, marking its first positive growth of the year.
• The sector is expected to recover in 2H18, driven by higher-quality growth and easing pressure on the liability side.
• Agent numbers and product value concerns have eased due to improved premium growth and income recovery.
• Long-term interest rates are still relatively high, supporting insurers' investment returns.
• Third premium adjustment for commercial vehicles aims to reduce expenses and improve loss ratios, which may benefit leading insurers and increase market concentration.

Luk Fook (590 HK) Performance and Outlook

FY18 Results:

• Net profit rose 35% YoY to HK$1,370m, 7–16% above the analyst's and Bloomberg consensus.
• GPM increased by 0.1pp to 25.7%, driven by stronger licensing GPM and new consultancy fee income.
• Gold product GPM slightly dropped to 15.4%, while gem-set product GPM fell 1.7pp to 33.8% due to price reductions.

FY19 Guidance:

• SSSG in HK & Macau is expected to be double-digit, outperforming Chow Tai Fook's 5%.
• In China, management targets single-digit SSSG.
• Store expansion is planned with no less than 120 net additions in China, 3–5 new openings overseas, and no more than five new stores in HK & Macau.
• Rental reversion is expected to decline by single-digit (vs 30% in FY18).

Dividend and Financials:

• Dividend payment in FY18 totaled HK$1.1/share, including a special dividend of HK$0.2/share.
• Management is considering raising the payout ratio in FY19 from 40%.
• The company had HK$1.4bn net cash at the end of FY18.

Investment Recommendation

• The insurance sector is expected to show recovery in 2H18, driven by higher-quality growth.
• Market concentration is likely to increase due to financial deleveraging.
• The sector is currently undervalued, with a positive outlook.
• Recommended stocks:
  • Ping An Insurance (601318 CH)
  • New China Life Insurance (601336 CH)
  • China Pacific Insurance (601601 CH)

Risks

• New policy growth falling short of expectations.
• Agent numbers still under pressure.
• Fluctuations in interest rates could impact investment returns.

Rating Definitions

Company Ratings:

• Buy: Expected to outperform benchmark by more than 15%.
• Accumulate: Expected to outperform benchmark by 5–15%.
• Hold: Expected to range between -5% and 5%.
• Underperform: Expected to underperform benchmark by more than 5%.

Sector Ratings:

• Positive: Expected to outperform benchmark by more than 10%.
• Neutral: Expected to range between -10% and 10%.
• Cautious: Expected to underperform benchmark by more than 10%.

Legal and Disclosure Notes

• The research analyst certifies that all views reflect personal opinions and not the firm's.
• No conflicts of interest are disclosed, with no proprietary trading or investment banking relationships.
• The report is for informational purposes only and does not constitute an offer to buy or sell securities.
• Investments involve risks, and past performance does not guarantee future results.