20161013-兴业证券-A-Share_Daily_Express_12页_854kb

Summary of Industrial Securities Co., Ltd. Report

Core Content

This report provides a detailed analysis of the Chinese stock market and specific industry insights, focusing on the construction and agriculture sectors, as well as company-specific updates and investment recommendations.

Market Overview

• China stocks showed narrow fluctuations with slightly increased trading volume.
• Concept stocks such as debt-equity swaps and PPP projects performed well.
• Export data for September 2016 dropped 10% year-over-year, below expectations, and import data also declined, adding pressure to the yuan.
• The A-share market displayed strong consolidation amid global uncertainties and weak domestic data.
• Market indices:
  • SSE Composite increased 0.09% to 3061.35
  • SZSE Component decreased 0.01% to 10787.49
  • ChiNext decreased 0.05% to 2208.57
  • HSI dropped 1.61% to 23031.30
  • HSCEI fell 1.82% to 9496.85
• Aggregate market volume reached CNY 432 billion, up 1.60% from Wednesday.
• Losers outnumbered winners by 1383 to 1217.

Sector Review

Winners

• Construction sector led the market:
  • Inner Mongolia M-Grass Ecology and Environment (Group) Co., Ltd. (300355 SZ): +8.15%
  • China Railway Group Limited (601390 SH): +4.58%
• Machinery sector ranked second:
  • Shuangliang Eco-Energy Systems Co., Ltd. (600481 SH): +10.08%
  • Hangzhou Advance Gearbox Group Co., Ltd. (601177 SH): +10.04%

Losers

• Petroleum & Petrochemical sector reversed previous bullish performance:
  • Oriental Energy Co., Ltd. (002221 SZ): -3.01%
  • China Petroleum & Chemical Corporation (600028 SH): -0.81%
• Home appliance sector was the second loser:
  • Midea Group Co., Ltd. (000333 SZ): -1.90%
  • Dongguan Kingsun Optoelectronic Co., Ltd. (002638 SZ): -1.10%

Daily Headlines

• China's exports fell 10% in local currency terms, snapping a six-month streak of gains, and imports rose 2.2%.
• Trade surplus reached CNY 278.4 billion.
• China's Ministry of Housing and Urban-Rural Development ordered local regulators to monitor rumors that could disrupt the property market.
• Shanghai Banking Regulator called a meeting with local lenders to remind them of mortgage loan risks.
• Ping An Bank had its president and chairman resign.
• RMB Cross-Border Inter-Bank Payment System will extend service hours to cover North American markets.
• China's NDRC announced plans to open more sectors to private investment.
• China Gezhouba Group Corp. and Beijing Enterprises Holdings Ltd. bid for Attero, a Dutch waste management company.
• Apple's Cook and Foxconn's Gou met with China's NDRC chair.
• Singapore's PSA took a stake in China United Intl Rail.

Investment Highlights

Construction Sector

• Shandong Hi-Speed Road & Bridge (000498 SZ):
  • Brilliant Q3 Earnings Performance: Revenue up 4.3% YoY to CNY 4.21 billion.
  • Operating profit up 26.9% YoY to CNY 349 million.
  • Net profit up 20.87% YoY to CNY 248 million.
  • EPS: CNY 0.22.
  • Earnings Forecast:
    • 2016: CNY 0.45
    • 2017: CNY 0.53
    • 2018: CNY 0.61
  • Valuation: 16x 16E PE, 13x 17E PE, 11.7x 18E PE.
  • Recommendation: Buy.
  • Potential Risks: Macroeconomic downturn, slow business consolidation, slow construction progress.

Agriculture Sector

• Farming sector led industry growth, while feed sector started to recover.
• Recommended stocks:
  • Guangdong Haid Group (002311 SZ): 17E: 19.1
  • Liaoning Wellhope Agri-Tech Joint Stock (603609 SH): 17E: 18.7
  • Beijing Dabeinong Technology Group (002385 SZ): 17E: 37.2
  • Shenzhen Jinxinnong Feed (002548 SZ): 17E: 12.0
  • Tangrenshen Group (002567 SZ): 17E: 14.3
  • Shandong Yisheng Livestock & Poultry Breeding (002458 SZ): 17E: 14.3
• White hen segment presents strong upside potential.
• Feed segment is expected to recover, while the seed sector may face downside pressure.

Key Financial Data (Shandong Hi-Speed Road & Bridge)

Balance Sheet

• Total Assets:
  • 2015A: CNY 10,416 Mn
  • 2016E: CNY 12,908 Mn
  • 2017E: CNY 15,676 Mn
  • 2018E: CNY 18,698 Mn
• Total Liabilities:
  • 2015A: CNY 7,376 Mn
  • 2016E: CNY 9,960 Mn
  • 2017E: CNY 12,131 Mn
  • 2018E: CNY 14,473 Mn
• Shareholders' Equity:
  • 2015A: CNY 3,040 Mn
  • 2016E: CNY 2,948 Mn
  • 2017E: CNY 3,546 Mn
  • 2018E: CNY 4,225 Mn

Income Statement

• Operating Income:
  • 2015A: CNY 7,419 Mn
  • 2016E: CNY 10,016 Mn
  • 2017E: CNY 11,726 Mn
  • 2018E: CNY 13,223 Mn
• Net Profit:
  • 2015A: CNY 378 Mn
  • 2016E: CNY 500 Mn
  • 2017E: CNY 598 Mn
  • 2018E: CNY 680 Mn

Cash Flow Statement

• Net Change in Cash:
  • 2016E: CNY 252 Mn
  • 2017E: CNY 565 Mn
  • 2018E: CNY 505 Mn
• Cash Flows from Operating Activities:
  • 2016E: CNY 448 Mn
  • 2017E: CNY 735 Mn
  • 2018E: CNY 533 Mn

Key Financial Ratios

• Growth:
  • Increase Rate of Business Revenue:
    • 2015: 8.4%
    • 2016E: 35.0%
    • 2017E: 17.1%
    • 2018E: 12.8%
  • Increase Rate of Business Profit:
    • 2015: 23.2%
    • 2016E: 32.1%
    • 2017E: 19.6%
    • 2018E: 14.0%
  • Net Profit Growth Rate:
    • 2015: 21.1%
    • 2016E: 32.3%
    • 2017E: 19.6%
    • 2018E: 13.8%
• Profitability:
  • Gross Margin Rate: 16.2% (2015), 16.1% (2016E), 16.1% (2017E), 16.1% (2018E)
  • Net Profit Margin: 5.1% (2015), 5.0% (2016E), 5.1% (2017E), 5.1% (2018E)
  • ROE: 12.4% (2015), 16.9% (2016E), 16.8% (2017E), 16.1% (2018E)
• Solvency:
  • Asset-liability Ratio: 70.8% (2015), 77.2% (2016E), 77.4% (2017E), 77.4% (2018E)
  • Current Ratio: 1.29 (2015), 1.25 (2016E), 1.27 (2017E), 1.28 (2018E)
  • Quick Ratio: 0.82 (2015), 0.74 (2016E), 0.78 (2017E), 0.82 (2018E)
• Operation Capacity:
  • Asset Turnover Ratio: 72.6% (2015), 85.9% (2016E), 82.0% (2017E), 76.9% (2018E)
  • AR Turnover Ratio: 223.1% (2015), 216.5% (2016E), 190.5% (2017E), 173.3% (2018E)
• Valuation:
  • PE: 21.1 (2015), 16.0 (2016E), 13.4 (2017E), 11.7 (2018E)
  • PB: 2.6 (2015), 2.7 (2016E), 2.2 (2017E), 1.9 (2018E)

Market Strategy (HK)

• HK stock market is expected to enter a new bull-run due to global market uncertainties.
• Recommendation: Investors should focus on high dividend stocks and GARP (Growth at a Reasonable Price) stocks.
• Bargain trade is advised due to current market conditions.

Industry Research Report (Electronics)

• Korean semiconductor companies are expected to see major breakthroughs in the OLED industry in 2017.
• Recommended stocks:
  • Sino Wealth Electronic (300327 SZ)
  • Tianma Microelectronics (000050 SZ)
  • Shenzhen O-Film Tech (002456 SZ)
  • Lens Technology (300433 SZ)
• JCET is recommended as a Strong Buy due to its merger with STATs ChipPAC.
• Earnings forecast for JCET: CNY 800 million to CNY 1 billion in 2017, and potentially CNY 2 billion.

Investment Highlights (Agriculture)

• Farming sector continues to lead the growth in the agricultural industry.
• Feed sector is expected to recover soon.
• Raw milk sector may reach an inflection point.
• Recommended stocks:
  • Guangdong Haid Group (002311 SZ)
  • Liaoning Wellhope Agri-Tech Joint Stock (603609 SH)
  • Beijing Dabeinong Technology Group (002385 SZ)
  • Shenzhen Jinxinnong Feed (002548 SZ)
  • Tangrenshen Group (002567 SZ)
  • Xinjiang Western Animal Husbandry (300106 SZ)
  • China Modern Dairy Holdings (1117 HK)
  • China Shengmu Organic Milk (1432 HK)
• White hen segment presents strong upside potential.
• Feed segment is expected to recover, but raw material price volatility and floods may affect earnings.

Analysts

• Construction Sector:
  • MENG Jie (mengjie@xyzq.com.cn)
  • FANG Dalei (fangdalei@xyzq.com.cn)
  • Assistant Analysts:
    • HUANG Yang (huangyang@xyzq.com.cn)
    • PAN Mengchen (panmengchen@xyzq.com.cn)
• Agriculture Sector:
  • CHEN Jiao (chenjiao86@xyzq.com.cn)
  • JIANG Weihua (jiangweihua@xyzq.com.cn)
• HK Market Strategy:
  • ZHANG Yidong (zhangyd@xyzq.com.cn)
  • WENG Tian (wengtian@xyzq.com.cn)
  • LI Yanlin (liylin@xyzq.com.cn)
  • WANG Delun (wangdl@xyzq.com.cn)
  • WU Feng (wufeng@xyzq.com.cn)
  • ZHOU Lin (zhoul@xyzq.com.cn)
  • ZHANG Qiyao (zhangqiyao@xyzq.com.cn)
  • HAN Yijia (hanyij@xyzq.com.cn)
• Assistant Analysts:
  • LU Yang (luyang@xyzq.com.cn)
  • MAO Yifan (maoyf@xyzq.com.cn)
  • WANG Wei (wangweiyjs@xyzq.com.cn)

Conclusion

The report highlights the mixed performance of the Chinese stock market, with the construction and agriculture sectors showing positive momentum. It emphasizes the importance of monitoring global political and economic risks, particularly those related to the U.S. presidential election, Italy's constitutional referendum, and Deutsche Bank's challenges. The report recommends buying Shandong Hi-Speed Road & Bridge and strong buying JCET, while advising investors to focus on high dividend and GARP stocks in the HK market. The agriculture sector is also highlighted, with the feed and raw milk segments showing potential for growth.