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Market Summary: Hong Kong Stocks and Sector Insights (May 16, 2022)

Core Market Overview

The Hong Kong stocks market showed directionless movement on the previous trading day. The Hang Seng Index rose slightly by 41 points to 20,644 points, with a daily turnover of HKD112.6 billion. Despite positive performance from some China auto companies, which outperformed due to rumors of the upcoming "Going Countryside" policy, JD-SW (9618 HK) corrected despite reporting better-than-expected 1Q22 results. The policy is expected to provide a RMB3k-5k per vehicle subsidy for vehicles priced below RMB150k, covering both fuel and new energy vehicles. However, the market remains cautious about future growth, especially in May and June.

Key Sector News

China F&B Sector: Cost Inflation Pressure Offset by Price Hikes

• Tingyi (322 HK): Experiencing historical highs in palm oil and PET prices, leading to elevated costs. The company implemented mid-single digit price hikes on classic noodles in February and low-single digit hikes on selective beverage products in April to offset these costs.
• Upcoming Actions: Management has not ruled out further price increases but is also focusing on improving production efficiency and reducing promotions.
• UPC (220 HK): Adopted a strategy of reducing channel discounts and investments rather than raising prices directly. The company sees potential for further promotion reduction in the instant noodles business.

China Airline Sector: CAAC Proposes Subsidies for Domestic Carriers

• On May 16, the Civil Aviation Administration of China (CAAC) proposed a subsidy plan to help domestic airlines maintain at least 35% of pre-COVID domestic flight levels for the next two months.
• This subsidy aims to assist airlines during the challenging period when domestic passenger traffic is only 25% of pre-COVID levels, due to the Omicron outbreak and lockdown policies.
• It is the first time since 2020 that the Chinese government has directly provided cash subsidies to airlines.

Company News Highlights

JD-SW (9618 HK)

• Reported better-than-expected 1Q22 results with revenue of RMB239.7 billion (+18% YoY) and adjusted operating profit of RMB4.7 billion (+32.8% YoY).
• Management attributed April revenue growth to supply chain disruptions and JD's larger exposure to higher-tier cities.
• Caution is expressed for May and June growth, with potential for single-digit revenue growth during the 6.18 sales festival. This could result in flattish revenue growth for JD Retail in 2Q22.

Shenzhen Int'l (2313 HK)

• Production base in Ningbo has been unaffected by the pandemic for the past 3 months, while Shanghai is reopening.
• The USD has appreciated by approximately 7% against the CNY, which is beneficial for the company.
• Shenzhen holds around RMB12 billion in foreign currency denominated cash and deposits, which can generate FX gains.
• The company is operating at full capacity utilization, with its capacity expansion plans in Southeast Asian countries progressing well.
• Market expectations indicate improvement in revenue and gross margin on a quarterly basis for 2022E.

CR Power (836 HK)

• Consolidated power generation in April 2022 dropped by 7% YoY to 12,929GWh.
• Wind power generation increased by 31.5% YoY to 3,648GWh, driven by better wind resources and improved utilization rates.
• Cumulative wind power generation for 4M22 rose by 14.3% YoY to 12,078GWh.
• Coal-fired power generation declined by 17.3% YoY to 9,039GWh, likely due to lower utilization hours.
• Cumulative thermal power generation for 4M22 grew by 1.5% YoY to 45,614GWh.

Disclaimer

This document is for general information purposes only and is not intended as investment research or a recommendation. The information is based on data from recognized statistical services, issuer reports, or other sources believed to be reliable, but has not been independently verified. MIB Securities (HK) Ltd and its affiliates do not take responsibility for any loss that may arise from reliance on this information. All statements are subject to change and should not be construed as a solicitation to buy or sell any securities. The document may contain opinions that are not factual and are not guaranteed. Investment banking or other services may be performed for companies mentioned in this report.