20180104-广发证券_香港_-Dim_Sum_Express_7页_539kb

Dim Sum Express Summary

Key Index Performance

The following table summarizes the performance of key indices for the period up to January 4, 2018:

Hong Kong ADRs

A-Share Market Overview

• Steel Sector:

  • Demand is expected to weaken in January 2018 due to seasonal factors.
  • Supply is contracting significantly due to production cuts in the heating season.
  • Steel prices are expected to remain stable, while iron ore prices may weaken slightly.
  • Earnings are projected to remain high.
  • Recommended stocks: Fangda Special Steel Technology, Nanjing Iron & Steel, Angang Steel, Maanshan Iron & Steel, Beijing Shougang.

• Environmental Policies:

  • Environmental protection costs will be fully incorporated into industrial production costs starting 2018.
  • Environmental rectification will be reviewed in 2018.
  • Non-power industries are likely to undergo ultra-clean facility renovations.
  • Environmental monitoring and exhaust treatment sectors are highlighted.
  • Clean heating policies are expected to sustain, with continued growth in natural gas consumption.

• Clean Heating Policies:

  • LNG prices have dropped significantly in northern China.
  • Biomass energy guidelines have been issued, aiming for 1bn m² of biomass heating by 2020 and 2bn m² by 2035.
  • Coal-to-electricity/gas substitution has exceeded 85% in the Jingjinji region.
  • Key companies to watch: Luenmei Quantum, Devotion Thermal Technology, Bestsun Energy, Blue Flame Holding.

Investment Strategy

• Market Review and Outlook:

  • The Hong Kong market has shown strong performance in 2017, with the HSI up 36%.
  • Strong earnings growth and valuation upgrades are expected to drive the market in January.
  • Recommended sectors: High growth (tech, internet, auto), re-rating (insurance, banks, financial intermediates), policy-driven (healthcare, environment, education).

• Stock Recommendations:

  • Tencent (700 HK, NR): Strong market position and potential for continued growth.
  • Ping An (2318 HK, Buy): Distressed asset management and debt restructuring business.
  • Geely Auto (175 HK, Buy) and Brilliance China (1114 HK, Buy): Auto sector with strong growth potential.
  • CSPC Pharma (1093 HK, Accumulate): Healthcare sector with policy support.
  • Wisdom Education (6068 HK, Buy): Education sector with strong policy drivers.

• H-Share Policy:

  • A new policy for fully tradable H-shares is being piloted.
  • Restricted H-shares account for 30% of total HK market cap.
  • Non-dual-listed H-shares are more likely to convert due to stronger incentives.
  • Potential winners include ZA Online, Legend Holdings, ASMC, China Longyuan, Huaneng Renewables, Datang Renewables, CMEC, and China Huarong.

Key Risks

• Market Risks:

  • Vicious price competition.
  • EPC project settlement progress falling short of expectations.
  • Delays in subsidy payments for operation companies.
  • Insufficient capacity utilization.

• Policy Risks:

  • Faster-than-expected interest rate hikes.
  • Slower-than-expected earnings growth.

Portfolio Performance

• The model portfolio recorded a 0.3% return in December 2017, compared to 2.5% for HSI and 2.0% for HSCEI.
• For the full year of 2017, the model portfolio returned 74.6%, significantly outperforming the HSI (36.0%) and HSCEI (24.6%).
• AAC Tech dragged down the portfolio return in December.

Rating Definitions

• Buy: Stock expected to outperform benchmark by more than 15%.

• Accumulate: Stock expected to outperform benchmark by more than 5% but not more than 15%.

• Hold: Expected stock relative performance ranges between -5% and 5%.

• Underperform: Stock expected to underperform benchmark by more than 5%.

• Sector Ratings:

  • Positive: Sector expected to outperform benchmark by more than 10%.
  • Neutral: Sector relative performance ranges between -10% and 10%.
  • Cautious: Sector expected to underperform benchmark by more than 10%.

Analyst Certification

• The views expressed reflect the personal opinions of the analysts.
• No part of the analysts' remuneration is directly or indirectly linked to specific recommendations.

Disclosure of Interests

• GF Securities (Hong Kong) and its affiliates do not hold shares in the mentioned securities.
• No investment banking relationships with the mentioned companies in the past 12 months.
• Analysts and their associates do not serve as officers of the companies mentioned and have no financial interests in the securities.

Disclaimer

• This report is for informational purposes only and does not constitute an offer to buy or sell securities.
• The information and opinions may be subject to change without notice.
• No representation or warranty is made regarding the accuracy or completeness of the information.
• GF Securities (Hong Kong) accepts no liability for losses arising from the use of this report.