20161017-中国银河国际证券-October_outlook__Moderately_active_in_a_relatively_volatile_market_21页_1mb

A-Share Monthly Portfolio Summary (October 17, 2016)

Core Content Overview

The document outlines the performance and outlook for the A-Share stock market for October 2016, focusing on a portfolio of 10 selected stocks. It highlights the Galaxy Securities' investment strategy and provides detailed analysis for each stock, including financial performance, growth expectations, key drivers, and risk factors. The overall market is expected to remain volatile due to external factors like the US Federal Reserve's interest rate expectations and the Chinese presidential election, but the recent market correction may provide a foundation for improvement.

Main Points of the October Outlook

• Market Volatility: The stock market is expected to remain moderately active and volatile in October.
• RMB Performance: The RMB-USD exchange rate is unlikely to decline persistently, and the performance of the RMB after its inclusion in the SDR is worth monitoring.
• Economic Data: Q3 economic data may slightly exceed expectations, but the overall trend is expected to remain stable.
• Real Estate Market: The real estate market remains strong, with policy focus and regulatory stress expected to increase.
• Monetary Policy: Macro liquidity may be eased to some extent after National Day.
• Fiscal and Structural Reforms: These remain key drivers for economic growth and structural adjustment.

Portfolio Focus for October

The portfolio is diversified across multiple sectors, balancing value and growth stocks. The selected stocks are:

• Chemical: 2 stocks
• Machinery and Defence: 1 stock
• Auto: 1 stock
• Non-ferrous Metals: 1 stock
• Electronics: 1 stock
• Agriculture: 1 stock
• Pharmaceuticals: 1 stock
• Light Industry: 1 stock
• Tourism: 1 stock

The specific stocks included are:

• Chenming Paper (000488.CH)
• Huangshan Tourism (600054.CH)
• Jinyu Bio-technology (600201.CH)
• Liyuan Precision Manufacturing (002501.CH)
• Sinoenergy Corporation (600856.CH)
• Sunway Communication (300136.CH)
• Tasly (600535.CH)
• Tongkun Group (601233.CH)
• Yunnei Power (000903.CH)
• Zhongding Group (000887.CH)

Key Stock Analyses

Huangshan Tourism (600054.CH)

• Investment Rating: Recommend
• Key Drivers:
  • Improvement in domestic tourism environment.
  • Resource advantages in cultural and natural heritage.
  • New infrastructure (cableways, hotels) supporting brand image.
  • Strategic location in the Yangtze River Delta.
  • Innovative marketing strategies.
• Valuation: Forecast EPS of RMB0.52, RMB0.61, RMB0.71 for 2016–2018.
• Catalysts: Strong domestic tourism data, improved infrastructure.
• Risks: Bad weather, natural disasters, contagious diseases.

Tongkun Group (601233.CH)

• Investment Rating: Recommend
• Key Drivers:
  • Cyclical reversal in the polyester filament yarn industry.
  • Price collaboration and production suspension during the G20 summit.
  • Strong market share and low production costs.
• Valuation: Forecast EPS of RMB0.73 and RMB1.22 for 2016 and 2017.
• Catalysts: Cyclical price rise, G20 impact, M&A and reform progress.
• Risks: Slower-than-expected capacity elimination, oil price decline, increased competition.

Zhongding Group (000887.CH)

• Investment Rating: Recommend
• Key Drivers:
  • Expansion into automotive electronics and new energy vehicles.
  • Acquisition of AMK, a European leader in automotive electronics.
  • Development of OPOC engines and charging infrastructure.
• Valuation: Forecast EPS of RMB1.10 and RMB1.32 for 2016 and 2017.
• Catalysts: Progress in automotive electronics, OPOC engine development.
• Risks: Emission standard enforcement, project capacity delays, natural rubber price fluctuations.

Sinoenergy Corporation (600856.CH)

• Investment Rating: Recommend
• Key Drivers:
  • Natural gas reforms and industry development.
  • Acquisition of Canadian oil and gas companies.
  • Expansion of LNG infrastructure and complete industry chain.
• Valuation: Forecast EPS of RMB0.44 and RMB0.71 for 2016 and 2017.
• Catalysts: Steady oil prices, natural gas market reforms, LNG import progress.
• Risks: Oil price decline, slow market reforms, stronger competition in LNG imports.

Yunnei Power (000903.CH)

• Investment Rating: Recommend
• Key Drivers:
  • Strong growth in diesel engine production.
  • State V emission standard upgrade.
  • Expansion into off-road and on-road engine markets.
  • Financing leasing business stability.
• Valuation: Forecast EPS of RMB0.28 and RMB0.37 for 2016 and 2017.
• Catalysts: D series engine production increase, product price rise, environmental policies.
• Risks: Weak emission standard enforcement, slower project progress, sales uncertainty.

Chenming Paper (000488.CH)

• Investment Rating: Recommend
• Key Drivers:
  • Growth in paper product sales due to supply-side reforms.
  • Stability in financing leasing business.
  • Rising prices for coated paper and white cardboard.
  • Falling pulp prices.
• Valuation: Forecast EPS of RMB1.07 and RMB1.39 for 2016 and 2017.
• Catalysts: Continued sales growth, price increases.
• Risks: Sales volume uncertainty, price acceptance by downstream industries, systematic risks in financing leasing.

Summary of Analysts

• Yang Huachao – Chief Analyst of Small-and Mid-cap Stocks
• Sun Jianbo – Chief Strategy Analyst
• Qin Xiaobin – Strategy Analyst Director
• Wong Chi Man – Head of Research

Conclusion

The portfolio is designed to balance value and growth stocks, with a focus on sectors showing strong fundamentals and growth potential. The overall market is expected to remain volatile, but the recent correction may create opportunities. The selected stocks are supported by strong industry positions, strategic initiatives, and positive financial outlooks, with clear catalysts for performance improvement.