20170411-中国银河国际证券-Investment_Portfolio_for_April_2017_Stay_Cautious_and_Identify_Quality_Stocks_17页_1mb

A-Share Monthly Portfolio Summary - April 2017

Core Content

This document outlines the investment portfolio and analysis for April 2017, focusing on the performance of the CGS Top 10 portfolio and specific stock recommendations. The report emphasizes caution in the market and a bottom-up stock-picking strategy. It also provides detailed financial analysis and investment rationale for several listed companies.

Main Viewpoints

• March Performance: The CGS Top 10 portfolio experienced a loss of 2.45% in March 2017, underperforming the CSI 300 Index by 2.53 percentage points. However, it has delivered a cumulative return of 425.76% from January 2013 to March 2017, significantly outperforming the CSI 300 Index (387.84ppts) and surpassing the ChiNext Index's 159.20% surge.

• April Outlook: External markets, particularly the US trade policies and RMB/USD exchange rate fluctuations, are expected to influence A-share performance. The RMB is expected to remain stable to prevent market concerns. Domestic policies from the NPC and CPPCC sessions may contribute to a relatively stable economic environment. The stock market is anticipated to trade in a range-bound pattern, with investors advised to be wary of "black swan" events.

Key Sectors in the Portfolio

The portfolio includes stocks from the following sectors:

• Petrochemicals
• Power Equipment
• Military Machinery
• Financials
• Military & Defence
• Property
• Pharmaceuticals

Stock Recommendations

1. Zhenhai Petrochemical Engineering (603637.CH)

• Investment Rating: Recommend
• Driving Factors: Favorable crude oil and chemical prices, expansion of refining industry, and SOE reforms.
• Earnings Growth: Net profit is projected to grow from RMB51m in 2016 to RMB72m in 2017, RMB145m in 2018, and RMB280m in 2019.
• Valuation: Diluted EPS is expected to reach RMB0.704 in 2017 and RMB0.85 in 2018, corresponding to PERs of 22x and 16x.
• Catalysts: Continued rise in coal prices, increased capex by coal companies, and faster SOE reforms.
• Risks: Slower-than-expected capex by coal companies, and macroeconomic deterioration.

2. Shanghai AJ Group (600643.CH)

• Investment Rating: Recommend
• Driving Factors: Growth in trust business, expansion into financial services, and capital injections.
• Earnings Growth: Net profit is forecasted to reach RMB894.67m in 2017 and RMB1226.57m in 2018.
• Valuation: Diluted EPS is expected to be RMB0.62 in 2017 and RMB0.85 in 2018, with PERs of 22.5x and 16.4x.
• Catalysts: Private placement, business expansion, and capital injection.
• Risks: Slower progress in private placement, and slower development in financial holdings.

3. Zhengzhou Coal Mining Machinery (601717.CH)

• Investment Rating: Recommend
• Driving Factors: Recovery of coal prices, demand for equipment upgrades, and acquisition of auto component assets.
• Earnings Growth: Net profit is projected to increase from RMB228m in 2016 to RMB538m in 2017, RMB873m in 2018.
• Valuation: Diluted EPS is expected to reach RMB0.33 in 2017 and RMB0.54 in 2018, corresponding to PERs of 26.2x and 16.0x.
• Catalysts: Rising coal prices, increased capex, and SOE reforms.
• Risks: Slower implementation of overseas projects, and potential rise in coal prices.

4. Shanghai Electric Power (600021.CH)

• Investment Rating: Recommend
• Driving Factors: Growth in new energy and overseas projects, expansion of heat generation, and optimized business layout.
• Earnings Growth: Net profit is forecasted to reach RMB1,980m in 2017 and RMB2,470m in 2018.
• Valuation: Diluted EPS is expected to be RMB0.93 in 2017 and RMB1.15 in 2018, with PERs of 13.7x and 11.1x.
• Catalysts: Implementation of overseas and new energy projects, and expansion of smart lighting systems.
• Risks: Rise in coal prices and slower overseas project implementation.

5. Jiuzhiyang Infrared System (300516.CH)

• Investment Rating: Recommend
• Driving Factors: Growth in infrared and laser range finder businesses, SOE reforms, and asset restructurings.
• Earnings Growth: Net profit is projected to reach RMB209m in 2017 and RMB294m in 2018.
• Valuation: Diluted EPS is expected to be RMB1.75 in 2017 and RMB2.45 in 2018, corresponding to PERs of 59x and 42x.
• Catalysts: Faster growth in infrared and laser range finder businesses, and SOE reform.
• Risks: Slower growth in infrared and laser range finder businesses, and slower consolidation by CSIC.

6. RiseSun Real Estate (002146.CH)

• Investment Rating: Recommend
• Driving Factors: Strong sales performance, expansion in major cities, and growth in new business segments like health tourism and financial services.
• Earnings Growth: Net profit is forecasted to reach RMB4506m in 2017 and RMB5182m in 2018.
• Valuation: Diluted EPS is expected to be RMB1.05 in 2017 and RMB1.21 in 2018, with PERs of 12.2x and 10.6x.
• Catalysts: Excellent performance and breakthroughs in new business development.
• Risks: Stricter regulatory policies, lower-than-expected sales, and slower development in new businesses.

7. Northeast Pharmaceutical (000597.CH)

• Investment Rating: Recommend
• Driving Factors: Strong performance in the pharmaceutical sector and potential for growth.
• Earnings Growth: Net profit is projected to increase from RMB0.04 in 2016 to RMB1.79 in 2017.
• Valuation: Diluted EPS is expected to reach RMB1.79 in 2017, with a PER of 7.9x.
• Catalysts: Potential for growth in the pharmaceutical sector.
• Risks: Smaller-than-expected new orders.

8. Sun-Create Electronics (600990.CH)

• Investment Rating: Recommend
• Driving Factors: Expansion through asset acquisitions and financing, growth in radar and civilian goods.
• Earnings Growth: Net profit is expected to reach RMB267m in 2017 and RMB324m in 2018.
• Valuation: Diluted EPS is projected to be RMB1.0 in 2017 and RMB1.60 in 2018, with PERs of 76x and 47x.
• Catalysts: Smooth progress in asset acquisition.
• Risks: Lower-than-expected consumer product sales.

Summary

The report recommends a cautious approach to investing in April 2017, with a focus on bottom-up stock selection. The portfolio includes stocks from various sectors with strong growth potential, supported by favorable industry trends, policy changes, and financial performance. Each stock is analyzed for its driving factors, financial indicators, valuation, and risk factors, highlighting the potential for long-term investment value.