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Dim Sum Express Summary (Sept 21, 2018)

Core Content Overview

The Dim Sum Express report from GF Securities provides an analysis of key market indices and investment opportunities in the A-share and Hong Kong markets, with a focus on the construction machinery and auto sectors.

Key Index Performance

• The HSCEI and SPX showed positive performance in the short and medium term.
• The SHCOMP and SZCOMP indices declined significantly, indicating weakness in mainland China markets.
• The CCMP (China Composite Market Index) experienced the highest EPS growth for 2018, reflecting strong earnings expectations.
• The UKX and NKY indices saw mixed performance, with declines in the short term but relatively stable earnings growth.

A-Share Market Analysis

Machinery Sector

• Infrastructure investment has been a key driver for the construction machinery industry.
• NBS data show that FAI (Fixed Asset Investment) growth slowed slightly in 8M18, while infrastructure investment growth declined sharply YoY.
• The NDRC (National Development and Reform Commission) has emphasized promoting infrastructure projects to stabilize investment.
• Excavator sales increased by 56.21% YoY in 8M18, showing strong demand.
• Truck crane sales rose by 80.65% YoY in 7M18, indicating robust performance.
• Despite slowing growth, excavator sales still showed a 32.98% YoY increase in August, suggesting continued demand.
• Policy support is expected to stabilize infrastructure investment in the second half of 2018.

Investment Suggestions

• GF Securities recommends Sany Heavy Industry (600031 CH), Liugong (000528 CH), and Zhejiang Dingli (603338 CH) for potential outperformance.
• The EMU purchase plan is highlighted as an important catalyst for CRRC (601766 CH).

Hong Kong and Other Markets

Auto Sector

• The PV (Passenger Vehicle) sector has faced headwinds since May due to uncertain macroeconomic conditions, trade tensions between China and the US, and a declining A-share market.
• The booming housing market has also undermined auto consumption.
• Inventory pressure has led to discounts at dealers, but retail sales have declined YoY.
• Wholesale volume for PVs dropped by 4.9% YoY in July, and production declined by 4.7% YoY in August.
• Inventory levels at six Hong Kong PV automakers rose 19.4% YoY to Rmb54.76bn, while dealer inventory increased by 140,000 units YoY.

Investment Recommendations

• GF Securities expects inventory pressure to ease in the coming months, particularly during the 4Q peak season.
• Geely and Beijing Benz are anticipated to gain market share.
• The report recommends Geely (175 HK), BAIC (1958 HK), and Zhongsheng (881 HK) for potential growth.

Rating Definitions

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

• Accumulate: Stock expected to outperform the 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 the benchmark by more than 5%.

• Positive: Sector expected to outperform benchmark by more than 10%.

• Neutral: Expected sector relative performance ranges between -10% and 10%.

• Cautious: Sector expected to underperform benchmark by more than 10%.

Disclaimer and Disclosure

• This report is not an offer to buy or sell securities.
• It is solely for informational purposes.
• GF Securities (Hong Kong) and its affiliates have no direct financial interests in the companies mentioned.
• The views expressed are those of the analysts and do not represent the views of GF Securities (Hong Kong).
• No liability is accepted for any losses arising from the use of this report.