20150716-交银国际证券-Morning_Express_17页_997kb

2015 China Economic and Sector Summary

Core Content

In 2015, China's macroeconomic environment showed a stabilization in GDP growth, with Q2 growth maintained at 7%, slightly above the market consensus and in line with forecasts. However, this growth was primarily driven by restocking rather than sustained economic recovery. Analysts suggest that the end of monetary loosening policies may hinder the property market recovery, potentially leading to a slowdown in economic growth. Therefore, the continuation of monetary easing policies is expected to support the 7% GDP growth forecast for the year.

Consumer Discretionary Sector

The China retail sector reported a 10.6% growth in June 2015, which was better than the market consensus of 10.2% and higher than May's 10.1%. The 1H15 retail sales growth was at 10.4%. The improvement was attributed to non/less-cyclical consumer products, while discretionary retail segments, such as gold and jewelry, showed weaker performance. Gold sales in June dropped to 1% from 11% in May, significantly impacted by the stock market correction starting mid-June. Similarly, luxury and high-end product categories like apparel (Prada, 1913HK, Sell) and menswear (Trinity, 891HK, Sell) faced similar pressure. Apparel & footwear growth eased to 9% from 13% in May, while cosmetics remained steady at 8% growth. Online retail sales grew at an accelerated pace, reaching 39% in June from 33% in May.

The negative wealth effect from the stock market pullback is expected to continue affecting consumer spending, particularly in high-end segments, and further dampen tourist flow to Hong Kong. This is likely to delay the recovery of Luk Fook (590.HK) and the gold & jewelry sector. Despite the improved sales mix in China, the company's margin improvement is expected to be limited due to higher promotional spending and the ongoing pressure on Hong Kong rental costs. The company's store expansion was below expectations, with only 14 new stores opened in 1Q16, including 13 in China and 1 in Hong Kong. The analyst reiterates a Neutral rating with a target price of HK$24.

Air China (753.HK)

Air China reported a 10.6% YoY increase in RPK for June 2015, but a 0.6% MoM decline. International RPK growth was the strongest, reaching 15.2% YoY, while regional RPK saw a 2.3% YoY decline. PLF increased slightly to 79.8%, with international PLF showing the most improvement. Cargo RFTK increased by 23.7% YoY, with international cargo growth outperforming domestic and regional segments. The company revised up fuel surcharges due to rising oil prices, impacting its operations.

The analyst maintains a Buy rating with a target price of HK$11.80. At the last closing price of HK$8.76, Air China is trading at 8.9x PER and 1.4x PBR, based on FY15 forecasts. The stock is currently suspended from trading.

China Southern Airlines (1055.HK)

China Southern Airlines (CSA) reported a 19.1% YoY increase in RPK for June 2015, with international RPK growth at 42.8% YoY. However, MoM declines were observed across all routes, with domestic RPK down 6.2% and regional RPK down 10.0%. PLF increased by 1.9 ppts YoY, with international PLF up the most. Domestic PLF showed a slight increase, while regional PLF decreased.

Cargo RFTK for CSA saw a 10.3% YoY increase, with domestic cargo demand growth outperforming international. The analyst recommends a Long-Term Buy with a target price of HK$10.30. At the last closing price of HK$7.99, CSA is trading at 8.93x PER and 1.47x PBR.

China Eastern Airlines (670.HK)

China Eastern Airlines (CEA) reported a 11.9% YoY increase in RPK for June 2015, with international RPK up 23.8% YoY. However, MoM declines were observed, particularly in domestic and regional RPK. PLF increased by 1.2 ppts YoY, with international PLF up 0.3 ppts and regional PLF up 0.4 ppts.

Cargo RFTK declined by 5.7% YoY, with international and regional cargo RFTK down 12.0% and 4.8%, respectively. Domestic cargo demand growth was strong at 25.6% YoY. The analyst recommends a Long-Term Buy with a target price of HK$6.70. At the last closing price of HK$5.85, CEA is trading at 9.59x PER and 1.64x PBR.

Renewable Energy Sector

The PV sector in China is seeing increased competition, with 56 companies vying for the 950MW Datong PV project. The "pioneer" program is expected to drive industry concentration and upgrades. Wind turbine utilization hours improved significantly in June, reaching 145 hours, up 22 hours from the previous year. The installed capacity of wind power equipment reached 104.9GW in 6M15, up 26.8% YoY.

PV product prices showed a general upward trend, with the first WoW growth since November 2014. Analysts expect prices to continue rising by the end of the year. The sector's outlook is positive, with increased installed capacity and improved utilization hours.

Parkson (3368.HK)

Parkson announced the acquisition of a 67.6% stake in Parkinson Retail Asia Limited for HK$1,314m, which is expected to expand its presence in Southeast Asia. The deal implies a FY15E P/E of 11x, in line with the sector average. Analysts believe the acquisition will help improve margins through economies of scale and better cost efficiency.

However, the company's earnings growth is expected to be limited due to the sluggish China retail market, ongoing anti-corruption efforts, and intensified regional competition. The near-term earnings impact is expected to be minimal due to the early stage of integration. The analyst maintains a Neutral rating with a revised target price of HK$1.71, based on a lower sector valuation benchmark. The stock is currently trading at 9.6x P/E and 0.6x P/B, providing some cushion against share price declines.