20150618-交银国际证券-Morning_Express_13页_985kb

Summary of the Document

Core Content Overview

The document provides an analysis of the healthcare sector, property sector, and renewable energy sector in the context of the Stock Connect initiatives between the Shanghai and Hong Kong stock markets. It also includes insights on the United Laboratories (3933.HK) and the Internet sector.

Healthcare Sector

Key Takeaways from Reverse Roadshow in Zhuhai

• Provincial tendering is expected to boost the sales of second-generation insulin in 2015.
• Third-generation insulin (Insulin Glargine) production is set to start in the second half of 2015.
• Leverage is anticipated to decrease further in 2015, with the net gearing ratio expected to fall below 72.3%.
• The company has applied for pre-approval of its Insulin Glargine production site and is confident in achieving HKD400m in total sales for Human Insulin products in 2015, with a 25.2% YoY increase in net profit.
• Risks include potential losses on fair value changes of investment properties, stricter regulations on antibiotics, and delays in Insulin Glargine production affecting sales and net profit.

Valuation and Investment Insights

• Healthcare stocks in the SSE Small Cap Index trade at a significantly higher P/E ratio (51.1x FY15E) compared to those in the Hang Seng Composite Small Cap Index (25.2x FY15E).
• The report recommends China Pioneer Pharm (1345 HK) due to its low valuation and potential for outperformance with increased connectivity between HK and Shanghai markets in 2H15.
• The company is expected to benefit from southbound capital due to its low valuation and growth prospects.

Property Sector

Stock Connect Implications

• The SH-HK Stock Connect extension to small-cap stocks is anticipated, but its impact is expected to be small, especially for northbound flows, due to low trading volume and limited investor familiarity with these stocks.
• HK investors are more likely to favor market leaders and mid-to-large cap developers due to M&A opportunities.
• For southbound trade, companies with low PE and reputation in the small-cap index, such as Fantasia, Central China, CIFI, and Yuzhou Properties, are expected to benefit.
• Companies with the "Internet +" theme, such as Colour Life (1778 HK), may attract interest from mainland investors.

Valuation and Fundamental View

• The average P/B ratio of property stocks in the SSE Small Cap Index is 8.1x, while in the HK market, it is 1.2x.
• Small-cap developers in HK are likely to benefit from monetizing their assets, which could lead to re-rating opportunities.
• FEC (35 HK) is recommended due to the potential NAV enhancement from the proposed privatisation of DHI (2266 HK) and upside from winning the Brisbane resort project.

Renewable Energy Sector

Highlights

• Turbine utilization in May was 184.5 hours, down 22.7 hours YoY, due to a high base in the previous year and improved wind conditions.
• Total installed wind capacity reached 103.2GW, up 25.4% YoY.
• YieldCo, a joint venture between First Solar and SunPower, is expected to debut on Nasdaq.
• The PV industry is recovering, with polysilicon prices continuing to decline, cell prices rising slowly, and module prices falling further.
• "Internet +" themed companies are expected to attract mainland investors due to innovation and growth potential.

Internet Sector

Key Insight

• The State Council introduced measures to support mass entrepreneurship and innovation, including business registration, intellectual property protection, financial support, tax incentives, and company listing.
• These measures are expected to attract more Internet companies to list in China, shifting the trend from listing in the US and HK.
• The report encourages banks to provide systematic financial services for SMEs, including clearing, financing, advisory, and wealth management.
• Crowd-investing platforms and small-stake equity crowd-investing finance are expected to be promoted.

Stock Connect Overview

• The SH-HK Stock Connect is expected to be extended to small-cap stocks, with potential benefits for HK-listed healthcare stocks due to lower valuations.
• The SZ-HK Stock Connect is also anticipated for 2015, which may redirect investment flows from Vanke-H to Vanke A, narrowing the discount.
• HK investors may favor large developers with high mainland exposure for southbound interest.
• HK small-cap developers are expected to see increased interest due to proactive management and potential re-rating.

Financial Highlights

Key Recommendations

• Healthcare sector: Recommend China Pioneer Pharm (1345 HK) due to its low valuation and growth potential.
• Property sector: Suggest Central China (832 HK) for its reputation and recovery in the Zhengzhou property market.
• Renewable energy sector: Highlight the potential of the YieldCo model and the recovery in PV product prices.
• Internet sector: Expect increased listing activity in China and policy support for SMEs and innovation.