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Summary of Industrial Securities Co., Ltd. Document

Core Content

The document provides an overview of the Chinese stock market and fixed income products as of July 5, 2016. It includes key market indices, sector performance, company news, investment strategies, and financial data for Guangzhou Hongli Opto-Electronic Co., Ltd. (300219.SZ) and other relevant entities.

Market Indices

Total market volume: CNY 708 billion

Market Review

• China stocks closed slightly higher with increased volume.
• SOE names helped the benchmark index regain the 3000-point level.
• Thematic investments were weak, showing a shift in investor sentiment.
• Analysts expect the market to remain buoyed by liquidity and stimulus expectations until the G20 summit.
• Winners outnumbered losers by 1504 to 1010.

Sector Review

• Outperformers: Shipping companies (China Shipping Container Lines, China Merchants Energy Shipping), heavy machinery (China Shipbuilding, China CSSC Holdings), and airline companies (China Southern Airlines, China Eastern Airlines).
• Underperformers: Financial sectors, particularly China Vanke and banks like Agricultural Bank of China and Bank of China, which closed flat.
• Construction and military sectors also showed strong performance.

Daily Headlines

• PBOC maintains prudent monetary policy and emphasizes stability in the yuan.
• SOE reform is highlighted as a key priority, with emphasis on growth and efficiency.
• China is likely to fine-tune monetary policy in the second half of the year.
• Postal Savings Bank of China reported a 11% increase in first-quarter profit.
• Greece PM Tsipras praised the Piraeus Port deal with China.
• HNA Group plans to continue acquisitions in aviation and leisure.
• China expresses concern over India's trade remedies on steel and color-coated sheets.
• Beijing plans to invest 750.5 billion yuan in infrastructure by 2020.
• Sichuan province aims to cut coal and steel capacity by 2017.

Latest Company News

• Anhui Conch (600585.SH): Bids for Lafarge India assets.
• Fosun Pharma (600196.SH): Signs pact with Alipay.
• Guangzhou Amsky Tech (300521.SZ): Trading debut.
• Huadian Power (600027.SH): Cut to underperform at Macquarie.
• Ji En Nickel (600432.SH): Seeks up to 4.1 billion yuan in share sale.
• Merchants Energy (601872.SH): Expected 160%-200% net income growth for 1H.
• Suzhou Sunmun Tech (300522.SZ): Trading debut.
• Vanke (000002.SZ): Board approval invalid, China Resources cites scholars.
• Yanzhou Coal (600188.SH): Cut to underperform at Macquarie.

Investment Strategy: Five-Year Rates Products

• Market volatility is more significant than changes in economic fundamentals.
• Investor sentiment is shifting, making trading more challenging.
• Recommendation: Buy bonds when their prices are still dropping and forecast market trends.
• Central banks are expected to continue monetary loosening, which may push up asset prices.
• Yield Curve: Relatively flat, with five-year-or-less rates products at high levels.
• Recommendation: Invest in five-year-or-less rates products, as long-term bond performance may remain strong before economic data release.

Bond Market Weekly Review (June 27-July 1)

• Inter-bank Liquidity: Tight at first, eased on Friday due to PBOC's money injection.
• Repo Rates: Increased initially, then declined significantly, especially for 14-day and 21-day.
• Bond Yields: Declined generally, with CDB bonds outperforming others.
• Government Bond Futures: Prices rose, with TF1609 at 101.16 and T1609 at 100.63.

Guangzhou Hongli Opto-Electronic (300219.SZ)

Company Profile

• Develops, produces, and sells LED devices and related products.
• Products used in general illumination, backlighting, automotive lighting, and more.

Financial Highlights

• Net profit in 16H1: CNY 131 million–143 million (130%–150% YoY growth).
• Net profit in 16Q2: CNY 66.2 million–77.61 million (122%–161% YoY growth).
• Earnings beat market expectations.
• Expected net profit for 2016: CNY 250 million, surpassing previous forecasts.
• EPS forecast: CNY 0.37 (2016), CNY 0.5 (2017), CNY 0.64 (2018).

Investment Recommendation

• Outperform (Maintained): Strong earnings growth and expansion in car networking.
• Key Drivers: Growth in automotive lighting and hardware, production expansion, and M&A opportunities.
• Valuation: 42x 2016E PE, 31x 2017E PE, 24x 2018E PE.
• Potential Risks: Sharp price decreases and challenges in new business expansion.

Key Financial Ratios (Guangzhou Hongli Opto-Electronic)

Analysts and Translators

• Analysts: Tang Yue, Huang Weiping, Wang Han, Liu Liang, Ren Zhiqiang, Yuan Yuming, Qiu Zuxue, Yan Peng.
• Translators: Li Xing.

Industry Insight: Silver Supply Shortage

• Investment Recommendations:
  1. Shengda Mining: 62.96% stake in Yin Du Mining with Ag Polymetallic ore deposit.
  2. Yintai Resources: Controls Yu Long Mining with 5000 metric tons of silver storage.
  3. Inner Mongolia Xingye Mining: Yin Man Mining with 9000 metric tons of silver storage.

Rongxin Power Electronic (002123 SZ)

• Outperform (Maintained): Business integration smoothly underway.
• Assets Transfer: Stakes in Ringxin Power Electric, Rongxin Electrical Motor, and Rongxi High Tech. Electric transferred to Wolong Electric.
• Cash Injection: Additional CNY 140 million into Montnets, increasing its registered capital.
• EPS Forecast: CNY 0.40 (2016), CNY 0.58 (2017), CNY 0.83 (2018).
• Valuation: Expected to continue growth with a strong business strategy.

Appendix: Financial Statements

Balance Sheet

Cash Flow Statement

Income Statement

Conclusion

The document highlights the mixed performance of the Chinese stock market, with some sectors like shipping and heavy machinery outperforming, while financials lagged. It also emphasizes the importance of investing in fixed income products, particularly five-year-or-less rates products, due to the flat yield curve and potential for growth. Guangzhou Hongli Opto-Electronic Co., Ltd. is recommended as an OUTPERFORM due to strong earnings growth and expansion plans. The financial data shows consistent growth in revenue and net profit, with improved profitability and solvency ratios.