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Dim Sum Express Summary

Core Content Overview

This document provides a detailed analysis of the Equity Research for the Hong Kong and A-Share markets in the second half of 2018 (2H18), focusing on the auto sector and consumer discretionary sector. It includes performance data of key indices, analysis of major stocks, and investment recommendations.

Key Index Performance (as of July 4, 2018)

Source: Bloomberg

A-Share Market: 2H18 Auto Sector Outlook

Main Points

• The auto sector has declined due to the withdrawal of favorable policies and external shocks.
• Passenger vehicle (PV) sales are expected to grow between -3% and +3% for 2018.
• Heavy-duty truck sector is expected to outperform despite a possible short-term decline in 3Q18.
• The luxury car market is the fastest-growing segment in the PV industry.
• The focus of policy guidance is shifting from quantity to quality in the new energy vehicle (NEV) sector.
• The valuation premium of A-share auto stocks compared to international peers is a key factor.

Investment Highlights

• Recommended stocks: Huayu Automotive Systems (600741 CH), SAIC Motor (600104 CH)
• Heavy-duty truck sector: CNHTC Jinan Truck (000951 CH), Weichai Power (000338 CH), Weifu High-Technology (000581 CH)
• Key factors: Sales stability, profitability, and dividend potential

Risks

• Lower than expected macroeconomic growth
• Policy advancement less than expected
• Lower auto industry growth

Hong Kong Market: 2H18 Consumer Discretionary Outlook

Main Points

• The luxury car market is expected to continue growing, driven by rising income and lower prices.
• Auto financing has increased the penetration of luxury cars.
• Tariff cuts will improve dealers' after-sales service gross margins starting in 2019.
• The education sector is expected to benefit from rising demand and market concentration.
• Tax reform is a catalyst for the sportswear sector, reducing the tax burden on lower/middle-income groups.
• Jewelry sector has limited margin improvement potential in HK and Macau, and earnings growth may slow.

Investment Highlights

• Luxury car sector: Zhongsheng Group (881 HK)
• Education sector: Maple Leaf Education (1317 HK), Wisdom Education International (6068 HK)
• Sportswear sector: Xtep (1368 HK), ANTA Sports (2020 HK)
• Jewelry sector: Chow Tai Fook (1929 HK) is expected to see a decline in rental renewals but may recover in the next financial year

Risks

• Policy risks
• Exchange rate risks
• New auto sales falling short of expectations
• Luxury car market growth lower than expected
• Growth in student numbers and tuition fees lower than expected
• SSSG and retail price growth disappointment
• Profit margin disappointment

Rating Definitions

Company Ratings

• Buy: Expected to outperform benchmark by more than 15%
• Accumulate: Expected to outperform benchmark by more than 5% but not more than 15%
• Hold: Expected relative performance between -5% and 5%
• Underperform: Expected to underperform benchmark by more than 5%

Sector Ratings

• Positive: Expected to outperform benchmark by more than 10%
• Neutral: Expected relative performance between -10% and 10%
• Cautious: Expected to underperform benchmark by more than 10%

Analyst Certification and Disclosure

• The views expressed reflect the personal views of the analyst.
• The analyst has no financial interest in the companies mentioned.
• GF Securities (Hong Kong) has no investment banking relationship with the mentioned companies in the past 12 months.
• The report is for informational purposes only and does not constitute an offer to buy or sell securities.

Disclaimer

• This report is prepared by GF Securities (Hong Kong) and is for informational use only.
• No liability is accepted for any loss arising from the use of the materials.
• The report does not consider individual investment objectives or financial situations.
• GF Securities (Hong Kong) may issue other communications with different views.