20160514-高盛-Equities_down_2__amid_soft_data_and_policy_concerns_22页_1mb

China Weekly Kickstart Summary

Core Content

This document provides an overview of the performance, valuations, and market dynamics of Chinese equities, commodities, and related indices, as well as policy developments and sector analysis from Goldman Sachs.

Main Points

Market Performance

• China A/Offshore: Down by -1.8%/-1.9% this week, continuing a correction from April's peaks (-6.1%/-9.1%).
• ADR: Down by -3.0%.
• Chinext: Down by -4.9%.
• Onshore Commodities: Continued to slide, with Iron Ore down by -11% and Coking Coal by -3%.

Key Data

• April CPI: In line with expectations at 2.3% yoy (BBG).
• New Loans in April: Rmb556bn, below BBG consensus of Rmb800bn.
• Monetary Policy Report: No mention of "loosening bias" and hints at inflation concerns.

MSCI Inclusion

• MSCI confirmed the 2nd phase inclusion of 13 China ADRs, effective May 31.
• Average Weight Increase: 0.19% for MSCI EM index.
• Aggregate Weight Increase: 2.5% for MSCI EM index.

Sector Analysis

Offshore Sector Performance

• Top Performing Sectors:
  • Health Care: -0.3%
  • Tech Hardware & Semis: 0.2%
  • Software & Services: 0.6%
• Underperforming Sectors:
  • Real Estate: -5.2%
  • Div. Fin.: -3.9%
  • Metals & Mining: -3.0%

Onshore Sector Performance

• Top Performing Sectors:
  • Health Care: -0.1%
  • Insurance: 1.0%
  • Consumer Staples: 1.8%
• Underperforming Sectors:
  • Software & Services: -6.0%
  • Metals & Mining: -4.8%
  • Div. Fin.: -4.2%

Earnings and Valuations

• I/B/E/S Consensus Earnings Growth:
  • MXCN: -2.0% (2016E), 12.4% (2017E)
  • CSI300: 5.4% (2016E), 10.8% (2017E)
• EPS Revision:
  • MXCN: Revised down by -24.7%
  • CSI300: Revised down by -19.3%
• Valuation Metrics:
  • MXCN 12m fP/E: 9.4x
  • CSI300 12m fP/E: 11.8x

Policy and Reform Highlights

• People's Daily Interview: Emphasizes the need for supply-side reforms and forecasts a slower growth trajectory with an "L-shaped" pattern over the next 1-2 years.
• CSRC Regulation: Investigating new rules on back-door listing to reduce speculation in shell companies.

Conviction Buy List (as of May 12, 2016)

Offshore

• 2186 HK (Luye Pharma): HKD, 12M Potential Upside 4.59, Listed Mkt Cap 92%, 6M ADVT 2.0, P/E 7
• 3383 HK (Agile Property): HKD, 12M Potential Upside 4.10, Listed Mkt Cap 83%, 6M ADVT 2.1, P/E 3
• 598 HK (Sinotrans): HKD, 12M Potential Upside 3.07, Listed Mkt Cap 73%, 6M ADVT 0.8, P/E 6
• 3339 HK (Lonking): HKD, 12M Potential Upside 1.18, Listed Mkt Cap 53%, 6M ADVT 0.7, P/E 1
• 1313 HK (China Resources Cement): HKD, 12M Potential Upside 2.37, Listed Mkt Cap 48%, 6M ADVT 2.0, P/E 5
• 1071 HK (Huadian Power): HKD, 12M Potential Upside 3.86, Listed Mkt Cap 48%, 6M ADVT 0.9, P/E 6
• 2328 HK (PICC Property and Casual): HKD, 12M Potential Upside 13.26, Listed Mkt Cap 46%, 6M ADVT 7.9, P/E 57
• 489 HK (Dongfeng Motor): HKD, 12M Potential Upside 8.05, Listed Mkt Cap 38%, 6M ADVT 3.0, P/E 4
• 392 HK (Beijing Enterprises): HKD, 12M Potential Upside 39.00, Listed Mkt Cap 33%, 6M ADVT 6.4, P/E 10
• 941 HK (China Mobile (HK)): HKD, 12M Potential Upside 85.70, Listed Mkt Cap 28%, 6M ADVT 226.2, P/E 145
• 998 HK (China CITIC Bank): HKD, 12M Potential Upside 4.55, Listed Mkt Cap 28%, 6M ADVT 8.7, P/E 4
• CHL US (China Mobile (ADR)): USD, 12M Potential Upside 55.61, Listed Mkt Cap 28%, 6M ADVT 227.7, P/E 40
• 700 HK (Tencent): HKD, 12M Potential Upside 154.20, Listed Mkt Cap 25%, 6M ADVT 187.0, P/E 318

Onshore

• 600196 CH (Shanghai Fosun Pharma): CNY, 12M Potential Upside 18.73, Listed Mkt Cap 109%, 6M ADVT 5.5, P/E 41
• 002008 CH (Han's Laser Tech): CNY, 12M Potential Upside 21.46, Listed Mkt Cap 53%, 6M ADVT 3.5, P/E 68
• 600048 CH (Poly Real Estate): CNY, 12M Potential Upside 8.90, Listed Mkt Cap 45%, 6M ADVT 14.7, P/E 170
• 002281 CH (Accelink Tech): CNY, 12M Potential Upside 52.02, Listed Mkt Cap 42%, 6M ADVT 1.7, P/E 49
• 600031 CH (Sany Heavy): CNY, 12M Potential Upside 5.01, Listed Mkt Cap 38%, 6M ADVT 5.9, P/E 39
• 601992 CH (BBMG): CNY, 12M Potential Upside 7.96, Listed Mkt Cap 33%, 6M ADVT 5.1, P/E 16
• 002475 CH (Luxshare Precision): CNY, 12M Potential Upside 27.95, Listed Mkt Cap 32%, 6M ADVT 5.4, P/E 26
• 600036 CH (China Merchants Bank): CNY, 12M Potential Upside 17.46, Listed Mkt Cap 7%, 6M ADVT 55.3, P/E 107

Key Reports

• China Utilities: Favor wind over solar, recommend Buy CHST, Sungrow.
• Asia Pacific Energy: Recommend Buy PetroChina, Woodside, InterOil.
• Alibaba Group Holding (BABA): Above expectations, switch to SOTP valuation.

Valuation Charts

• 12-month forward P/E for MSCI China:
  • Past 10 years: 10.0x (2016E), 8.9x (2017E)
• 12-month forward P/B for MSCI China:
  • Past 10 years: 1.1x (2016E), 1.1x (2017E)
• 12-month forward P/E for CSI 300:
  • Past 10 years: 12.4x (2016E), 11.2x (2017E)
• 12-month forward P/B for CSI 300:
  • Past 10 years: 1.5x (2016E), 1.4x (2017E)

Analysts Contact

• Kinger Lau, CFA: +852-2978-1224, kinger.lau@gs.com
• Timothy Moe, CFA: +852-2978-1328, timothy.moe@gs.com
• Jack Wang: +852-2978-1220, jack.wang@gs.com
• Si Fu, Ph.D.: +852-2978-0200, si.fu@gs.com

Disclaimer

Goldman Sachs does and seeks to do business with companies covered in its research reports. Investors should be aware of potential conflicts of interest. This report is only a single factor in making investment decisions. For full disclosures, see the Disclosure Appendix or visit www.gs.com/research/hedge.html.