20160831-兴业证券-Profitability_Improving,_Transformation_Well_Underway_16页_1mb

Industrial Securities Co., Ltd. Summary

Core Content

Industrial Securities Co., Ltd. provides a comprehensive overview of the Chinese stock market and related financial news on September 7, 2016. The summary includes market indices, sector performance, company-specific updates, and macroeconomic analysis, particularly focusing on the U.S. non-farm payroll report and its implications for the Fed's rate hike expectations.

Market Indices Overview

• SSE Composite: Closed at 3091.93, up 0.04%.
• SZSE Component: Closed at 10838.72, down 0.21%.
• ChiNext Index: Closed at 2212.05, down 0.49%.
• HSI: Closed at 23741.81, down 0.19%.
• HSCEI: Closed at 9970.19, up 0.32%.
• Aggregate Market Volume: RMB 560.69 billion (USD 84.10 billion), up 5.3% from the previous session.

Market Review

• China stocks were mixed on Wednesday, with the benchmark index failing to defend the 3100 key-level in the late afternoon.
• Infrastructure, especially PPP-related stocks, remained strong due to the State Council's push for proactive fiscal policy.
• Losers outnumbered winners by 1524-to-1067.

Sector Review

Winners

• Construction: China State Construction Engineering Corporation Limited (601668) +2.34%; Metallurgical Corporation of China Ltd. (601618) +2.58%.
• Water utility and environment protection: Chongqing Water Group Co. (601158) +2.15%; Beijing Orient Landscape & Ecology Co. (002310) +5.93%.
• Building materials: Anhui Conch Cement Co. (600585) +2.59%; Beijing Oriental Yuhong Waterproof Technology Co. (002271) +3.56%.

Losers

• Coal miners: Yanzhou Coal Mining Co. (600188) -2.00%; Shanxi Xishan Coal and Electricity Power Co. (000983) -2.93%.
• Media: Shanghai Oriental Pearl Media Co. (600637) -2.13%; Huawen Media Investment Corporation (000793) -2.41%.

Daily Headlines

• Chinese foreign exchange reserves may stabilize in August, with a consensus estimate of RMB 3.19 trillion.
• China plans to increase infrastructure investment and ease restrictions on private participation in education and medical sectors.
• A consumer tax overhaul is being considered to shift the economy toward a more consumption-led model.
• China seeks to improve macro control of the property market, with differentiated policies for different cities.
• AVIC and seven other state-owned enterprises will form alliances for restructuring.
• Anbang Insurance Group is focusing on digesting overseas acquisitions rather than pursuing new deals.
• Hong Kong Exchanges and Qianhai Shenzhen-Hong Kong Cooperation Zone signed an MOU for financial services and innovation.
• China National Chemical Corp. secured a $12.7 billion loan for its purchase of Syngenta AG.

Latest Company News

• Air China (601111 CH): Ex-manager pleads not guilty to smuggling in New York.
• China Eastern (600115 CH): Got CSRC approval to issue up to RMB 10.3 billion in bonds.
• China Vanke (000002 CH): Purchased London property from Henderson fund; seeks RMB 194 million loan for Shanghai Central Plaza.
• Citic Bank (601998 CH): Demands repayment from Novo unit by September 12.
• Everbright Sec (601788 CH): Aug. unconsolidated sales RMB 531.4 million.
• Founder Sec (601901 CH): Aug. unconsolidated net profit RMB 103 million.
• Guotai Junan (601211 CH): Aug. unconsolidated net profit RMB 676 million.
• Haitong Sec (600837 CH): Aug. unconsolidated sales RMB 1.02 billion.
• Huatai Sec (601688 CH): Aug. unconsolidated net profit RMB 506.9 million.
• Jianghuai Auto (600418 CH): Plans to sign a cooperation memorandum.
• Sanlian Commercial (600898 CH): Plans to buy Zhejiang Dejing for RMB 800 million.
• Hanghai Electric Power (600021 CH): Plans to buy assets via share sale.
• Shenwan Hongyuan (000166 CH): Aug. unconsolidated net profit RMB 389.6 million.
• Wanda Cinema (002739 CH): Jan.-Aug. box office revenue rose 31% to RMB 5.35 billion.

Today's Research: U.S. Non-Farm Payroll and Fed Rate Hike Expectations

• The U.S. August non-farm payroll report was weaker than expected, causing fluctuations in rate hike expectations and capital flows.
• Gold prices increased, indicating rising market uncertainty.
• The U.S. labor market showed some improvement despite the weaker-than-expected report, with a declining number of non-full-time jobs and increased job searches.
• The transmissive chain from economic fundamentals to Fed signals has shifted, with economic fundamentals playing a larger role than FOMC decisions.
• USD has become less sensitive to Fed rate hike expectations, while gold prices show increasing correlation.
• The U.S. presidential election is expected to sustain market uncertainty into September's Fed meeting.

Company Analysis: Sanquan Food (002216 SZ)

• Company Overview: Largest frozen food production base in China, focusing on frozen rice dumplings, dumplings, and other frozen food products.
• Performance:
  • Revenue in 1H 2016 reached RMB 2.5 billion, up 10.11% YoY.
  • Net profit attributable to shareholders was RMB 62.43 million, up 1.39% YoY.
  • Q2 revenue increased 17.96% to RMB 1.04 billion; net profit up 23.75% to RMB 43.4 million.
• EPS Forecast: CNY 0.10 in 2016 and CNY 0.15 in 2017, implying PE ratios of 85.9x and 57.2x respectively.
• Recommendation: Reiterate "Buy".
• Potential Risks: Intensified competition, food safety concerns.
• Key Financial Ratios:
  • Net profit margin increased from 0.8% to 2.4%.
  • ROE rose from 1.9% to 8.2%.
  • Gross margin improved from 32.9% to 35.5%.
  • Asset turnover ratio increased from 1.15 to 1.44.

Company Analysis: Digital China Group (000034 SZ)

• Company Overview: Engaged in IT services, cloud services, B2B platforms, and online marketing.
• Performance:
  • 1H 2016 operating revenue surged 5485.05% YoY to RMB 11.71 billion.
  • Net profit attributable to shareholders reached RMB 252 million, up 1005.88% YoY.
  • Net profit after non-recurring items was RMB 55 million, up 447.51% YoY.
• EPS Forecast: CNY 0.62 in 2016, CNY 0.67 in 2017, and CNY 0.73 in 2018.
• Recommendation: Reiterate "Buy".
• Key Financial Indicators:
  • Revenue growth: 11033.8% YoY in 2016.
  • Net profit growth: 1790.0% YoY in 2016.
  • Gross margin: 5.3% in 2016, with slight improvement in subsequent years.
  • Net profit margin: 0.8% in 2016, with steady growth.
  • ROE: 14.6% in 2016, showing significant improvement.

Key Financial Data and Ratios

• Sanquan Food (002216 SZ):
  • Closing price: RMB 8.77.
  • Total shares: 804.22 million.
  • Market cap: RMB 7052.99 million.
  • Net assets: RMB 1932.62 million.
  • EPS: CNY 0.10 (2016), CNY 0.15 (2017).
  • PE: 85.9x (2016), 57.2x (2017).
• Digital China Group (000034 SZ):
  • Closing price: RMB 30.91.
  • Total shares: 654.07 million.
  • Market cap: RMB 20217.32 million.
  • Net assets: RMB 2485.65 million.
  • EPS: CNY 0.62 (2016), CNY 0.67 (2017), CNY 0.73 (2018).
  • PE: 85.9x (2016), 57.2x (2017), 41.5x (2018).
  • PB: 3.8x (2015), 3.6x (2016), 3.4x (2018).

Conclusion

Industrial Securities Co., Ltd. highlights the mixed performance of Chinese stocks and the impact of the U.S. non-farm payroll report on global financial markets. It emphasizes the positive performance of infrastructure and construction sectors, the negative impact on coal and media stocks, and the continued growth of Sanquan Food and Digital China Group. The report also underscores the evolving dynamics in the Fed's rate hike expectations and the implications of the U.S. presidential election on market stability.