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Morning Express Summary

Core Content

The Morning Express report provides an analysis of the Hong Kong stock market and highlights key developments in the Alternative Energy sector. It outlines the National Energy Association's announcement regarding the Renewable Portfolio Standard (RPS), the market sentiment and investment strategy, and includes a list of research coverage for various sectors with their respective ratings, target prices, and financial metrics.

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Alternative Energy Sector

Core Information

• The National Energy Association (NEA) has announced guiding opinions on the Renewable Portfolio Standard (RPS).
• The RPS policy requires each province/city to use a certain percentage of renewable energy (including wind, solar, and biomass) in their total energy consumption.
• The rationale for the RPS is to help the government achieve its target of increasing the proportion of non-fossil fuel energy in the national energy mix to 15% by 2020 and 20% by 2030.

Main Viewpoints

• The RPS aims to protect the utilization of renewable energy, especially in the liberalized electricity market where coal and hydro have cost advantages over renewables.
• To meet the RPS targets, provinces in the east and north will need to purchase renewable energy from the west and north, where there is an over-supply of renewable energy.
• Wind power is expected to benefit more than solar power in regions with severe curtailment issues, due to its cost advantage and the liberalization of the electricity market.
• The positive impact of the RPS on the renewables sector is limited by the difficulty in enforcement due to various interest groups and the potential deterioration of the curtailment problem if electricity demand declines due to economic conditions.

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Hong Kong Market Strategy

Market Overview

• The Hang Seng Index (HSI) has been consolidating for over two weeks, with a range of 600 points around 18,800.
• The market bottom has strengthened as global risks and negative factors have been priced in.

Positive Outlook

• The rebound is expected to occur in March, driven by a series of events:
  1. Policies announced at the NPC and CPPCC on March 3.
  2. Foreign reserves data released on March 7.
  3. ECB rate cut and QE announcement on March 10.
  4. BoJ potential QQE measures on March 14-15.
  5. FOMC postponing rate hike on March 15-16.
  6. Annual results of most companies by the end of March.
• Smart money is buying on dips, with capital inflows through Southbound Trading Link and QDII, and foreign firms like JP Morgan increasing their positions.

Investment Advice

• The report recommends accumulating high-beta and oversold leading cyclicals with key allocations to:
  • Non-bank financial
  • Property
  • Cement
  • Energy
  • Non-ferrous
  • Gaming
  • Marine transportation
• Heavy positions can be added once USD, JPY, RMB, and oil stabilize, and all annual results are released by the end of March.

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Research Coverage List

Key Sectors and Companies

Auto & Auto Parts

• Brilliance China (1114 HK): BUY, Target Price: HK$8.2, % Upside: 23
• China ZhengTong Auto (1728 HK): BUY, Target Price: HK$3.5, % Upside: 23
• Geely Automobile (175 HK): BUY, Target Price: HK$4.6, % Upside: 50
• China Harmony Auto (3836 HK): BUY, Target Price: HK$6.91, % Upside: 67
• Great Wall Motor (2333 HK): BUY, Target Price: HK$12.5, % Upside: 112
• Fuyao Glass (3606 HK): BUY, Target Price: HK$20.0, % Upside: 20
• Zhongsheng Group (881 HK): NEUTRAL, Target Price: HK$4.75, % Upside: 23

Oil and Gas

• CNOOC (883 HK): BUY, Target Price: HK$10.8, % Upside: 23
• China Oilfield Services (2883 HK): NEUTRAL, Target Price: HK$8.7, % Upside: 37
• Sinopec Oilfield Service (1033 HK): NEUTRAL, Target Price: HK$2.7, % Upside: 53

Property

• China Resources Land (1109 HK): BUY, Target Price: HK$23.8, % Upside: 19
• Yuzhou Property (1628 HK): BUY, Target Price: HK$2.4, % Upside: 31
• Greentown China (3900 HK): BUY, Target Price: HK$7.3, % Upside: 4
• China Merchants Land (978 HK): BUY, Target Price: HK$1.5, % Upside: 26

Technology, Media & Telecom

• China Unicom (762 HK): BUY, Target Price: HK$12.21, % Upside: 35
• China Mobile (941 HK): BUY, Target Price: HK$117.5, % Upside: 38
• Wisdom (1661 HK): BUY, Target Price: HK$7.0, % Upside: 102
• Kingsoft (3888 HK): BUY, Target Price: HK$27.42, % Upside: 75
• JD (JD US): BUY, Target Price: US$47.3, % Upside: 85

Alternative Energy

• GCL-Poly Energy (3800 HK): BUY, Target Price: HK$1.94, % Upside: 66
• China Longyuan Power (916 HK): BUY, Target Price: HK$6.9, % Upside: 54
• Huaneng Renewables (958 HK): BUY, Target Price: HK$2.5, % Upside: 32
• Xinyi Solar (968 HK): BUY, Target Price: HK$4.3, % Upside: 85

Port & Shipping

• Orient Overseas (316 HK): BUY, Target Price: HK$55.5, % Upside: 89
• SITC (1308 HK): BUY, Target Price: HK$4.85, % Upside: 39

Machinery & Equipment

• Zoomlion Heavy (1157 HK): BUY, Target Price: HK$3.16, % Upside: 25
• CRSC (3969 HK): BUY, Target Price: HK$7.87, % Upside: 88
• Sany Heavy (631 HK): SELL, Target Price: HK$1.36, % Upside: -18

Pharmaceutical & Healthcare

• 3SBio (1530 HK): BUY, Target Price: HK$12.0, % Upside: 27
• TRAD CHI MED (570 HK): BUY, Target Price: HK$7.6, % Upside: 76

Banking & Insurance

• ABC (1288 HK): BUY, Target Price: HK$4.76, % Upside: 76
• ICBC (1398 HK): BUY, Target Price: HK$7.51, % Upside: 86
• AIA (1299 HK): BUY, Target Price: HK$60.91, % Upside: 44
• NCI (1336 HK): BUY, Target Price: HK$49.88, % Upside: 107
• China Reinsurance (1508 HK): BUY, Target Price: HK$2.66, % Upside: 36
• Ping An insurance group (2318 HK): BUY, Target Price: HK$63.47, % Upside: 83
• CPIC (2601 HK): BUY, Target Price: HK$49.2, % Upside: 86
• China Life (2628 HK): NEUTRAL, Target Price: HK$32.57, % Upside: 87
• China Taiping (966 HK): BUY, Target Price: HK$31.93, % Upside: 103

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What to Watch

Economic Data

• Non-Farm Payrolls (US): Forecast 195k, Prior 151k (Date: 2016/03/04)
• Private Payrolls (US): Forecast 185k, Prior 158k
• Unemployment Rate (US): Forecast 4.90%, Prior 4.90%
• Average Earnings MM (US): Forecast 0.20%, Prior 0.50%
• International Trade MM $ (US): Forecast -43.1bn, Prior -43.4bn

Company Events

• China Chengtong Development Group Ltd. (0217 HK): FIN RES/DIV (Y.E.31/12/15)
• Shenwan Hongyuan (H.K.) Limited (0218 HK): FIN RES/DIV (Y.E.31/12/15)
• Orient Overseas (International) Ltd. (0316 HK): FIN RES/DIV (Y.E.31/12/15)
• Zhengzhou Coal Mining Machinery Group Company Limited - H Shares (0564 HK): FIN RES/DIV (Y.E.31/12/15)
• Long Ji Tai He Holding Limited (1281 HK): FIN RES/DIV (Y.E.31/12/15)
• Medicskin Holdings Limited (8307 HK): SPECIAL DIVIDEND (Months Ended / )

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Summary

The Morning Express report highlights the positive outlook for the Hong Kong market, with a rebound expected in March due to improved sentiment, stabilization of key variables, and positive company events. The Alternative Energy sector is also in focus, with the RPS policy aiming to increase the use of renewable energy and alleviate curtailment issues, though implementation challenges and economic uncertainty remain concerns. The investment strategy suggests accumulating high-beta and oversold stocks, especially in non-bank financial, property, and energy sectors. The research coverage includes ratings, target prices, and financial metrics for various sectors and companies, providing a detailed view of the market potential and investment opportunities.