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Summary of Equity Research - Sept 3, 2018

Core Content

This equity research report provides an overview of market performance and analysis of two key sectors: Chemicals and Media, with a focus on how national standards and regulatory changes impact the industry landscape.

Market Performance Overview

The report highlights that most indices experienced negative performance over the year-to-date period, with SHCOMP and SZCOMP showing significant declines. The CCMP index, however, showed strong growth, indicating a more optimistic outlook for the Chinese market.

Chemicals Sector Analysis

Key Points

• National Standard VI for light vehicles was issued at the end of 2016, and National Standard VI for heavy-duty trucks was introduced on June 28, 2018, with stricter emission requirements.
• Gasoline vehicles will require Gasoline Particulate Filters (GPF), while diesel vehicles will need DOC+DPF+Zeolite SCR+ASC systems to meet the new standards.
• The implementation of these standards is expected to boost the domestic catalytic materials market.
• Honeycomb ceramics and molecular sieves are key materials for emissions control, with Corning (GLW US) and NGK currently dominating the market.
• Domestic companies have substantial room for import substitution, especially those with low market shares.
• The report estimates that the honeycomb ceramics market could grow by 120 million liters, and molecular sieves demand could increase by 6,000 tonnes.

Risks

• Environmental regulation implementation may fall short of expectations.
• Downstream auto market development may not meet expectations.

Media Sector Analysis

Key Points

• The market has been calm following the release of interim earnings, with few results deviating significantly from expectations.
• The media sector remains unclear in terms of future outlook, with asset and earnings quality becoming more important.
• Subsectors such as marketing, games, film and television are showing growth, but divergence in asset quality is observed.
• Traditional media names are in a down-cycle, while growth-oriented subsectors are performing better.
• Regulatory changes are a key factor affecting valuations and fundamentals.
• Tencent (700 HK) received a temporary green channel for game makers, which is expected to alleviate product shortages and improve policy supervision.
• The report recommends focusing on companies with strong interim earnings growth.

Risks

• Systemic risks for the media sector.
• Tougher regulations.
• Intensified market competition in film and television.
• Technological risks for game developers.

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%.

Disclaimer

This report is for informational purposes only and does not constitute an offer to buy or sell securities. It is intended for clients of GF Securities (Hong Kong) and may not be sold in certain jurisdictions. The information and opinions are subject to change without notice, and GF Securities (Hong Kong) accepts no liability for any loss arising from the use of this report. Investors are advised to seek professional advice before making investment decisions.