20180611-广发证券_香港_-Weekly_HK_Market_and_Sector_Views_6页_415kb

Weekly HK Market and Sector Views Summary

Core Content Overview

This report provides a comprehensive analysis of the Hong Kong and broader emerging markets, focusing on macroeconomic trends, investment outlook, sector performance, and key stock recommendations. It highlights the impact of global monetary policy, particularly the Federal Reserve's interest rate hikes, on local financial and equity markets. Additionally, it outlines specific opportunities and risks across various sectors, including consumer, auto, utilities, and TMT (Technology, Media, and Telecommunications).

Main Points and Key Information

1. Macro Trends

• Emerging markets are divided, with some countries like India raising interest rates due to improved fundamentals rather than currency depreciation.
• The Reserve Bank of India (RBI) raised rates by 25bps on June 6, driven by core inflation pressure and growth outlook.
• The likelihood of another rate hike in India this year is considered low due to its relatively strong financial position.
• Other emerging markets such as Argentina and Turkey have raised rates due to currency depreciation.
• The HKD HIBOR has risen sharply, reaching new highs since 2008, with one-month and three-month rates surpassing 1.45% and 1.96%, respectively.
• The Fed's June rate hike and the Xiaomi IPO in July are expected to further push up HIBOR in the short term.

2. Investment Outlook

• The Hong Kong stock market rebounded last week, with the HSI and HSCEI indices rising by 1.53% and 1.21%, respectively.
• Cyclical, financial, and tech sectors led the market recovery.
• The US dollar rebounded, which had a positive impact on some emerging markets and Hong Kong stocks.
• There is concern about the continued strength of the US dollar and potential Fed rate hikes, which may suppress risk appetite.
• China's May macro data is expected to be positive, but weak social financing growth may limit stock market rebounds.
• Emerging market stocks are likely to face pressure from the Fed's rate hike, along with domestic credit constraints.
• Recommended sectors include Chinese banks, industrial products (heavy trucks), and raw materials (steel), as well as consumer goods with stable demand.

3. Consumer Sector

• F&B: Yihai Intl is expected to benefit from accelerated Haidilao store openings. Mengniu Dairy is anticipated to see improved revenue and net profit growth.
• Gaming: The recall of some POS machines in casinos has impacted gamblers' liquidity, but the negative impact has been reflected in share prices. Macau's gaming sector is expected to continue growing due to mainland tourist arrivals.
• Consumer Discretionary: Maple Leaf reported strong net profit growth, while Wisdom Education's performance was in line with expectations but with lower GPM and OPM. Xstep is expected to turn around its FY18 performance.
• Overall Outlook: Net profit growth for consumer stocks in China and HK & Macau is expected to slow to 7% in FY20, with current valuations considered fully priced.

4. Auto Sector

• Auto sales are expected to benefit from domestic economic growth and the ongoing consumption upgrade.
• Geely Auto and Brilliance China are highlighted as top picks due to strong sales performance and new product launches.
• Tariff cuts for luxury vehicles and auto parts are expected to reduce costs and improve margins.
• The supply-demand mechanism remains key in determining retail prices, with benefits likely shared between OEMs and dealers.
• Recommended auto dealers include Yongda Auto and Zhongsheng Holding, which are expected to benefit from tariff cuts and strong luxury brand sales.

5. Utilities Sector

• Wind Power: 1Q18 power generation exceeded expectations, driven by economic recovery and improved utilization. However, subsidy delays are a concern.
• Natural Gas: Merging residential and non-residential gas prices is expected to have minimal impact on distributors' profits.
• Environmental: Demand for hazardous waste treatment is growing, with cement kiln processing showing promising potential.
• Solar: New policies are expected to negatively impact the solar industry.

6. TMT Sector

• Hardware: March supply chain shipments have recovered, but market sentiment has been affected by trade tensions. Sunny Optical is recommended due to its potential for growth.
• Internet: User time spent online is becoming a key competitive factor. WeChat mini-programs and short videos are gaining traction.
• Games: Domestic game approval channels are temporarily closed, slowing the release of new games.
• Advertising & Video: Growth is driven by subscriptions and advertising, with content differentiation becoming a key strategy.
• Digital Reading: User pay rates are still low, but there is growth potential in IP management.
• Live Streaming: Market landscape is becoming clearer, with platforms securing their positions.

Investment Strategy

• Short-term Outlook: HIBOR is expected to rise further due to the Fed's June rate hike and the Xiaomi IPO in July.
• Sector Allocation: Focus on cyclical and consumer sectors, particularly those aligned with China's economic recovery and domestic demand growth.
• Key Recommendations:
  • Consumer: Yihai Intl (1579 HK), Mengniu Dairy (2319 HK), Maple Leaf (1317 HK), Wisdom Education (6068 HK), Xstep (1368 HK)
  • Auto: Geely Auto (175 HK), Brilliance China (1114 HK), Yongda Auto, Zhongsheng Holding
  • TMT: Sunny Optical (2382 HK)
  • Financials: Insurers, banks, and brokers are considered undervalued with potential for medium-to-long-term returns.

Rating Definitions

• Company Ratings:

  • Buy: Expected to outperform the Hang Seng Index by more than 15%
  • Accumulate: Expected to outperform by more than 5% but not more than 15%
  • Hold: Relative performance between -5% and 5%
  • Underperform: Expected to underperform by more than 5%

• Sector Ratings:

  • Positive: Expected to outperform the Hang Seng Index by more than 10%
  • Neutral: Expected relative performance between -10% and 10%
  • Cautious: Expected to underperform by more than 10%

Analyst Certification and Disclosure

• Analysts certify that the views expressed reflect their personal opinions.
• No direct or indirect remuneration is linked to specific recommendations.
• GF Securities (Hong Kong) does not hold shares in the mentioned securities.
• No investment banking relationships with the companies discussed in the past 12 months.
• Analysts and associates are not officers of the companies mentioned and have no financial interests in them.

Disclaimer

• This report is for informational purposes only and does not constitute an offer to buy or sell securities.
• The information may be subject to change without notice.
• The report is not a substitute for professional advice.
• GF Securities (Hong Kong) may issue other reports with different conclusions.