20181204-广发证券_香港_-Dim_Sum_Express_4页_632kb

Dim Sum Express Summary

Core Content Overview

The Dim Sum Express is a report from GF Securities' A/H-share analysts, offering insights into market performance, investment strategies, and sector outlooks for 2019. The report includes data on market indices, ADRs (American Depositary Receipts), and specific investment recommendations across various sectors and companies.

Market Performance

The report highlights the performance of key global and regional indices:

A/H-Share Analyst Views

Fed Rate Hikes Outlook

• The Fed is expected to raise rates once in 2019 and twice in 2019, with a likely target of 2.75–3%.
• The Taylor rule suggests an optimal rate of 3.35–3.5% for the US in 2019.
• Some Fed officials have turned dovish, indicating potential for fewer rate hikes than previously expected.
• The current economic recovery cycle in the US is expected to be the longest since 1991–2001, but uncertainties like trade disputes, oil price surges, and global manufacturing transitions could disrupt this trend.

Implications for Emerging Markets (EMs)

• The end of US rate hikes in 2019 may lead to a narrowing of the US-Europe treasury spread, weakening the USD, and benefiting EM stock markets.
• It could also ease pressure on the RMB and create a favorable environment for China's structural reforms.

Investment Strategy for A-Shares in 2019

• The A-share market bottoming out is expected to be influenced by policy support and slowing earnings growth.
• The market valuation has generally bottomed, but credit expansion is needed to form an "earnings bottom" expectation.
• Non-financial A-share revenue is expected to decline by 8.4% YoY, and ROE to fall to ~7%.
• The main board earnings bottom is expected to appear by 3Q19.
• Interest rates are expected to edge lower in 2019, with limited upside for ERP (Equity Risk Premium).
• Recommended sectors include: thermal power, household paper, water power, animal farming, games, cloud computing, defense, construction, electric equipment, infrastructure, 5G, computers.
• Suggested investment themes: traditional infrastructure (Xinjiang), regional strategy (Yangtze River Delta/ Shanghai Free Trade Zone), and technological cycle turning point (5G, cloud computing).

Sector Outlooks

Beauty Sector

• Macro uncertainties are dampening consumer sentiment, particularly in HK and Macau.
• The Sino-US trade tension has reduced per-customer consumption, though visitor numbers are increasing.
• The mainland China market is nearing saturation in first and second-tier cities, but lower-tier cities offer growth opportunities.
• SSSG (Same Store Sales Growth) may face downward pressure in 1H19, but market expansion will be key for long-term success.

Securities Sector

• Sector valuation was under pressure in 2018 due to asset-heavy business models, but asset-light models are being adopted.
• A relaxing monetary policy and improving policy environment are expected to support sector revaluation.
• 2019 earnings forecast is 23% growth under a base case.
• Investment should focus on brokers with strong capabilities in derivatives, investment banking, and wealth management.

Banking Sector

• CBIRC has issued final rules for wealth management subsidiaries, emphasizing fiduciary relationships to break the implicit guarantee.
• 19 mid to large-scale banks have announced the establishment of bank WM subsidiaries.
• Short-term investment in the capital market is expected to be limited, but long-term investment will increase as these subsidiaries mature.

Steel Sector

• Property demand for steel is expected to decline by 0.2% YoY due to slowing new house starts and land acquisition.
• Infrastructure demand is expected to decline by 0.1% YoY, but counter-cyclical policies may support a bottoming out.
• Manufacturing demand remains stable.
• Crude steel demand for 2019 is estimated at 755m tonnes, a 0.7% decrease YoY.

Food & Beverage Sector

• Food sector is expected to underperform during the downturn, but baijiu sector may outperform during the upcycle.
• Food leaders show resilience against cyclicality.
• Baijiu leaders have net profit growth in line with GDP and PPI growth, but the sector has seen a slowing growth rate.
• Recommended stocks in the food sector: Haitian Flavouring And Food (603288 CH), JonjeE HI-TECH (600872 CH), Fuling Zhacai (002507 CH), Yili (600887 CH), Toly Bread (603866 CH), Jue Wei Food (603517 CH), BY-HEALTH (300146 CH).
• Recommended stocks in the baijiu sector: Kweichow Moutai (600519 CH), Yanghe Brewery (002304 CH).

Electric Equipment Sector

• The NDRC and NEA have set clean energy consumption targets to reduce curtailment rates.
• Wind sector: curtailment rates to be reduced to 12% in 2018, 10% in 2019, and 5% in 2020.
• Solar sector: curtailment rates to be reduced to 5% in 2018, 5% in 2019, and 5% in 2020.
• Recommended stocks in the wind sector: Titan Wind Energy (002531 CH).
• Recommended stocks in the PV sector: Tongwei (600438 CH), Longi (601012 CH), Sungrow (300274 CH), and Hangzhou First Applied Material (603806 CH).

Company Ratings

Key Investment Recommendations

• Chow Tai Seng (002867 CH): Initiated at Buy.

  • Registered ~Rmb30bn in terminal sales and ~Rmb5.5bn in stone setting revenue in 2017.
  • Operates 3,190 stores, mainly in third and fourth-tier cities.
  • Asset-light model and flat franchising system support rapid store expansion.
  • Young store age (50% aged below 3 years) drives rapid SSSG.
  • Estimated 2018/19/20 EPS of Rmb1.70/2.16/2.68.
  • Stock trades at P/E of 17.4/13.7x.

• BY-HEALTH (300146 CH): Initiated at Buy.

  • Dietary supplement revenue in China is expected to grow at >10% CAGR over the next three years.
  • E-commerce contributes 18% of revenue, and a branding strategy may drive e-commerce revenue growth of >20% CAGR.
  • Sustained growth is due to focus on popular products.
  • Estimated 2018/19/20 EPS of Rmb0.68/0.91/1.16, corresponding to P/E of 30/23/18x.

Disclaimer and Legal Information

• This report is for informational purposes only and does not constitute an offer to buy or sell securities.
• It is intended for GF Securities (Hong Kong) clients only.
• The report may not be allowed to be sold in certain jurisdictions.
• No liability is accepted for losses arising from the use of the report unless excluded by law.
• The points of view and recommendations are based on the analyst's current views as of the date of the report and may change without notice.
• Disclosure of interests is provided, stating that no direct or indirect financial interest exists in the mentioned securities.