20171106-广发证券_香港_-Dim_Sum_Express_6页_531kb

Dim Sum Express Summary

Core Content Overview

This document provides an analysis of various sectors and companies in the Hong Kong and Chinese markets, including market performance, sector outlook, company-specific updates, and investment recommendations.

Market Performance

The markets showed varying performance across different time frames, with most experiencing positive YTD growth. The HSI and HSCEI indices had strong YTD gains, while SHCOMP and SZCOMP showed more modest or negative performance.

Sector Outlooks

F&B Sector (2018)

• Macro Outlook: Consumer confidence remains strong, driven by rising home prices and the recovery of luxury consumption. Mobile payments and consumer loans have also stimulated demand.
• Key Trends: The consumption upgrade trend is significant, putting pressure on traditional F&B companies with outdated brands. The sector is shifting towards more specialized and high-quality offerings.
• Investment Strategy: Focus on sub-sector leaders and large companies that adapt quickly to market changes. Recommended companies include Zhou Hei Ya (1458 HK), Yihai International (1579 HK), H&H (1112 HK), Dali Foods (3799 HK), and Mengniu Dairy (2319 HK).
• Key Risks: Economic slowdown, intensified competition, and weaker-than-expected same-store revenue growth in some companies.

China Securities Sector

• Promising Outlook: HK-based Chinese securities companies are well-positioned to become top-tier investment banks in Asia due to the HKEx's "connect" strategy and the shift of HNW clients overseas.
• Business Diversification: Companies have expanded into FICC, equity derivatives, and investment, reducing reliance on traditional brokerage.
• Leaders: Haitong International (665 HK) and Guotai Junan International (1788 HK) are highlighted as current leaders. Guotai Junan International is the top pick due to its focus on wealth management and financial products.
• Earnings Forecast: Guotai Junan International is expected to maintain ROE of 14-15% in 2018, with a target price of HK$3.40, representing 2.2x 2018E P/B.

Rail Sector

• EMU Procurement: CRC announced a tender for 75 China Standard EMUs (CSEMU), with an estimated total tender amount of Rmb12.8bn. This is the third tender of the year, with a total of 229 EMUs procured YTD.
• Positive Impact: The procurement is expected to be a positive surprise for the market and benefit CRRC (1766 HK) and CRRC TE (3898 HK).
• Future Outlook: Expectations of stronger 4Q17 results due to increased demand for EMUs.

Construction Machinery

• Strong Performance: The sector showed robust growth in 3Q17, with revenue for nine major Chinese companies and top-ten global companies rising by 69% and 30% YoY respectively.
• Profitability: GPM for Chinese companies improved from 16.8% to 22.3%, while global companies saw an increase from 25.0% to 28.2%.
• Cash Flow: Operating cash flow for Chinese companies was Rmb525m in 3Q17, up from Rmb42m in 3Q16.
• Investment Strategy: Attention is shifting to Oct excavator sales, with expectations of around 8,000 units. Lonking (3339 HK) is the top pick with a target price of HK$4.30 based on 15x 2018E P/E.

Sunny Optical (2382 HK)

• Industry Leadership: Sunny Optical is a global leader in optical and optoelectronic products, with strong market shares in handset camera modules, lens sets, and vehicle lens sets.
• Growth Drivers: Dual camera penetration and growth in the vehicle lens sets market are key growth areas.
• Earnings Forecast: Estimated 2017-2019 EPS of Rmb2.35, 3.32, and 4.56 respectively.
• Key Risks: Downstream smartphone sales, lower dual camera penetration, and potential product price cuts.

Yuhua Education (6169 HK)

• Share Placement: The company announced a top-up share placement at a 10.4% discount to the previous closing price, raising HK$926m for potential acquisitions.
• Strategic Move: The placement timing gives Yuhua an advantage over peers in acquiring educational institutions.
• Market Response: The placement was 4.3 times oversubscribed, indicating strong institutional interest.
• Key Risks: Competition from other education sector players and potential funding shortfalls.

Investment Strategy Summary

• Buy: Companies expected to outperform the benchmark by more than 15%.
• Accumulate: Companies expected to outperform the benchmark by more than 5% but not more than 15%.
• Hold: Companies expected to have a relative performance between -5% and 5%.
• Underperform: Companies expected to underperform the benchmark by more than 5%.

Key Companies Mentioned

• Guotai Junan International (1788 HK): Top pick in the China Securities Sector, with a target price of HK$3.40.
• Lonking (3339 HK): Top pick in the Construction Machinery sector, with a target price of HK$4.30.
• Sunny Optical (2382 HK): Strong growth in optical and optoelectronic products.
• Yuhua Education (6169 HK): Strategic funding through share placement for acquisitions.

Analyst Information

• Felix Luo: Research Analyst, SFC CE No. AQF573.
• Dominic Chan: Research Analyst, SFC CE No. APP609.
• Albert Yip: CFA, Research Analyst, SFC CE No. ADT599.

Disclaimer

This document is for informational purposes only and does not constitute an offer to buy or sell securities. The information is subject to change and should not be relied upon for investment decisions without professional advice. GF Securities (Hong Kong) accepts no liability for any loss arising from the use of the materials presented.