20151020-兴业证券-A-Share_Daily_Express_12页_738kb

Summary of Industrial Securities Co., Ltd. Report

Core Content

This report provides an overview of the Chinese stock and bond markets, highlighting key performance metrics, sectoral movements, and notable company news. It also includes analysis and investment recommendations from analysts and insights into new partnerships and market trends.

Market Indices

• SSE Composite Index: Closed at 3425.33, up 1.14%.
• SZSE Component Index: Closed at 11597.08, up 1.81%.
• ChiNext Index: Closed at 2511.16, up 3.19%.
• HSI (Hang Seng Index): Closed at 22989.22, down 0.37%.
• HSCEI (Hang Seng China Enterprises Index): Closed at 10649.45, down 0.37%.
• Aggregate Market Volume: CNY 905 billion, down 9.2% compared to previous levels.

Market Review

• China stocks showed upward momentum after a volatile day, with the Shanghai Composite Index recovering to the 3400 level.
• State-owned construction and industrial enterprises saw significant gains, driven by anticipation of new projects and speculation linked to President Xi's visit to the UK.
• Mid and small-cap stocks, as well as ChiNext, contributed positively to market sentiment.
• The overall market was up, with advancing issues outnumbering declining ones by a ratio of around 5.4-to-1.

Sector Review

• State-Owned Enterprises (SOEs): Strong performance, with companies like China Communications Construction Company Limited (601800) and Power Construction Corporation of China Ltd (601669) seeing gains of over 8%.
• High-End Manufacturers: Companies such as China Spacesat Co., Ltd. (600118) and CRRC Corporation Limited (601766) gained 4.69% and 4.62%, respectively.
• Internet and Software Makers: Leshi Internet Information & Technology Corp. (300104) and Hundsun Technologies Inc. (600570) surged 9.07% and 9.98%, respectively.
• Merchant and Telecommunication Sectors: Outperformed the market.
• Downside Sectors: Car makers and water utilities experienced profit-taking and lagged behind.

Daily Headlines

• The U.S. Treasury no longer considers China's currency as "significantly undervalued."
• China's GDP growth in the first nine months was in line with expectations, according to Xinhua News Agency.
• Positive economic signs are emerging, with momentum in the economy.
• China may slow power growth to 1% in 2015 and is initiating electricity reforms in two provinces.
• Sinosteel delayed bond interest payment due to potential redemption issues.
• China is expected to continue adding wind turbines at record levels in 2016.
• Insurers may be allowed to invest in securities investment funds with a history of at least one year.
• China will take a 33.5% stake in the Hinkley Point nuclear project.

Latest Company News

• China Construction Bank (601939.SH): Plans to participate in LBMA silver price and has obtained a license for a branch in Switzerland.
• China Rail Construction (601186.SH): Won 4.8 billion yuan in rail projects.
• China Shenhua (601088.SH): Commercial coal sales dropped 17.4% year-on-year in September.
• Great Wall Motor (601633.SH): Short bets surged ahead of earnings.
• Merchants Energy (601872.SH): Unit signed a pact to sell two ships for $133 million.
• Ping An (601318.SH): Agents recommended products with payment issues.
• Pudong Dev. Bank (600000.SH): CSRC will review share sale plan on October 23.
• Sichuan Changhong (600839.SH): Recorded a net loss of 304.3 million yuan in the third quarter.
• Yanzhou Coal (600188.SH): Coal sales declined 34.7% year-on-year in the third quarter.

Interest Rates and Bond Market

• Interest Rates: Expected to remain at low levels.
• Bond Market Investment Strategy:
  1. The central government is actively boosting economic growth, with improved September credit data.
  2. Weaker GDP and forex purchase data may prompt the PBOC to relax monetary policy.
  3. The bond market bull run is expected to continue, with investors encouraged to focus on 5-year and below-5-year bonds.
• Market Liquidity: Money rates slightly fluctuated, with the PBOC becoming more conservative in open market operations.
• Yield Curve: Flattened downward, with government futures falling after hitting the peak.
• Bond Yields: Substantial drops in the first half of the week, with some rebounds in the latter half.
• Credit Bonds: Limited supply and high volatility in the secondary market.
• Government Bond Futures: Prices fluctuated, with a sharp increase in transaction volume.

Industry Insight

• JD and Tencent Partnership: Expanded collaboration to offer innovative mobile marketing solutions.
• Commentary: The partnership enhances Tencent's advertising network, providing a competitive edge in the online retail price war.
• Integration: Includes e-commerce advertisements, industry chain development, and advertising agency collaboration.
• Investment Strategy: Benefits e-commerce advertising agencies and mobile marketing companies.
• Key Companies: Keda Group, Leo Group, MIG Technology, and Guangdong Sky Dragon Printing Ink Group are expected to benefit.

Wisesoft (002253: SZ)

• Outperform Rating Initiated: Based on strong growth potential and advanced technologies.
• Key Financial Indicators:
  • Revenue: Expected to grow significantly from 2014 to 2017.
  • Net Profit: Expected to increase from CNY 11 million in 2014 to CNY 73 million in 2017.
  • Gross Margin and Net Profit Margin: Improved significantly over the years.
  • ROE: Increased from 1.4% in 2014 to 7.4% in 2017.
• Earnings Forecast: EPS forecasted at 0.28, 0.40, and 0.52 for 2015 to 2017.
• Investment Highlights:
  • Wisesoft has developed advanced facial recognition systems, including 3D cameras, in collaboration with Intel.
  • These systems are used in ATMs to collect 3D facial data.
  • The company is working on new video monitoring devices using this technology.
  • Private placement of CNY 176 million is funding these initiatives.
• Potential Risks: R&D risk and slower-than-expected new orders.

Peer Review

• Wisesoft (002253.SZ):
  • Market Cap: USD 4.95 billion.
  • PE (15E): 91.13.
  • PE (16E): 66.60.
  • PB: 6.03.
  • EV/EBITDA: 158.25.
• Iflytek (002230.SZ):
  • Market Cap: USD 46.65 billion.
  • PE (15E): 84.67.
  • PE (16E): 58.27.
  • PB: 12.09.
  • EV/EBITDA: 108.14.

Analysts

• TANG Yue, Ph.D.
• HUANG Weiping
• WANG Han, Ph.D.
• LU Yanjin
• JIA Xiaojun
• WANG Yijun, Ph.D.
• ZUO Dayong, Ph.D.
• LI Huiquan
• CHI Guangsheng

Translators

• PAN Mengchen
• LI Xing

Investment Highlights

• Wisesoft: Strong growth potential due to leading technologies and strategic partnerships.
• Key Areas: VR simulators, facial recognition systems, and advanced software solutions.
• R&D Team: Largest R&D team in the industry, focusing on real-time air traffic control systems.
• Market Demand: Increasing demand for advanced technologies in various sectors.
• Earnings Forecast: Strong growth expected in the coming years.

Balance Sheet

• Current Assets: Increased from 405 to 881 million CNY.
• Monetary Capital: Increased from 120 to 278 million CNY.
• Account Receivables: Increased from 94 to 237 million CNY.
• Inventory: Increased from 113 to 233 million CNY.
• Non-current Assets: Decreased from 617 to 501 million CNY.
• Current Liabilities: Increased from 151 to 321 million CNY.
• Total Liabilities and Equity: Increased from 1023 to 1381 million CNY.

Cash Flow Statement

• Net Profit: Increased from 11 to 73 million CNY.
• Depreciation and Amortization: Slight changes, generally stable.
• Operating Activities: Cash flows fluctuated, with a negative value in 2015.
• Investment Activities: Negative cash flows in 2014, with some positive changes in later years.
• Financing Activities: Negative in 2014, with positive inflows in later years.
• Net Change in Cash: Negative in 2014, with positive changes in subsequent years.