20160914-招商证券_香港_-Upstream_and_midstream_to_share_the_pain_of_gas_price_cut_14页_1mb_1mb

Morning Express Summary

Core Content Overview

The document provides a comprehensive analysis of the Chinese and global markets, focusing on the oil and gas sector, the property market, and the potential impact of the US presidential election on the economy and China. It also includes research highlights and market data from the A-share and H-share sectors.

Oil and Gas Sector Highlights

• Gas Price Cut Impact: A potential RMB0.4/cu.m reduction in gas prices is expected, with the cost savings split as follows:

  • Upstream gas producers: RMB13.7bn
  • Midstream pipeline operators: RMB6.6bn
  • Distributors: RMB3.3bn
  • Total savings for downstream users: up to RMB23.7bn

• Challenges in Negotiation: Gas price negotiations remain difficult due to the benchmark city-gate price premium of 37% compared to alternative energy prices and the supply monopoly by three major oil companies.

• Pipeline Return and Investment: The new transmission tariff pricing mechanism allows for a permitted return of 8%, which could benefit low-return pipeline projects in the long run. Sinopec Kantons (934 HK) is highlighted as the top pick in the sector due to its potential to benefit from the new pricing mechanism and its attractive valuation.

• Demand Trends: Natural gas demand growth slowed from 15.4% in Q1 2016 to 8.8% in 7M16, with July growth at only 2.3%. A further gas price cut is expected to boost demand in the downstream sector.

• Valuation and Earnings: Sinopec Kantons is trading at a 2016E P/E of 8.8x or P/B of 0.9x, with an ROE of 10.8%. This is considered attractive given its solid earnings outlook.

China Property Sector Highlights

• Sales Performance: Listed developers reported strong August sales growth of 68% YoY, significantly outperforming the national growth of 33% YoY. Contracted sales for the year are expected to grow at 31%, with a slight decline in the fourth quarter due to the high-base effect and reduced saleable resources.

• Home Price Trends: The E-house home price index rose 12% YoY in August, with a 1.4% MoM increase. Price growth is expected to moderate in the fourth quarter to around 14% annual growth.

• Mortgage Impact: Property sales are heavily dependent on the availability of mortgage loans. New long-term household loans reached RMB3tn in 7M16, up 91% YoY, suggesting continued support for the market.

• Valuation Discount: The property sector is trading at a 38% discount to its 1-year forward NAV, close to 1SD below the 7-year mean. The SH-HK Stock Connect and potential M&A activity could help narrow this discount.

• Preferred Plays: CR Land (1109 HK) is recommended as the preferred play following recent share price corrections.

US Presidential Election Impact

• Election Significance: The November 2016 US election is seen as one of the most important in recent memory. While Clinton is the favored candidate, a Trump win is increasingly possible and could bring significant changes and uncertainty.

• Policy Platform: Trump's policies span both left and right wings, including:

  • Right Wing: Tax cuts, deregulation, and immigration restrictions.
  • Left Wing: Trade tariffs, increased borrowing for infrastructure, and potential trade deals.

• Policy Impact: Although Congress may limit the most extreme aspects of Trump's agenda, his potential influence on policy could lead to major changes for the US and global markets.

• China Outlook: US policy towards China is expected to remain driven by interdependence, though Trump's unpredictable nature may raise concerns.

Market Data and Valuation

• Stock Market Indices:

  • Hang Seng Index: 23215, -74.84, -0.32%
  • Hang Seng Finance Index: 30743, -161.39, -0.52%
  • Hang Seng Utilities Index: 54305, -536.56, -0.98%
  • Hang Seng Property Index: 33784, -282.1, -0.83%
  • Hang Seng Industrial Index: 13834, +25.78, +0.19%
  • HSCEI: 9571, -83.02, -0.86%
  • CSI 300: 3260, -2.27, -0.07%
  • Shanghai Composite Index: 3023, +1.53, +0.05%
  • TWSE: 8940, -6.23, -0.07%

• Commodity Prices:

  • Brent Oil: $47.15, -1.17, -2.42%
  • COMEX Gold: $1322.1, -3.5, -0.26%
  • COMEX Copper: $210.3, +0.3, +0.14%
  • LME Aluminum: $1565.0, -3.0, -0.19%
  • LME Copper: $4662.5, +14.5, +0.31%
  • BDI: 796.0, -8.0, -1.0%

• Exchange Rates:

  • USD/RMB: 6.68, -0.0, -0.03%
  • USD/HKD: 7.76, +0.0, +0.01%
  • EUR/USD: 1.12, -0.0, -0.18%
  • 1Y RMB NDF: 6.86, +0.0, +0.04%
  • 3M Libor: 0.86, 0.0, 0.0%
  • 3M Shibor: 2.79, +0.0, +0.0%
  • 10Y US T-Note Yield: 1.68, +0.01, +0.6%

Research Coverage and Stock Ratings

Auto & Auto Parts

• Brilliance China (1114 HK): BUY, 12-month TP: HK$12.0, % Upside: 32%
• China ZhengTong Auto (1728 HK): BUY, 12-month TP: HK$3.5, % Upside: 37%
• Geely Automobile (175 HK): BUY, 12-month TP: HK$9.0, % Upside: 35%
• BAIC Motor (1958 HK): NEUTRAL, 12-month TP: HK$7.3, % Upside: -5%
• Great Wall Motor (2333 HK): BUY, 12-month TP: HK$10.0, % Upside: 28%
• Fuyao Glass (3606 HK): BUY, 12-month TP: HK$20.0, % Upside: 3%
• China Harmony Auto (3836 HK): BUY, 12-month TP: HK$6.2, % Upside: 53%

Property

• China Resources Land (1109 HK): BUY, 12-month TP: HK$24.8, % Upside: 14%
• Yuexiu Property (123 HK): BUY, 12-month TP: HK$1.36, % Upside: 12%
• Yuzhou Property (1628 HK): BUY, 12-month TP: HK$3.0, % Upside: 11%
• NEW WORLD DEV (17 HK): BUY, 12-month TP: HK$11.3, % Upside: 14%
• Country Garden (2007 HK): NEUTRAL, 12-month TP: HK$3.4, % Upside: -18%
• Agile Property (3383 HK): BUY, 12-month TP: HK$4.88, % Upside: 29%
• Greentown China (3900 HK): BUY, 12-month TP: HK$7.9, % Upside: 21%
• China Overseas Land (688 HK): NEUTRAL, 12-month TP: HK$27.0, % Upside: 4%
• Ch Ovs G Oceans (81 HK): BUY, 12-month TP: HK$3.3, % Upside: 38%
• Shimao Property (813 HK): BUY, 12-month TP: HK$14.0, % Upside: 30%
• CIFI Holdings (884 HK): BUY, 12-month TP: HK$2.9, % Upside: 12%

Technology, Media & Telecom

• China Telecom (728 HK): NEUTRAL, 12-month TP: HK$4.13, % Upside: -9%
• China Unicom (762 HK): BUY, 12-month TP: HK$11.86, % Upside: 32%
• China Mobile (941 HK): BUY, 12-month TP: HK$112.0, % Upside: 17%
• PAX Global (327 HK): BUY, 12-month TP: HK$8.24, % Upside: 42%

Consumer Staple

• Biostime (1112 HK): BUY, 12-month TP: HK$23.5, % Upside: 13%
• Jiashili Group (1285 HK): BUY, 12-month TP: HK$4.1, % Upside: 17%
• China Mengniu Dairy (2319 HK): BUY, 12-month TP: HK$16.0, % Upside: 7%
• JD (JD US): BUY, 12-month TP: US$33.0, % Upside: 24%

Alternative Energy

• GCL-Poly Energy (3800 HK): BUY, 12-month TP: HK$1.59, % Upside: 39%
• China Longyuan Power (916 HK): BUY, 12-month TP: HK$7.8, % Upside: 14%
• Huaneng Renewables (958 HK): BUY, 12-month TP: HK$3.2, % Upside: 8%
• Xinyi Solar (968 HK): BUY, 12-month TP: HK$4.3, % Upside: 31%

Machinery & Equipment

• Zoomlion Heavy (1157 HK): BUY, 12-month TP: HK$3.14, % Upside: 10%
• CRSC (3969 HK): BUY, 12-month TP: HK$7.58, % Upside: 34%
• CEEC (3996 HK): BUY, 12-month TP: HK$1.42, % Upside: 19%
• Sany Heavy (631 HK): SELL, 12-month TP: HK$1.44, % Upside: 25%

Key Takeaways

• The gas price cut is expected to have a significant impact on the downstream sector, with cost savings of up to RMB23.7bn.
• The property market shows strong sales growth, with CR Land (1109 HK) as a preferred play.
• The US election outcome could bring major changes and uncertainty, with Sinopec Kantons (934 HK) as a top pick in the oil and gas sector.
• Market liquidity improved, with a slight rebound in capital inflows.
• Valuation discounts in the property sector may narrow due to SH-HK Stock Connect and potential M&A activity.