30 th Sep, 2015 Securities ｜ Futures ｜ Bullion ｜ Corporate Finance Wholly owned subsidiary of Guoco Group Limited (HKEx Stock Code: 53) A Member of the Hong Leong Group Remarks: GuocoCapital Ltd is licensed by the Securities and Futures Commission to carry on Types 1, 4, and 6 regulated activities in Hong Kong. GuocoCapital Futures Ltd is licensed by the Securities and Futures Commission to carry on Type 2 regulated activity in Hong Kong. Bullion trading services provides by GuocoCapital Bullion Ltd. Hang Seng Index Performance Index Performance Source: Bloomberg Abs chg % Change Hong Kong Close 1-Day 1-Day 1-Mth 3-Mth Hang Seng Index 20,556.60 -629.72 -2.97 -5.14 -21.69 HSCI 2,828.95 -83.73 -2.87 -4.12 -22.08 HSCCI (Red Chips) 3,793.17 -127.23 -3.25 -6.17 -22.22 HSCEI (H-Shares) 9,230.50 -281.76 -2.96 -5.24 -28.89 Mkt T/O ($ Mn) 84,032.66 14,976.88 21.69 -25.55 -54.85 Oversea DJIA 16,049.13 47.24 0.30 -2.90 -8.91 NASDAQ 4,517.32 -26.65 -0.59 -5.43 -9.42 Shanghai SE Composite 3,038.14 -62.62 -2.02 -5.24 -28.97 Crude Oil Futures (US$) 44.76 -0.47 -1.04 -9.02 -24.74 Gold Futures (US$) 1,127.10 -4.60 -0.41 -0.56 -4.40 Baltic Dry Index 926.00 -17.00 -1.80 2.55 13.90 USD / Euro 1.1258 -0.0003 -0.03 0.66 0.94 Yen / USD 119.890 0.1436 0.12 -1.50 -2.13 HSCEI HSI 20-Day MA 9,628.55 21,406.35 50-Day MA 10,396.27 22,870.10 9-Day RSI 30.17 29.51 Market Outlook Eric Yuen – [email protected]Hang Seng Index closed down 3.0% at 20,556, the lowest since July 2013. Market turnover increased to $84.0 billion. Heavily weighted HSBC (5), Tencent (700) and China Mobile (941) slid 2.5%-2.9%. Local banking and property companies in Hang Seng Index cut an average 2.1% and 2.5% respectively. Gaming and oil stocks tumbled on weak fundamentals. Sands China (1928) and Galaxy Entertainment (27) shrank 7.0%-9.4%. PetroChina (857), Sinopec (386), CNOOC (883) and Kunlun Energy (135) slumped 5.6%-7.7%. Eight largest Chinese property developers lost 3.4% on average. Sharp decline in earnings of China’s industries companies in August weighed on Chinese stocks. HSCEI plunged 3.0% led by coal, oil, metal and cement stocks. China Shenhua (1088), Jiangxi Copper (358), Anhui Conch (914) and CNBM (3323) fell 3.8%-5.3%. China Railway Group (390) and CCCC (1800) decreased 2.8%-3.3%. Insurance, banking and securities stocks in HSCEI dropped an average 3.0%, 2.4% and 2.3% respectively. Great Wall Motor (2333), the best performing HSCEI stock, climbed 1.9%. The weakness in U.S. and European stock markets in September reflected growing concern about the global economy. We expect Hang Seng Index to dip below 20,000 in October. We expect Hang Seng Index to dip below 20,000 in October.
Transcript
30th Sep, 2015
Securities ｜ Futures ｜ Bullion ｜ Corporate Finance Wholly owned subsidiary of Guoco Group Limited (HKEx Stock Code: 53)
A Member of the Hong Leong Group
Remarks: GuocoCapital Ltd is licensed by the Securities and Futures Commission to carry on Types 1, 4, and 6 regulated activities in Hong Kong. GuocoCapital Futures Ltd is licensed by the Securities and Futures Commission to carry on Type 2 regulated activity in Hong Kong. Bullion trading services provides by GuocoCapital Bullion Ltd.
Hang Seng Index Performance Index Performance
Source: Bloomberg
Abs chg % Change
Hong Kong Close 1-Day 1-Day 1-Mth 3-Mth Hang Seng Index 20,556.60 -629.72 -2.97 -5.14 -21.69
Hang Seng Index closed down 3.0% at 20,556, the lowest since July 2013. Market turnover increased to $84.0 billion. Heavily weighted HSBC (5), Tencent (700) and China Mobile (941) slid 2.5%-2.9%. Local banking and property companies in Hang Seng Index cut an average 2.1% and 2.5% respectively. Gaming and oil stocks tumbled on weak fundamentals. Sands China (1928) and Galaxy Entertainment (27) shrank 7.0%-9.4%. PetroChina (857), Sinopec (386), CNOOC (883) and Kunlun Energy (135) slumped 5.6%-7.7%. Eight largest Chinese property developers lost 3.4% on average.
Sharp decline in earnings of China’s industries companies in August weighed on Chinese stocks. HSCEI plunged 3.0% led by coal, oil, metal and cement stocks. China Shenhua (1088), Jiangxi Copper (358), Anhui Conch (914) and CNBM (3323) fell 3.8%-5.3%. China Railway Group (390) and CCCC (1800) decreased 2.8%-3.3%. Insurance, banking and securities stocks in HSCEI dropped an average 3.0%, 2.4% and 2.3% respectively. Great Wall Motor (2333), the best performing HSCEI stock, climbed 1.9%. The weakness in U.S. and European stock markets in September reflected growing concern about the global economy. We expect Hang Seng Index to dip below 20,000 in October.
We expect Hang Seng
Index to dip below
20,000 in October.
Securities ｜ Futures ｜ Bullion ｜ Corporate Finance Remarks: GuocoCapital Ltd is licensed by the Securities and Futures Commission to
Reiterate BUY on FIH Mobile (2038) as valuation is undemanding after recent sell-off
Maintain BUY • Earnings to be boosted by robust metal casings demand and improving operating efficiency • Enjoy first-mover advantage under the "Made-in-India" theme • Undemanding valuation of 0.9x 2015 PBR in view of company's improving profitability and
net cash position
Risk Level: Medium
Time Horizon: Medium
Share price of FIH Mobile (2038, $3.85) has retreated 5% since our last BUY commentary dated August 17, but still outperformed HSI and HSCEI by 9% and 12% during the period. Comment: We believe the counter’s relatively strong performance was mainly due to its unique positioning to enjoy the first-move advantage under the “Made-in-India” theme. Also, company’s strong net cash position, which amounted to US$2.51bn (HK$2.52 per share) as at end June representing 65% of its current market capitalization, makes the counter a defensive player in a time of high uncertainty. While it is no secret that the China’s smartphone hype is cooling down, we are less worried about its impact on FIH thanks to 1) increasing adoption of metal casing by Chinese smartphone brands in general should continue to boost company’s higher margin component business; 2) company’s diversified and expanding client base will continue to support company’s business growth and 3) company’s first-mover advantage in the Indian smartphone market.
FIH continues to gain market share and winning more assembly and component orders from major Chinese smartphone brands such as Huawei, Xiaomi, Oppo and Meizu. We believe the slowdown of smartphone sales in China has speeded the industry consolidation with leading players grabbing a larger piece of pie. At the same time, these leading Chinese brands are now trying to penetrate into higher-end market, thus focusing more on the design and the material used for their smartphones as a way to attract new buyers as specs of new smartphones are getting more similar. FIH Mobile, who can easily expand their production capacity via outsourcing production to or leasing machines from sister companies within Foxconn Group, will be a beneficiary of the increasing adoption of metal casings by Chinese smartphone OEMs and winning more business from these brands. FIH is also in an excellent position to capture the new business opportunities in India after the country lifted their import tariff on smartphone earlier this year to boost the “Make in India” campaign. With India having an extremely low smartphone penetration rate, we expect more handset brands to set up assembly lines in India to open up the new market. FIH, with a presence in Chennai (partner with Nokia) since 2007, is in no doubt having a first-mover advantage to ride on this trend. In fact, it has already set up a new site in July to assemble smartphones for its customers. According to FIH, operation from India may account for 10% of revenue in 2H15. FIH has also expressed its interest to explore new cooperation with Indian local handset brands. We believe Indian market could be FIH’s next earnings growth driver.
As a recap, FIH reported robust interim earnings of US$129.8mn (EPS US$0.0168), up 160% yoy. Turnover up 68% to US$3,829mn, as company continued to expand its customer base and receiving more orders from Chinese customers. Gross margin was lower-than-expected at 5.9% (compared to 6.2% in 2014), as sales growth on lower-margin assembling segment were even faster than that for components business. Yet thanks to good cost control and economies of scale, operating margin showed continuous improvement and up from 3.5% in 2014 to 4.7% in 1H15. Looking forward, management expects its turnover to have a single-digit yoy growth in 2H15, driven by increasing market share from the Chinese smartphone OEMs, while gross margin should have a slight hoh expansion thanks to better product mix and economies of scale. We maintain our full-year earnings estimates of US$272mn (EPS HK$0.273), up 57% yoy, and also introduce 2016 earnings forecast of US$329mn (EPS HK$0.33). Our 2016 earnings estimates is based on the assumption of 14% sales growth with gross margin and operating margin improve to 6.3% and 4.7% respectively. This implies a 21% EPS growth in 2016. Traded at 0.87x 2016 PBR with company having a net cash balance of US$2.51bn or HK$2.52 per share as at end-June, we think the valuation is undemanding in view of company’s improving profitability. Reiterate BUY with revised 6-month target price of $4.9, equivalent to 1.1x 2016 PBR.
China Lesso (2128) BUY Reiterate BUY on China Lesso (2128) to ride on the favourable policy trend $7.75
CCCC (1800) BUY BUY CCCC (1800) with stronger exposure to overseas market $12.7
Shenzhou Int’l (2313) BUY Potential passing of TPP and upcoming Nike quarterly results could be catalysts. Reiterate BUY on Shenzhou Int’l (2313)
$45.7
China Resources Land (1109) BUY BUY China Resources Land (1109) as China needs to further cut interest rate to spur growth
$23.7
Techtronic Industries (669) BUY Techtronic Industries (669)’s outstanding execution capability will continue to support its high valuation. Reiterate BUY
$34.9
Henderson Land (12) BUY BUY Henderson Land (12) on cheap valuation and restructuring story $57.0
Technical Ideas Chow Tai Fook (1929, $6.48) TP: $5.83 SELL
Source: Bloomberg, GuocoCapital
Risk: Low
Time Horizon: Short
• Chow Tai Fook Jewellery retails jewelry. The
company sells rings, necklaces, earrings, pendants, bracelets, and small statues. It operates retail stores in China, Hong Kong, Macau, Taiwan, Malaysia, and Singapore.
• The counter dropped 4.0% yesterday, fell below its critical support at $6.60 and reached its new 52-week low at $6.47. 9-day RSI showed a sharp decreasing trend below 50, suggesting further downside potential for the counter ahead.
• SELL. Short-term target at $5.83. Cover short at $6.78.
trading, underwriting, investment banking, asset management, and investment consulting services.
• The counter gapped open lower and tumbled 6.0% with increasing turnover yesterday, dropping below its critical support at $13.86 and reached its new 52-week low of $12.82. 9-day RSI showed a sharp decreasing trend, along with MACD approaching negative crossing, indicating the counter's strong downtrend momentum ahead.
• SELL. Short-term target at $11.84. Cover short at $14.24.
Consensus 2015 PER: 7.1x
Consensus target price: $25.03
Securities ｜ Futures ｜ Bullion ｜ Corporate Finance Remarks: GuocoCapital Ltd is licensed by the Securities and Futures Commission to
Source: Bloomberg, GuocoCapital; * Based on consensus estimates
^ The “Rating” indicates analysts’ opinions on the security. It is calculated by converting analysts’ recommendations into a number from 1-5 and taking the average. “5” is the best while “1” is the worst.
Securities ｜ Futures ｜ Bullion ｜ Corporate Finance Remarks: GuocoCapital Ltd is licensed by the Securities and Futures Commission to
A-H Share Premium / Discount (%)
Average AH Shanghai Listed -41.5% Remark:
Shenzhen-listed stocks are not included in the upcoming cross-border stock trading pilot program Premium/Discount (%) Shenzhen Listed -43.9%
Securities ｜ Futures ｜ Bullion ｜ Corporate Finance Remarks: GuocoCapital Ltd is licensed by the Securities and Futures Commission to
Upcoming Events
Date Stock Code Company Name Event
Sep 30 2309 Birmingham International Final Sep 30 159 Brockman Mining Final Sep 30 362 China Zenith Chemical Final Sep 30 479 CIL Holdings Final Sep 30 2662 Fittec International Final
Disclosures
Investment Rating System
GuocoCapital’s investment rating system is divided into investment ratings, risk rating and investment time horizon. The rating scale is subject to change upon periodic review of market by research department. Assigned ratings are based on company and sector historical performance and analysts’ intrinsic valuation of the stock
Ratings Description
Investment Ratings
Buy Expected positive return of > 10 %
Hold Expected return range of ~ ±10 %
Sell Expected negative return > 10%
Risk Ratings
High (H) 90-day volatility of > 50%
Medium (M) 90-day volatility of > 30-50%
Low (L) 90-day volatility of < 30%
Investment Time Horizon
Long (L) 6 – 12 Months
Medium (M) 3 – 6 Months
Short (S) Less than 1 Month Note: 90-day volatility is measured from the security’s standard deviation of day to day logarithmic historical price changes. The 90-day price volatility equals the
annualized standard deviation of the relative price change for the 90 most recent trading days closing price, expressed as a percentage
GuocoCapital Limited 12/F, The Center,
99 Queen’s Road Central,
Hong Kong
Tel: (852) 2218-2818
Fax: (852) 2285-3128 This report is for information only and is not to be construed as investment advice or as an offer to buy or sell securities or financial instruments. Your investment decision should be based upon your personal investment objectives and should be made only after evaluating the stock’s expected performance and risk. While the report is compiled using sources believed to be reliable, no assurance or guarantee is given regarding its accuracy or completeness. Neither GuocoCapital nor any of its associated companies, (nor any employees or other persons connected with any of them) accepts any responsibility or liability arising from any use of this report. To the extent permitted under applicable law, the above-mentioned companies or individuals may have used the research materials before publication. However, it is hereby declared that neither GuocoCapital nor the writer, at the time of writing, has interest in any of the securities mentioned in this report. GuocoCapital Ltd is licensed by the Securities and Futures Commission to carry on Types 1, 4, and 6 regulated activities in Hong Kong. GuocoCapital Futures Ltd is licensed by the Securities and Futures Commission to carry on Type 2 regulated activity in Hong Kong.
