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A-share Research Highlights Summary (July 20, 2016)

Core Content Overview

The CMS Research Center provides a comprehensive update on the performance and outlook of the nonferrous metals sector and other key industries in the A-share market. Despite a mild correction in the sector, the fundamentals of certain subsectors remain strong, and the overall outlook remains positive. The report also includes insights on various other sectors and specific stock recommendations.

Nonferrous Metals Sector

• Recent Performance:

  • LMEX rose 3.1%, LME zinc rose 2.9%, and copper rose 4.4%.
  • SHFE aluminum rose 1.4%.
  • The nonferrous sector rose 1.7%, underperforming the broader market by 0.6 percentage points.
  • Magnesium and zircon sand rose 1.4% and 2.5% respectively, while rare earth retreated 0.2% and battery grade lithium carbonate fell 1.3%.

• Year-to-Date Gains:

  • The nonferrous sector's YTD gains ranked second, indicating strong performance over the year.
  • Subsectors have experienced frequent rotations, which have driven up the laggards.
  • A mild correction is expected, but future investment opportunities are still seen as positive.

• Key Investment Opportunities:

  • Focus on zinc and aluminum beneficiaries due to good fundamentals, including steady demand, supply-side capacity cuts, low inventory, and slight supply tightening.
  • Macro risks have declined significantly globally.
  • Supply-side structural reform has strengthened.
  • Companies like Zhongfu Industry (600595), Jianxin Mining (000688), Yunnan Aluminum (000807), Chihong Zinc & Germanium (600497), and Zhongjin Lingnan (000060) are highlighted.
  • The virtual portfolio (20% allocation each to Nanshan Aluminum (600219), Zhongfu Industrial (600595), Zhongjin Lingnan (000060), Zhongke Sanhuan (000970), and Gangfeng Lithium (002460)) rose 12.5% MoM, outperforming the sector index by 1.7 percentage points.

Gold Sector

• Expected Performance:
  • Gold is expected to remain strong after correction.
  • Global risk aversion remains high.
  • Global easing is still at an extremely relaxed level.
  • ETF funds actively increase their gold positions.

Stock Recommendations

Auto & Auto Parts

• Brilliance China (1114 HK): BUY, 7% upside, market cap: HK$5,754 million.
• China ZhengTong Auto (1728 HK): BUY, 18% upside, market cap: HK$847 million.
• Geely Automobile (175 HK): BUY, 8% upside, market cap: HK$5,505 million.
• BAIC Motor (1958 HK): NEUTRAL, 5% upside, market cap: HK$5,986 million.
• Great Wall Motor (2333 HK): NEUTRAL, -1% upside, market cap: HK$8,301 million.
• Fuyao Glass (3606 HK): BUY, 3% upside, market cap: HK$6,291 million.
• China Harmony Auto (3836 HK): BUY, 48% upside, market cap: HK$854 million.
• Minth Group (425 HK): BUY, 19% upside, market cap: HK$3,590 million.
• Zhongsheng Group (881 HK): NEUTRAL, -12% upside, market cap: HK$1,197 million.

Oil and Gas

• Sinopec Oilfield Service (1033 HK): NEUTRAL, -7% upside, market cap: HK$4,744 million.
• China Oilfield Services (2883 HK): SELL, -30% upside, market cap: HK$3,792 million.
• CNOOC (883 HK): BUY, 9% upside, market cap: HK$56,443 million.
• Sinopec Kantons (934 HK): BUY, 24% upside, market cap: HK$1,324 million.

Property

• China Resources Land (1109 HK): BUY, 24% upside, market cap: HK$17,185 million.
• YUEXIU PROPERTY (123 HK): BUY, 37% upside, market cap: HK$1,584 million.
• Yuzhou Property (1628 HK): BUY, 14% upside, market cap: HK$1,127 million.
• Country Garden (2007 HK): NEUTRAL, -7% upside, market cap: HK$9,441 million.
• Agile Property (3383 HK): BUY, 17% upside, market cap: HK$2,314 million.
• Greentown China (3900 HK): NEUTRAL, 17% upside, market cap: HK$1,593 million.
• China Overseas Land (688 HK): BUY, 10% upside, market cap: HK$32,629 million.
• CH OVS G OCEANS (81 HK): BUY, 42% upside, market cap: HK$686 million.
• Shimao Property (813 HK): BUY, 35% upside, market cap: HK$4,632 million.
• CIFI Holdings (884 HK): BUY, 17% upside, market cap: HK$1,711 million.
• China Merchants Land (978 HK): BUY, 22% upside, market cap: HK$778 million.

Technology, Media & Telecom

• China Telecom (728 HK): NEUTRAL, 15% upside, market cap: HK$6,427 million.
• China Unicom (762 HK): BUY, 51% upside, market cap: HK$24,343 million.
• China Mobile (941 HK): BUY, 20% upside, market cap: HK$245,807 million.
• Wisdom (1661 HK): BUY, 197% upside, market cap: HK$490 million.
• C CHUANGLIAN ED (2371 HK): BUY, 295% upside, market cap: HK$120 million.
• Kingdee (268 HK): NEUTRAL, -41% upside, market cap: HK$776 million.
• Chinasoft (354 HK): BUY, 22% upside, market cap: HK$717 million.
• Kingsoft (3888 HK): BUY, 103% upside, market cap: HK$2,218 million.
• Boyaa Interactive (434 HK): NEUTRAL, 17% upside, market cap: HK$310 million.
• Car Inc (699 HK): BUY, 193% upside, market cap: HK$2,406 million.
• Tencent (700 HK): BUY, -5% upside, market cap: HK$44,091 million.
• NetDragon (777 HK): BUY, 65% upside, market cap: HK$1,596 million.

Consumer Staple

• Hengan Int'l (1044 HK): BUY, 20% upside, market cap: HK$10,563 million.
• Biostime (1112 HK): NEUTRAL, 10% upside, market cap: HK$2,154 million.
• Jiashili Group (1285 HK): BUY, 25% upside, market cap: HK$196 million.
• Want Want China (151 HK): BUY, 13% upside, market cap: HK$8,621 million.
• Uni-President China (220 HK): BUY, 12% upside, market cap: HK$3,293 million.
• China Mengniu Dairy (2319 HK): BUY, 21% upside, market cap: HK$6,680 million.
• Tingyi (322 HK): NEUTRAL, 34% upside, market cap: HK$4,972 million.

Pharmaceutical & Healthcare

• 3SBio (1530 HK): BUY, 50% upside, market cap: HK$2,592 million.
• HEC Pharm (1558 HK): BUY, 15% upside, market cap: HK$508 million.
• TRAD CHI MED (570 HK): BUY, 27% upside, market cap: HK$1,742 million.
• Sinco (6833 HK): BUY, 75% upside, market cap: HK$119 million.
• China Medical System (867 HK): BUY, 15% upside, market cap: HK$3,895 million.
• China Biologic Products (CBPO US): BUY, 31% upside, market cap: US$2,818,672 million.

Bank

• ICBC (1398 HK): BUY, 36% upside, market cap: HK$199,078 million.
• Minsheng (1988 HK): SELL, -24% upside, market cap: HK$37,182 million.
• BOCOM (3328 HK): BUY, 31% upside, market cap: HK$49,528 million.
• CQRCB (3618 HK): BUY, 27% upside, market cap: HK$4,955 million.
• BOC (3988 HK): BUY, 49% upside, market cap: HK$120,384 million.
• China Construction Bank (939 HK): BUY, 28% upside, market cap: HK$173,835 million.
• CITIC Bank (998 HK): SELL, -21% upside, market cap: HK$31,247 million.

Insurance

• AIA (1299 HK): BUY, 15% upside, market cap: HK$75,897 million.
• NCI (1336 HK): BUY, 11% upside, market cap: HK$11,330 million.
• China Reinsurance (1508 HK): NEUTRAL, 7% upside, market cap: HK$9,918 million.
• Ping An insurance group (2318 HK): BUY, 14% upside, market cap: HK$85,128 million.
• PICC P&C (2328 HK): BUY, 24% upside, market cap: HK$23,719 million.
• CPIC (2601 HK): BUY, 19% upside, market cap: HK$32,681 million.
• China Life (2628 HK): BUY, 8% upside, market cap: HK$63,954 million.
• CHINA TAIPING (966 HK): BUY, 26% upside, market cap: HK$7,093 million.

Broker

• GF Sec (1776 HK): BUY, 17% upside, market cap: HK$17,441 million.
• CITICS (6030 HK): NEUTRAL, 6% upside, market cap: HK$26,729 million.
• HTS (6837 HK): BUY, 42% upside, market cap: HK$18,873 million.

Key Risks

• Supply-side structural reform below expectations
• Systematic risk of the broader market

Summary of Key Points

• The nonferrous metals sector has shown resilience despite a mild correction, with strong fundamentals and positive macroeconomic factors.
• Gold is expected to remain strong due to high risk aversion and active ETF fund positions.
• Specific stocks across various sectors are highlighted for investment opportunities, with notable upside potential.
• The report emphasizes the importance of monitoring companies that align with industry trends and have growth certainty.
• Risk factors include potential underperformance in supply-side reforms and broader market volatility.