20180625-广发证券_香港_-Weekly_HK_Market_and_Sector_Views_6页_404kb

Weekly HK Market and Sector Views Summary

Core Content

This report provides a comprehensive analysis of the Hong Kong market and key sectors, focusing on the impact of Sino-US trade tensions, monetary policy adjustments, and sector-specific developments. It outlines investment strategies, highlights key stocks, and offers sector ratings based on expected performance relative to the benchmark (Hong Kong Hang Seng Index) over a 12-month time horizon.

Main Points and Key Information

Macro Overview

• Trade Tensions: The Sino-US trade war has intensified, with both sides imposing 25% tariffs on $50bn worth of goods. This has increased market uncertainty and depreciation pressure on the RMB.
• Monetary Policy: The PBoC has reduced the RRR for targeted banks to support debt-to-equity swaps and small and micro enterprise financing. A further 0.5pp cut was effective from July 5, releasing about Rmb700bn.
• RMB Depreciation: The USD/CNY exchange rate has exceeded 6.5, setting a six-month high. The one-year NDF shows increased depreciation and volatility, which could continue due to the strengthening USD.
• Liquidity and Risk: The report suggests that market liquidity will improve, reducing the risk of forced liquidation of stock-pledge positions. However, short-term risks from a strong USD and domestic credit tightening remain.

Investment Strategy

• Market Performance: Most global stock markets declined, with the HSI and HSCEI falling 3.2% and 4.47% respectively due to trade tensions, RMB depreciation, and equity pledge risks.
• Sector Outlook: The HK market is expected to rebound in 3Q18 with the introduction of counteracting credit measures. Cyclical sectors, particularly property and construction machinery, are highlighted for potential recovery.
• Domestic Demand: The report continues to emphasize the domestic demand expansion theme, suggesting that mass consumer goods may benefit from steady growth.

Consumer Sector

• F&B (Food and Beverage):
  • Yihai Intl (1579 HK): Expected to benefit from the accelerated opening of Haidilao stores and increased offline sales of self-heating hotpots.
  • Mengniu Dairy (2319 HK): Revenue and net profit growth are anticipated, with improved valuation due to macroeconomic uncertainty and risk aversion.
• Gaming:
  • SJM Holdings (880 HK), Melco International (200 HK): The Macau gaming sector has shown resilience, with June GGR indicating limited impact from recent crackdowns. The report recommends buying on dips.
• Consumer Discretionary:
  • Maple Leaf (1317 HK): Plans to raise fees in multiple cities, potentially exceeding expectations. High school graduate quality has improved, which may boost new enrollments.
  • Wisdom Education (6068 HK): Net profit growth met expectations, but GPM and OPM were lower. Expansion is expected to accelerate.
  • Xstep (1368 HK): SSS momentum remains strong, with the Chairman purchasing shares in the secondary market.

Auto Sector

• Trade Impact: The US extra tariff on imported cars has affected auto dealers, with CPCA data showing a decline in retail sales. The State Council has imposed additional tariffs on US auto imports, which could benefit localized models.
• Tariff Cuts: China has cut auto import tariffs from 25% to 15%, and auto parts from 10% to 6%, which should benefit both OEMs and dealers.
• Key Players:
  • Geely Auto (175 HK): Strong sales growth with a solid product lineup. The Boyue GT model was well-received, and new models are expected to drive further growth. The company's platform sharing strategy with Volvo and Lynk & Co is seen as a competitive advantage.
  • Brilliance China (1114 HK): Expected to benefit from the BMW-Brilliance X3 model launch in June. The company is less affected by US trade tensions compared to BMW dealers.
  • Zhongsheng Holding (881 HK): Highlighted as a key beneficiary of tariff cuts, especially due to its lower exposure to US-made luxury models like Mercedes-Benz.

TMT Sector

• Hardware: Trade tensions continue to affect the industry, but the biggest market concerns have been alleviated. CCMs (component manufacturers) are optimistic about the second half of the year.
• Internet: User time spent online is becoming a key competitive area. WeChat mini-programs and short videos are gaining traction, attracting users and advertisers.
• Games: Domestic game approval channels are temporarily closed, slowing the launch of new games.
• Advertising: AI and information flow upgrades are driving growth in the advertising industry.
• Video: Subscription and advertising models are pushing income growth above cost growth. Content differentiation is expected to be a key strategy.
• Key Stocks: Tencent (700 HK), Kingsoft (3888 HK), China Literature (772 HK), and IGG (799 HK) are recommended for monitoring.

Financials

• Sector Performance: Financial stocks fell along with the HSI due to trade tensions and equity pledge risks.
• Debt Default Risk: The recent debt default risk is attributed to deleveraging in the financial system rather than economic deterioration.
• Insurance Sector: Despite short-term pressures, the insurance sector is viewed as a potential absolute return opportunity due to better asset quality and possible FYP growth.
• Key Stocks: Ping An (2318 HK) and undervalued banks are highlighted.

Rating Definitions

• Company Ratings:
  • Buy: Expected to outperform the benchmark by more than 15%.
  • Accumulate: Expected to outperform the benchmark by more than 5% but not more than 15%.
  • Hold: Expected relative performance between -5% and 5%.
  • Underperform: Expected to underperform the benchmark by more than 5%.
• Sector Ratings:
  • Positive: Expected to outperform the benchmark by more than 10%.
  • Neutral: Expected relative performance between -10% and 10%.
  • Cautious: Expected to underperform the benchmark by more than 10%.

Analyst Certification and Disclosure

• The analysts confirm that their views reflect personal opinions and that no compensation is tied to specific recommendations.
• GF Securities (Hong Kong) and its affiliates do not hold shares in the mentioned securities, nor have investment banking relationships with the companies in the past 12 months.
• Analysts have no financial interests or affiliations with the companies discussed.

Disclaimer

• This report is for informational purposes only and does not constitute an offer to buy or sell securities.
• The information may be subject to change without notice.
• The report does not consider the specific investment objectives or financial situations of individuals.
• GF Securities (Hong Kong) may issue other communications with different conclusions.