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A-share Research Highlights Summary (July 13, 2015)

Core Content

The document provides a detailed analysis of the A-share market, with a focus on the textile and apparel industry and other sectors. It highlights investment opportunities and market trends based on interim results and valuation analysis. The overall theme for the second half of 2015 is a return to value, emphasizing stocks with a high price-performance ratio and those benefiting from ecosphere deployment.

Main Viewpoints

• Textile and Apparel Sector: The industry experienced a weak first half, with brand clothing end demand lagging. However, textile manufacturing began to show improvement in Q2 due to falling cotton costs. The sector had surged by 96.81% in the first half, but the valuation has now retreated to a relatively reasonable level. The main investment theme for the second half is returning to value.

• Investment Strategy: The report recommends focusing on value stocks with high price-performance ratios and leading beneficiaries of ecosphere deployment. In the near term, it suggests deploying in two main categories:

  1. Companies that have experienced a big short-term decline but are expected to outperform with improved results, increased shareholdings, or M&A activity.
  2. Companies with excellent quality and strong fundamentals that are leading in ecosphere deployment.

Key Recommendations

1. Textile & Garment

• Fuanna (002327 CH): 17xPE, interim results slightly above expectation, increased shareholdings and repurchase.
• Semir (002563 CH): 23xPE, excellent fundamentals, employee shareholdings and M&A expectations.
• Global Top E-Commerce (002640 CH): Scarcity beneficiary, high growth, investment expectation.
• Heilan Home (600398 CH): 23xPE, high growth, employee shareholdings, defensive species.
• Guirenniao (603555 CH): Key recommendation, excellent quality.
• Lancy (002612 CH): Key recommendation, excellent quality.
• Textile Manufacturing: Profit could improve with declining cotton costs, benefiting market leaders.

2. Other Sectors

• Auto & Auto Parts:

  • BAIC Motor (1958 HK): BUY, 12-month TP % Upside 103%, Mkt Cap 63 million HK$.
  • Fuyao Glass (3606 HK): BUY, 12-month TP % Upside 61%, Mkt Cap 28 million HK$.

• Oil and Gas:

  • Sinopec Oilfield Service (1033 HK): NEUTRAL, 12-month TP % Upside 17%, Mkt Cap 20 million HK$.
  • China Oilfield Services (2883 HK): NEUTRAL, 12-month TP % Upside 13%, Mkt Cap 14 million HK$.
  • Petrochina (857 HK): BUY, 12-month TP % Upside 17.9%, Mkt Cap 189,586 million HK$.
  • CNOOC (883 HK): BUY, 12-month TP % Upside 11.0%, Mkt Cap 57,940 million HK$.

• Property:

  • China Resources Land (1109 HK): BUY, 12-month TP % Upside 8.0%, Mkt Cap 16,774 million HK$.
  • KWG Property (1813 HK): BUY, 12-month TP % Upside 4.7%, Mkt Cap 2,246 million HK$.
  • China Overseas Land (688 HK): BUY, 12-month TP % Upside 7.2%, Mkt Cap 26,994 million HK$.
  • Greentown China (3900 HK): BUY, 12-month TP % Upside 4.9%, Mkt Cap 2,381 million HK$.
  • Intime Retail Group (1833 HK): BUY, 12-month TP % Upside 62%, Mkt Cap 2,363 million HK$.
  • Gome Electrical (493 HK): BUY, 12-month TP % Upside 50%, Mkt Cap 3,199 million HK$.

• Technology, Media & Telecom:

  • China Telecom (728 HK): BUY, 12-month TP % Upside 103%, Mkt Cap 7,877 million HK$.
  • China Unicom (762 HK): NEUTRAL, 12-month TP % Upside 15.6%, Mkt Cap 34,427 million HK$.
  • China Mobile (941 HK): BUY, 12-month TP % Upside 39%, Mkt Cap 253,300 million HK$.

• Hardware Technology:

  • Cowell (1415 HK): BUY, 12-month TP % Upside 65%, Mkt Cap 721 million HK$.
  • Lonking (3339 HK): BUY, 12-month TP % Upside 70%, Mkt Cap 723 million HK$.
  • TCL Comm (2618 HK): BUY, 12-month TP % Upside 70%, Mkt Cap 1,034 million HK$.

• Pharmaceutical & Healthcare:

  • China Medical System (867 HK): BUY, 12-month TP % Upside 43%, Mkt Cap 3,985 million HK$.
  • China Biologic Products (CBPO US): BUY, 12-month TP % Upside 15%, Mkt Cap 3,012,594 million US$.

• Banking:

  • ABC (1288 HK): BUY, 12-month TP % Upside 28%, Mkt Cap 155,862 million HK$.
  • ICBC (1398 HK): BUY, 12-month TP % Upside 31%, Mkt Cap 262,985 million HK$.
  • BOC (3988 HK): BUY, 12-month TP % Upside 33%, Mkt Cap 169,311 million HK$.
  • China Construction Bank (939 HK): BUY, 12-month TP % Upside 30%, Mkt Cap 209,634 million HK$.

• Gaming & Leisure:

  • Paradise Ent (1180 HK): BUY, 12-month TP % Upside 108%, Mkt Cap 269 million HK$.
  • MGM China (2282 HK): BUY, 12-month TP % Upside -2%, Mkt Cap 8,314 million HK$.

Key Risks

• End consumption and industry transformation below expectations: This could impact the overall performance of the sector.
• Short-term valuation of main theme beneficiaries still high: Despite the correction, valuations may remain elevated, affecting investment returns.

Conclusion

The textile and apparel industry is expected to return to value in the second half of 2015, with a focus on companies showing improvement in performance and those benefiting from ecosphere deployment. The report recommends a strategic approach focusing on value stocks with high price-performance ratios and strong fundamentals. Investors should also monitor other sectors such as auto, oil and gas, property, and technology for potential opportunities. Risk factors include end consumption trends and valuation levels, which need to be closely watched.