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Daily Commentary

19 Sep 2018

Market Outlook

HSI might fluctuate at around 26,900 and 27,400 points today.

The Hang Seng Index opened lower by 86 points yesterday and then once extended its losses to 283 points at most to touch its intra-day low of 26,648 points. During the afternoon session, thanks to the upward trend of A-share, HK stocks turned to a positive territory and grew 223 points at most to reach its intra-day high of 27,156 points. However, the HSI narrowed its gains at the last trading hour and finally closed at 27,084.66 points, up 151.81 points or 0.56%. Market turnover amounted to HKD86.366 billion. US President Donald Trump has announced Washington is set to impose 10% of tariffs on USD200 billion worth of Chinese goods on September 24, rising to 25% at the start of 2019. As a result, China also added USD60 billion worth of US products to its import tariff list in retaliation for US levies and the tariff will be effective on the same date. The ADR proportional HSI index closed overnight at 27,181 points with 97 points or 0.36% higher than closing price yesterday. Dow was up by 184 points or 0.71% to 26,246 points. HSI may fluctuate at around 26,900 to 27,400 points today.

Today’s A-share Snapshot

Company’s Profile:GDM(002636.SZ) is mainly engaged in the R&D, manufacture and distribution of copper-clad plate.

Brief Comments:The Company recently announced that its wholly owned subsidiary, Anhui Jinrui, planned to invest in the extension project of the electronic grade fiberglass fabric with the invest amount of RMB200 million. After renching the target capacity, the Company’s annual capacity of the electronic grade fiberglass fabric might add 60 million meters. This is expected to help the Company to increase capacity of copper-clad plate and decrease production cost, which might enhance its profitability. For 1H2018, the Company’s revenue rose 13.39% YoY to RMB1.885 billion and its net profit dropped 33.16% YoY to RMB175 million. The Company predicted to record a yearly decrease ranging from 15% to 45% in net profit for the first nine months of 2018, amid the huge change of copper-clad plate industry in 2018. The major raw materials of copper-clad plat include copper foil, fiberglass fabric and epoxy resin and account for a large proportion in product costs. Thus, the price volatility of raw materials might affect the Company’s earnings significantly.

Stock Pick

AIA (01299) has strong VNB growth, with comfortable valuation

AIA achieved 22% yoy growth of value of new business (on an actual exchange rate basis) in 1H18. It achieved positive VNB growth across various key markets, especially in mainland China, Thailand and Singapore. The satisfactory result reconfirmed AIA’s advantage of its agency- based strategies and protection- based products, with the latter one allow AIA to outperform its peers in China.

AIA's extensive footprint in Asia allows it to diversify its business risk and has higher flexibility to tackle with the macro- economic fluctuation. AIA has over 66% of VNB comes from HK/ China area. With China’s policy to fully open the insurance market by 2021, AIA is now preparing for its expansion in China. It is now conducting market research and recruitment. AIA is interested in expanding business in Hangzhou and Wuhan. Apart from the china market, AIA has positive VNB growth across various markets, which includes Thailand and Singapore. The positive growth is expected to persist in 2H18.

Despite the satisfactory interim result, AIA has corrected together with other financial names. With the share price fell to the current level, which is close to the historical P/EV, AIA’s valuation becomes attractive. Investors are advised to buy the share at HKD65 or below, with the target price and stop- loss price at HKD75 and HKD60 respectively.