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Daily Commentary

15 Nov 2018

Market Outlook

HSI may fluctuate at around 25,600 to 26,100 points today.

The Hang Seng Index opened higher by 81 points to reach its intra-day high of 25,874 points yesterday. Afterwards, the market posted a fluctuating performance and dropped 34 points in the morning. During the afternoon session, HK stocks extended its losses and once dropped 303 points to touch its intra-day low of 25,489 points at the last trading hour. The HSI finally closed at 25,654.43 points, down 138.44 points or 0.54%. Market turnover amounted to HKD79.368 billion. The ADR proportional HSI index closed overnight at 25,887 points with 233 points or 0.91% than closing price yesterday. Dow was down by 205.99 points or 0.83% to 25,081 points. Tencent's quarterly results beat expectations. Due to the good news, HSI may open higher this morning. HSI may fluctuate at around 25,600 to 26,100 points today.

Today’s A-share Snapshot

Company’s Profile:Jason Furniture (603816.SH) mainly researches, develops, produces and sells high-and-mid-end upholstered furniture products of living room and bedroom.

Brief Comments:The Company recently announced that the wholly-owned subsidiary of Quanzhou Xibao home furnishing technology co., ltd. was granted a 51% share for RMB424 million. The Company is a leading enterprise in the export of mattresses industry in China. This is expected to improve the Company's mattresses business and then enhance the Company's competitiveness. For the first three quarters of 2018, the Company’s revenue rose 31.87% YoY to RMB6.393 billion and its net profit added 26.70% YoY to RMB786 million. Thus, the Company’s operational performance is expected to record a double-digit growth in FY2018. The development of real estate industry, the fierce competition in upholstered furniture industry and the price volatility of raw materials might affect the Company’s earnings growth significantly.

Stock Pick

Cobalt in tighter supply; CMOC (03993) benefits in short term

Previously Glencore subsidiary Katanga Mining Ltd suspended cobalt exports from its Kamoto Project in Congo after it found excessive levels of uranium in the ore. The suspension is expected to defer Katanga’s cobalt sales to the second half of 2019 from the fourth quarter of this year. Glencore’s original plan was to sell 65,000 tonnes of cobalt, with 34,000 tonnes from Katanga Mining, being a significant portion of the global cobalt market in 2019. Due to the Glencore halt, the global cobalt price will gain support before mid-2019.

CMOC engages in non-ferrous metal mining, mainly the selection, smelting, and deep processing of copper, molybdenum, tungsten, cobalt, niobium and phosphate.It is the second largest cobalt manufacturer in the world. During 9M18, CMOC recorded revenue amounted to RMB20bn, up 13.4% YoY. Net profit surged by 155.9% YoY to RMB4.137bn. The EPS was 19 fen.

Despite the imbalance of Cobalt demand- supply, and the Congo’s super profits tax bring uncertainties to CMOC, the share price of CMOC already reflect the negative factors. The valuation becomes attractive after the share pull-back since Mar18.

Investors are advised to buy the share at HKD3 or below, with the target price and stop- loss price at HKD4.5 and HKD2.5 respectively.