24 Jan 2019

Market Outlook

The HSI is expected to consolidate at around 27,000 points.

Trade negotiations continue to lead the market: US President Trump said that China "is very keen to reach an agreement" and “Talks with China are going very well." Liu He, Vice Premier of the State Council, will visit the United States from Jan 30 to 31 to conduct Sino-US economic and trade negotiations.

Oil prices fell: The EU tried to circumvent US trade sanctions against Iran in an intention to promote non-US dollar trade with Iran, coupled with rising US crude oil production, oil prices fell.

US government lockout: The US government partially closed its doors, and there is no sign of a solution. Investors are increasingly worried that it will have a long-term impact on US economic growth in 1Q19.

Today’s A-share Snapshot

Midea Group (000333.SZ)

Company’s Profile：

The Company is a large integrated enterprise group, which is mainly engaged in the household appliance manufacturing industry.

Brief Comments: (Rating: Buy; Target Price: RMB50)

The Company announced the preliminary financial data for FY2018, expecting to realize net profit attributable to shareholders of listed company ranging from RMB19.8 billion to RMB20.8 billion, up 15% to 20% YoY.

Midea venture capital, a wholly-owned subsidiary of the Company, intends to participate in the investment of an industrial investment fund initiated and established by Ningbo Meizhihechuang investment center. The target scale of the industrial investment fund is RMB1 bn to RMB2 bn. This is expected to help enhance the Company's overall competitiveness.

The Company’s product is belonging to the consumer electric appliance. Thus, China’s macro economy and consumer demand might affect the Company’s business operation significantly.

Stock Pick

Fortune REIT (00778) valuation reasonable, possess long term investment value

Rating: Buy; Target Price: HKD10.6

Fortune REIT has been one of the fastest growing REITs in Hong Kong, by improving long-term return through three growth strategies, i) yield- accretive acquisition; ii) active leasing management; and iii) asset enhancement initiatives. Its portfolio has expanded from 5 to 16 properties since listing in 2003. Asset valuation has increased by more than 11 times to HKD40.8bn. Currently, it holds a portfolio of 16 private housing estate retail properties in Hong Kong comprising of 3.0mn square feet of retail space and 2,713 car parking spaces.

The steady performance of Fortune REIT shows its long- term investment value. In 1H18, the total revenue and net property income rose by 2.2% and 3.0% YoY to HKD978.1mn and HKD748.6mn, respectively. The increase was mainly due to positive rental reversion, through proactively retaining quality tenants and securing early commitment before leases expire. Fortune REIT achieved a rental reversion of 13.6% from renewals during the Reporting Period.

Meanwhile, the Group business is defensive in nature. Fortune Malls have a well-diversified trade mix with a strong focus on daily necessities. Tenants in the non-discretionary retail sectors such as food and beverages, supermarkets as well as services and education altogether accounted for approximately 70% of total GRA. And thus, the businesses operated by the tenants of the malls are relatively immune to macro weakness.

Our target price for 778.HK is HKD10.6.

23 Jan 2019

Market Outlook

HSI likely to fall below 27,000 today, according to ADR。

US market fell: US stocks fell on Tuesday, the first trading day of the week, as weak data out of China and lower global growth estimates from the IMF renewed fears of the global economy slowing down. Dow dropped 302pts to 24,404, led by losses in Goldman Sachs and Caterpillar.

Huawei incident update: Huawei hopes US, Canada to Free Sabrina Meng Soon.

Today’s A-share Snapshot

AVICEM (002013.SZ)

Company’s Profile：

The Company is mainly engaged in aviation electromechanical industry and related systems based on the core aviation technologies.

Brief Comments: (Rating: Buy; Target Price: RMB9.0)

The Company recently released a preliminary earnings estimate for FY2018. During the period, its revenue grew 4.42% YoY to RMB11.675 bn; its net profit rose 16.48% YoY to RMB837 mn.

The Company earlier announced that using their own capital with not less than RMB150 million (including) and not more than RMB 300 million (including) to repurchase its shares with the price of not more than RMB9.95/shares (including).

The fierce competition in aviation industry and the slow-down in auto industry might bring negative impacts to the Company’s operational results.

Stock Pick

"SHKP(00016) show satisfactory sales with healthy financial condition

Rating: Buy; Target Price: HKD146

SHKP is one of the largest property developers in Hong Kong. We believe that SHKP's properties are known for their high quality, its brand effect can enable them to maintain satisfactory sales and maintain market share despite weakening of the economic environment. In 2018, the property contracted sales amounted to HKD45.4 bn, of which Hong Kong property contracted sales amounted to HKD41 bn, achieving the target of HKD36 bnfor the whole year.

SHKP has sufficient land reserves, and benefited by farmland conversion. SHKP has 22.7 mn square feet of development property in Hong Kong, which is sufficient for development in the next few years. Mount Regency Phase 2 (235,000 sq ft) and Pak Tai Street URA project (88,000 sq ft) will be launched in 2019, while SHKP will also relaunch Victoria Harbour and Babington Hill. Considering that SHKP has a land area of 32 mn square feet, in fact, last year its newly added land reserve was 6.76 mn square feet, of which Tai Po Shap Sze Heung Project (4.79 mn square feet ) was converted from farmland to residential land. With land’s ASP only accounting for HKD3,193 per sq. ft, and the surrounding area more than HKD15,000 per sq.ft, we expect the property will have a decent profit margin. For China, SHKP has a development property with a total area of 50.7 mn square feet, mostly located in the core cities of the Yangtze River Delta and the Pearl River Delta, providing the significant room for development.

In addition, considering that properties under SHKP mostly located in the core area of the core city (rooted in Hong Kong Central, Shanghai Pudong, Beijing Wangfujing, etc.), plus its professional team (flexible to adapt to market changes, promote Tencent payment in its shopping malls, strengthen innovative technology with the unique retail experience), rental income is expected to remain strong. It is expected that a number of large-scale landmark projects will be completed one after another, including the Shanghai Xujiahui project, Nanjing IFC and Guangzhou Nansha project, which will help the rent to maintain steady growth.

SHKP's net gearing ratio in the fiscal year of 2018 is 12%, and the interest coverage rate is 17.6X, showing its stable financial position.