Research Reports and Commentaries

Daily Commentary

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.