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25-07-2014(Fri) 24-07-2014(Thu) 23-07-2014(Wed) 22-07-2014(Tue) 21-07-2014(Mon)
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25 Jul, 2014 (Friday)

            
KANGDA ENV(6136)
Analysis:
Kangda (6136), which just listed this month, announced the acquisition 100% equity of Guodian Langxinming Puyang Water with RMB 56.88 million. The company is principally engaged in the investment in sewage treatment infrastructure, and has franchise right of BOT project of Puyang second sewage treatment plant. The daily capacity charged for the sewage treatment plant is 50,000 tons per day. Through this acquisition, the Group can expand its sewage treatment business in China. Share price rose as high as $3.37 after the listing, has recently pulled back to $2.8 IPO price level. (I do not hold the above stock)
Strategy:
Buy-in Price: $2.85, Target Price: $3.10, Cut Loss Price: $2.70

HKEX(388)
Analysis:
Benefited by the macroeconomic and market prospects become more stable in mainland, and the HK - Shanghai connect that will be implemented in the second half, HKEx (388) will gain from enhance the long-term of trading volume. Analysts generally believed the limit amount of the HK - Shanghai connect will gradually increase, while HKEx linkages with the other mainland exchanges will gradually expand, for example, if the HK - Shanghai connect is running smoothly, the Shenzhen Stock Exchange may also have the intention to set up exchange connect mechanism. In addition, since the HK - Shanghai connect is working through a revenue sharing arrangement, HKEx will also benefit from the transaction in the Mainland, and the overall trading volume should rise.
Strategy:
Buy-in Price: $158.00, Target Price: $170.00, Cut Loss Price: $153.00


Brilliance China (1114.HK) - Accelerated segmentation product strategy

-Strong growth for BBA 1H2014: Owning to the continuing effect of capacity release, BBA (Brilliance BMW) delivered 140 thousand cars in the first half of 2014, a year-on-year increase of 37%, out of which SUV model X1 increased by 107% year-on-year to 22 thousand, X3 increased by 55% to 46 thousand, and X5 increased by 51% to 71 thousand. The company's sales goal in 2014 is 260 thousand cars, a 30% year-on-year increase, and in half a year it has achieved 53.8% of the sales goal for the year. Since the capacity of Dadong factory for production of series 5 has been approaching its limit, we believe in the coming one-year BBA's sales increase will be mainly contributed by series 3 and X1.

-JV Contract renewal in advance is expected to eliminate uncertainty: 4 years ahead of the expiration of the joint venture contract, BMW Group and the company have announced recently that joint venture contract would be extended to 2028; this move is expected to eliminate the uncertainty of the source for future profitability, and is conducive to the introduction of new BMW models and their technologies, which is beneficial to the company's stock performance and the level of valuation.

-Accelerated segmentation product strategy: BMW Group has issued the guidance on the future planning of Chinese market, including: 3 new models will realize localized production in China; Continue to increase the total capacity of BBA's Dadong factory and Tiexi factory in Shenyang; BMW’s 3-cylinder and 4-cylinder gasoline engines are going to be put into production in China in 2016. It is learned that the 3 new models for domestic production in future are respectively BMW 2X Active Tourer van, BMW X3 and one new entry-level model lower than the level of X3, which will increase the vehicle types of domestic production in China from currently 3 models to 6 models. For SUV model X3, the wheelbase will be extended, which is more likely to meet the vehicle purchase needs of domestic consumers at present, and the future performance is worthy of expectation. After the completion of BBA's new engine plant, production of advanced 3-cylinder and 4-cylinder gasoline engines will be officially started in 2016, which will positively improve the capacity and quality of BBA.

How we view this

We believe that, after experiencing the explosive growth in past few years, the increase rate of China's luxury car market begins to slow down, with structure-based and pluralism market development trend becoming apparent, so BMW's accelerated introduction of segmentation products is conducive to continuous development of new segment markets.

Investment Action

According to above, we revised our target price to HK$16.45, based on 15/11/8.5xP/E in2014/2015/2016, which we believe is rational considering its high ROE and fast growth ahead among peers, and the suggestions of “accumulate” rating be given.

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Recommendation on 25-7-2014
RecommendationAccumulate
Price on Recommendation Date$ 14.320
Suggested purchase priceN/A
Target Price$ 16.450
Writer Info
Zhang Jing
(Research Analyst)
Tel: +86 63512937-104
Email:
zhangjing@phillip.com.cn

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Phillip Research - Hong Kong 輝立研究部 – 香港及中國
Company Stock Code Last Update Suggestion Target Price Price on Recom
Mainland Financial Xingyu Chen (86) 2151698900-105chenxingyu@phillip.com.cn
CITIC Securities603023/07/2014Buy22.318.18
Hanhua Financial Holding390315/07/2014Buy2.51.52
Transportation and Automobiles Zhang Jing (86) 2151699200-103zhangjing@phillip.com.cn
Brilliance China111425/07/2014Accumulate16.450.000
Dongfeng Group48917/07/2014Accumulate16.514.6
Mainland Property Geng Chen (86) 2151698900-113chengeng@phillip.com.cn
NEW WORLD CHINA LAND91719/06/2014Accumulate5.55.12
Wanda Commercial Properties Group16912/06/2014Neutral2.62.5
Insurance Xingyu Chen (86) 2151698900-105chenxingyu@phillip.com.cn
Properties Dennis Wu (852) 2277 6751denniswu@phillip.com.hk
China State Construction International Holdings Ltd331116/05/2014Buy15.813.16
Hysan Development001418/03/2014Accumulate36.833.35
Hotels and Entertainment N/A N/AN/A
Galaxy Entertainment2716/07/2014Accumulate7262.95
Galaxy Entertainment Group2716/04/2014Accumulate7868.7
New Energy  
Singyes Solar75022/07/2014Buy14.9611.34
Jingneng Clean Energy57908/07/2014Buy5.13.74
Food, Beverage and Retail Dennis Wu (852) 2277 6751denniswu@phillip.com.hk
Anta Sports202018/07/2014Accumulate13.3112.46
Bolina119005/06/2014Accumulate3.232.87
Telecommunications  
China Communication Service Co., LTD.55221/07/2014Buy4.73.87
Sunny Optical238204/07/2014Accumulate11.811.04
Oil and Gas Geng Chen (86) 2151698900-113chengeng@phillip.com.cn
SPT Energy125127/06/2014Accumulate4.64.2
Anton Oilfield Services Group333725/04/2014Accumulate6.25.29
Software & Service Kay Ng (852) 2277 6751kayng@phillip.com.hk
Tencent Holdings70024/07/2014Accumulate136124.3
ZTE Corporation76314/07/2014Buy2114.78

Information contained herein is based on sources that Phillip Securities (Hong Kong) Limited and/or its affiliates ( the “Group”) believe to be accurate. The Group does not bear responsibility for any loss occasioned by reliance placed upon the contents hereof. The Group (or its employees) may have interests in relevant investment products. For details of different products’ risks, please view the Risk Disclosures Statement on http://www.phillip.com.hk.

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