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  Phillip Investor Notes

31-10-2014(Fri) 30-10-2014(Thu) 29-10-2014(Wed) 28-10-2014(Tue) 27-10-2014(Mon)
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Investor Notes - Phillip Securities (HK) Ltd
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31 Oct, 2014 (Friday)

            
ASM PACIFIC(522)
Analysis:
ASM International (522) announced the 3Q turnover reached US$ 626 million to record high, increasing 56.4% yoy and 41.2% qoq respectively. Profit was HK$ 782 million, an increase of 186.5% yoy and 87.6% qoq. 3Q new orders amounted US$ 533 million, an increase of 45.1% yoy, which was enough to cover the 15.6% decline in the second quarter. The Group expected the 4Q turnover would record strong double-digit percentage growth higher than last year. The total orders, the total turnover, as well as the turnovers and orders for SMT equipment would hit a new high. (I do not hold the above stock)
Strategy:
Buy-in Price: $81.00, Target Price: $88.00, Cut Loss Price: $77.00

HAITONG SEC(6837)
Analysis:
Haitong Securities (6837) reported 3Q revenue to be RMB 4.474 billion, increased by 73.3% yoy. Net interest income increased 53.6%, while net profit recorded 103% growth. In the first nine months, total accumulated revenue increased 35.6% yoy, net profit grew 34.1% yoy, which was mainly due to the Hong Kong and Shanghai Connect effect, which stimulated substantial increase in stock market turnover in the mainland. Both the SSE and SSZ yesterday recored more than RMB 200 billion trading volume, which was favorable to the mainland brokers. meanwhile, Haitong International recently planned to acquire the Japanese listed asian equity research firm Japaninvest, in order to expand its equity research and global sales platform.
Strategy:
Buy-in Price: $12.75, Target Price: $14.00, Cut Loss Price: $12.35


China Construction Bank (939.HK) - Stable profit growth in line with expectation

-According to China Construction Bank’s (CCB or the Group) 3Q2014 results, as at the end of Sep, its accumulated net interest incomes amounted to RM323.237 billion, up 12.8% y-y approximately and the growth maintained stable. Intermediate business continued to increase due to the development of the market, but the growth rate slowed down. The accumulated net fee and commission incomes increased by 4.6% y-y to RMB83.801 billion;

-The Group‘s operating incomes recorded RMB415.415 billion, up 9.6% y-y, and net profits increased by 7.8% y-y to RMB190.298 billion, the profit growth met our previous expectation;

-The Group’s total assets increased by 8.9% to RMB16.74 trillion compared with the end of 2013. Net assets rose 12.4% to RMB1.2 trillion, equivalent to the BVPS of RMB4.79. Although there was the large decrease of investment revaluation reserve, surplus reserve and retained profits increased obviously, therefore CCB’s net assets still increased largely;

-The ability of CCB’s risk control was still quite good but the loan quality trended to go down. By the end of 3Q, NPL ratio increased by 0.14ppts to 1.13%, meanwhile, the NPLs grew RMB20.056 billion to RMB105.32 billion. The coverage ratio decreased by 33.75ppts to 234.47% mainly caused by the large increase of the NPLs, especially for doubtful and loss loans. Considering larger-than-expected growth of both amount and ratio of NPLs, CCB faces the risk of the accelerated deterioration of loan quality;

-The CAR of CCB decreased due to the implementation of new calculation method of capital, and the Group’s CAR decreased in 2013, but it increased obviously in 2014 through internal capital accumulation from profit outpacing that of risk-weighted assets and the issuance of qualifying capital instruments. By the end of Sep, CAR and Core Tier-1 CAR recorded to 14.53% and 11.65% respectively, up 0.90ppts and 1.19ppts respectively compared with the end of 2013, CCB’s CAR was still on the top of the peers, representing the smaller capital pressure for the bank relatively;

-In all, considering stable profit growth of CCB, in line with our expectation, we still hold cautiously optimistic view on the bank’s future performance, but expect the profit growth would go down continually and net profits should increase by 8% y-y in average in the next two years. Moreover, considering the risks of the deterioration of assets, we cut CCB’s 12-month target price to HK$6.50, around 13.6% higher than the latest closing price, equivalent to P/E4.7x and P/B0.9x in 2015 respectively, the valuation is quite attractive. Recommend Accumulate rating.

According to 3Q results, CCB’s interest incomes increased stably due to the stabilization of NIM, which was 2.8% in 3Q, the same as 1H.

How we view this

CCB is still the second largest bank in China in terms of total assets, and owns quite strong advantages of scale. By the end of 3Q, the profits maintained stable increase, but the growth of intermediate business incomes declined due to the decrease of consultancy and advisory fees and wealth management fees. Meanwhile, the Group’s asset quality trended to deteriorate due to the large increase of NPLs.

Investment Action

Considering stable profit growth of CCB, in line with our expectation, we still hold cautiously optimistic view on the bank’s future performance, but expect the profit growth would slow down continually and net profits should increase by 8% y-y in average in the next two years. Moreover, considering the risks of the deterioration of assets, we cut CCB’s 12-month target price to HK$6.50, around 13.6% higher than the latest closing price, equivalent to P/E4.7x and P/B0.9x in 2015 respectively, the valuation is quite attractive.

Profit increased stably and operating performance met expectation

As at the end of Sep, CCB’s accumulated net interest incomes amounted to RM323.237 billion, increased by around 12.8% y-y, and the growth maintained stable benefited from the stabilization of NIM as 2.80% in both 2Q and 3Q, increased by 0.06ppts compared with the end of 2013. We expect CCB’s NIM would be over 2.80% in 2014.

Intermediate business continued to increase stably due to the development of the market, the accumulated net fee and commission incomes increased by 4.6% y-y to RMB83.801 billion. There is no more information about the structure of intermediate business incomes, but according to 1H results, we expect it is mainly because of the continued decrease of consultancy and advisory fees and wealth management fees. However, we believe the traditional intermediate business incomes such as bank card fees would maintain fast growth.

Additionally, according to the comparison among the peers, the growth of CCB’s intermediate business incomes was on the bottom. The highest growth was BoCom, its net fee and commission income increased by 17.86% y-y to RMB22.984 billion, and ICBC’s fee grew 5.64% y-y to RMB100.885 billion. However, we note that the quarterly commission incomes of ICBC dropped in 3Q compared with the same period of last year while CCB still maintained stable growth.

In all, CCB’s profits increased stably due to the consistent growth of incomes, the Group‘s operating incomes recorded RMB415.415 billion, up 9.6% y-y, and net profits increased by 7.8% y-y to RMB190.298 billion, the profit growth met our previous expectation;

We expect CCB’s profit growth will continue to go down, and net profits should increase by 8% y-y in average in the next two years.

Slow-down of asset growth and loan quality trended to deteriorate

Loan growth of Chinese banks slowed down after 2008 due to strict economic policies released by the Chinese government, which controlled the loan growth in industries such as real estate and steel trade. CCB’s loan growth continued to decrease in 2013, which caused the growth of the asset scale to slow down.

As at the end of 3Q2014, the Group’s total assets increased by 8.9% to RMB16.74 trillion compared with the end of 2013. Net assets rose 12.4% to RMB1.2 trillion, equivalent to the BVPS of RMB4.79. Although there was the large decrease of investment revaluation reserve, surplus reserve and retained profits increased obviously, therefore CCB’s net assets still increased largely;

The Group’s net loans amounted to RMB9.1 trillion, up 8.9% compared with the end of 2013, the rate slowed down, however, customer deposits only increased by 6.2% to RMB12.98 trillion during the same period, with the loan to deposit ratio of 70.11%, and it would be 72.02% based on total loans, exceed the regulatory line of 70%. We can see that the bank’s pressure of attracting deposits is quite large under the continued decrease of the growth of deposits. We believe the loan to deposit ratio will go up continually based on the slow growth of deposits in future.

Additionally, CCB’s loan quality trends to deteriorate. As at the end of 3Q, NPL ratio increased by 0.14ppts to 1.13%, meanwhile, the NPLs grew RMB20.056 billion to RMB105.32 billion. The coverage ratio decreased by 33.75ppts to 234.47% mainly caused by the large increase of the NPLs, especially for doubtful and loss loans. Considering larger-than-expected growth of both amount and ratio of NPLs, CCB faces the risk of the accelerated deterioration of loan quality.

CAR increased with the smaller capital pressure

The CAR of CCB decreased due to the implementation of new calculation method of capital, and the Group’s CAR decreased in 2013, but it increased obviously in 2014 through internal capital accumulation from profit outpacing that of risk-weighted assets and the issuance of qualifying capital instruments. By the end of Sep, CAR and Core Tier-1 CAR recorded to 14.53% and 11.65% respectively, up 0.90ppts and 1.19ppts respectively compared with the end of 2013, CCB’s CAR was still on the top of the peers, representing the smaller capital pressure for the bank relatively.

Risk

Lower-than-expected profit growth;

Asset quality deteriorates due to the continued increase of NPLs;

Large decrease of share price in the short term.

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Recommendation on 31-10-2014
RecommendationAccumulate
Price on Recommendation Date$ 5.720
Suggested purchase priceN/A
Target Price$ 6.500
Writer Info
Xingyu Chen
(Research Analyst)
Tel: +86 21 5169 9400 – 105
Email:
chenxingyu@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
China Construction Bank93931/10/2014Accumulate6.500.000
Agile Property338317/10/2014Neutral3.83.96
Transportation and Automobiles Zhang Jing (86) 2151699200-103zhangjing@phillip.com.cn
Geely Automobile17528/10/2014Buy43.33
Air China75320/10/2014Accumulate5.164.56
Mainland Property Geng Chen (86) 2151699400-107chengeng@phillip.com.cn
Wanda Commercial Properties Group16929/09/2014Accumulate21.73
Color Life177822/09/2014Buy86.58
Insurance Xingyu Chen (86) 2151699400-105chenxingyu@phillip.com.cn
New China Insurance133615/08/2014Buy36.628
New China Insurance133616/07/2013Buy30.1422.2
Properties  
FORTUNE REIT77814/10/2014Accumulate7.326.92
China State Construction International Holdings Ltd331116/05/2014Buy15.813.16
Hotels and Entertainment Geng Chen (86) 2151699400-107chengeng@phillip.com.cn
Galaxy Entertainment2716/07/2014Accumulate7262.95
Galaxy Entertainment Group2716/04/2014Accumulate7868.7
New Energy  
China Suntien Green Energy95621/10/2014Buy2.331.93
GCL Poly380007/10/2014Buy3.752.88
Food, Beverage and Retail  
Sa Sa International17816/09/2014Reduce5.075.81
Samsonite International SA191012/09/2014Accumulate3126.55
Telecommunications  
COMBA Telecom Systems234230/10/2014Accumulate3.883.49
Peace Map Holding40223/10/2014買入0.470.34
Oil and Gas Geng Chen (86) 2151699400-107chengeng@phillip.com.cn
CIMC ENRIC389927/10/2014Buy107.67
Anton Oilfield Service333710/10/2014Neutral2.22.29
Software & Service Kay Ng (852) 2277 6751kayng@phillip.com.hk
KINGSOFT388829/10/2014Accumulate19.8317
SINOSOFT TECH129722/10/2014Accumulate2.942.59

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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