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24 Oct, 2014 (Friday)

            
BEST PACIFIC(2111)
Analysis:
Best Pacific Intl (2111) engaged in the manufacture and sales of the elastic fabric fabric, elastic ribbon and lace for the production of lingerie, the valuation was relatively attractive. The Group`s first half operating income was HK$ 845 million, an increase of 15.7% yoy. Profit attributable to shareholders was $95.55 million, down 4.5% yoy. Excluding one-off listing expenses and changes in fair value of financial derivative instruments and investment properties, the Group`s first half profit rose to $121 million, an increase of 7.9% yoy. The Group had eight production facilities in Dongguan City, Guangdong. The annual design capacity of elastic fabric lining, elastic ribbon and lace could reach 56.8 million meters, 975 million meters and 14.2 million meters respectively. It planned to further improve productivity by the ninth production facilities (total area of 34,858 square meters) that is expected to start next year. The estimated 2014 annual profit may reach $270 million, an increase of 26.2% yoy, with around 12.2 times forecasted PE, which is lower than COSMO Lady (2298) about 18 times forecasted PE. (I do not hold the above stock)
Strategy:
Buy-in Price: $3.20, Target Price: $3.60, Cut Loss Price: $3.00

CHINA CNR(6199)
Analysis:
Yesterday China CNR (6199) announced to winning of the Boston subway project to provide 284 subway cars for the Boston Red Line and Orange Line subway, with the bid amount of about RMB 3.485 billion. Since 2010, CNR was tracking on the Boston subway tenders, and after five years of efforts, it is currently the only China vehicle manufacturing company landing on American subway. In addition, since the Boston subway was built in 1897, which was one of the world`s oldest subway city. The vehicle related equipments required continuous updates currently, which may becomes CNR future source of income.
Strategy:
Buy-in Price: $7.60, Target Price: $8.50, Cut Loss Price: $7.30


China Macroeconomic Report - Economic growth slowed down

-According to the data of NBSC on 21st Sep, China’s economic growth maintained stable, but declined quarter by quarter. As at the end of 3Q, China’s accumulated GDP increased by 7.4% y-y to RMB41.99 trillion, flat growth for the previous quarter. In the first three quarters, the growths of GDP were 7.4%, 7.5% and 7.3% respectively. We expect it would be around 7.2-7.3% in 4Q2014;

-By the end of Sep, China’s foreign reserve amounted to US$3.89 trillion accumulatively, up 6.14%, the lowest record since April 2013, and both the growth and absolute value started to go down. Main reasons of the consistent growth are FDI, trade surplus, and international capital inflows, the current trend represents international investors hold conservative prospects for China’s economy, the speed of capital inflow may go down in future;

-According to CPI, it trended to go down in 2014. By the end of Sep, China’s CPI decreased to 1.6%, down 0.4ppts compared with Aug, the lowest in the last 56 months. Therefore we believe there is a easing inflationary pressure in 2014. Currently the inflationary pressure reduces largely, but we believe China may face the risk of deflation in future if CPI continued to decrease under the downward trend of macro economy;

-The PBOC has made the easing monetary policy after 2012 in order to reduce the pressure of the slow-down of economy growth. By the end of Sep 2014, 1-year deposit and lending interest rates of Chinese financial institutions maintained on 3% and 6% respectively;

-According to the money supply, based on the latest data from the PBOC, as at the end of Sep 2014, China’s M1 and M2 increased by 4.77% and 11.57% to RMB32.72 trillion and RMB120.21 trillion respectively;

-The PBOC has controlled loans and deposits strictly since 2012, and the growths of loans and deposits of Chinese financial institutions maintained at the low level. The growth of deposit of residents continued to decrease while the growth of loans also decreased. As at the end of Sep, deposit of residents increased by 8.53% to RMB48.09 trillion. RMB loans of China’s financial institutions reached RMB79.58 trillion with the y-y growth rate of 13.23%, lower than 14.27% in 3Q2013. It is worth noting that deposits of residents decreased slightly in Jul and Aug, and rebounded in Sep;

-According to the latest data from MOFCOM, by the end of Sep 2014, China’s accumulated FDI amounted to US$87.36 billion (excluding banking, securities and insurance), down 1.4% y-y. Newly-added monthly FDI accorded to US$9.01 billion, up slightly 1.9% y-y, increased largely compared with Aug;

-PMI maintained stable growth in 2014, close to 50%. According to the data from the NBSC and CFLP, by the end of Sep, China’s PMI was 51.1%, and New Order Index was 52.2%, up 0.1 and 0.2ppts compared with the end of 2013 respectively, representing the stable range of economy currently;

-According to investments, by the end of Sep 2014, China’s investment in fixed assets in urban areas achieved to RMB35.78 trillion, increased by 15.71% y-y of which the investment in property development decreased obviously by 12.49% y-y to RMB6.88 trillion. Residential property investment reached to RMB4.67 trillion accumulatively, up 11.3% y-y, 1.1ppts higher than that of Aug, around 68.0% of total property investment;

-In 2014 the demand of domestic consumption decreased, and the growth rate slowed down, the willing of consumption of customers reduced due to the increase of living expenses in the first-tier cities. By the end of Sep, retail sales of consumer goods reached to RMB18.92 trillion, up 12.0% y-y, online retails sales increased largely by 49.9% to RMB1.82 trillion. Monthly retail sales grew 11.6% y-y to RMB2.3 trillion;

-China’s foreign trade was improved slightly, but the growth rate stayed at the low level in recent years. By the end of Sep 2014, China’s monthly imports and exports increased by 15.3% and 7% y-y to US$182.745 and 213.6878 billion respectively. Monthly trade surplus recorded to US$30.94 billion, up significantly 103.42% y-y;

-In the middle and long term, based on a 3-year investment, the performance of China’s stock market disappointed, much lower than other major markets. However, in 2014, China’s stock market rebounded, and it was better than most of major markets based on a 1-year investment, only lower than that of India. In the long run, the correlation between developed markets and emerging markets is higher than the neutral level (R^2=0.6168≈62%) from 2005 to Oct 2014, representing the increase of the impact from developed markets to emerging markets including China, which is mainly because of the higher interrelationship among markets under the process of internationalization;

-In summary, China’s economic scale maintains stable growth, but still faces serious challenges under the current uncertainty of the global economy, especially under the downward trend of economic growth, we believe the main emphasis of the work for Chinese central government in future are trying to maintain the stable economic growth, reduce the trade dispute, promote the industrial restructuring, control the growth of loans and prevent the systematic risks from shadow bank.

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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 Macroeconomic Report24/10/20140.000
Agile Property338317/10/2014Neutral3.83.96
Transportation and Automobiles Zhang Jing (86) 2151699200-103zhangjing@phillip.com.cn
Air China75320/10/2014Accumulate5.164.56
China Eastern Airlines67013/10/2014Accumulate2.812.65
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  
Peace Map Holding40223/10/2014買入0.470.34
ZTE Corporation76316/10/2014Buy21.5816.68
Oil and Gas Geng Chen (86) 2151699400-107chengeng@phillip.com.cn
Anton Oilfield Service333710/10/2014Neutral2.22.29
Jutal Offshore Oil Services330303/09/2014Buy3.83.04
Software & Service Kay Ng (852) 2277 6751kayng@phillip.com.hk
SINOSOFT TECH129722/10/2014Accumulate2.942.59
IGG800206/10/2014Accumulate3.953.47

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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