Asia Pacific Equity Research 26 April 2020
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China Equity Strategy Building confidence in the economic recovery
Retracing COVID-19 drawdowns. After the sharp sell-off in March, equity China Equity Strategy markets had a notable rebound over the past month. MSCI China rose 14%, Haibin Zhu AC underperforming EM and DM by 3.6% and 9.2%, respectively. While the equity (852) 2800-7039 rally has been less spectacular in China equities relative to developed markets, [email protected] looking at how much of the COVID-19 induced equity losses have been retraced, Bloomberg JPMA HZHU
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www.jpmorganmarkets.com Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Table of Contents Investment Summary ...... 3 Key Thematic Drivers...... 7 Market Strategy...... 15 China Model Portfolio ...... 18 China Model Portfolio Performance Review ...... 19 MSCI China Index Target ...... 20 Earnings Outlook: 3.7%/18.3% EPS Growth in 2020/21E....22 EPS Tracker – Monitoring Consensus Earnings Revisions27 Market Valuations...... 28 MSCI China Evolution – From Old to New Economy...... 31 The 467 A shares in MSCI China ...... 32 Accessing China equities ...... 34 MMA Fund Flows and Positioning ...... 35 Q-score strategy...... 37 Sector views ...... 39 China Model Portfolio Stocks – Investment Case ...... 47 Appendix ...... 52
2 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Investment Summary Retracing COVID-19 drawdowns. After the sharp generally came in-line/ahead of our analysts’ sell-off in March, equity markets saw notable expectation, with reported aggregate blended earnings rebound over the past month. MSCI China rose 14%, falling 4.4%oya. Sector-wise, retail companies underperforming EM and DM by 3.6% and 9.2%, delivered stable online profitability thanks to the respectively. While the equity rally has been less increase in online consumption and better cost spectacular in China equities relative to DM markets, control, while offline was largely affected by the looking at how much of the COVID-19 induced store closures. China telcos reported flat growth for equity losses have been retraced, MSCI China has 1Q, with weak mobile revenue offsetting a robust recovered roughly 56% of the losses, which is in-line fixed-line business. Materials and utilities were hit by with the retracement % of US equities (SP500 50%, the sharp decline in sales volume and power Nasdaq 55%). Indeed, while China equities have generation. Our bottom-up MSCI China CY20/21E generally moved along with global markets, volatility growth forecasts currently stand at 3.7%oya and has been less extreme, anchored by domestic A- 18.3%oya respectively. shares which have a lower beta to market moves than Valuations: MSCI China has re-rated by 19% from offshore China equities. its trough at 10x in late-March to 11.9x currently, 1Q GDP contracted 6.8%, but March data better which is in-line with its 10y average at 12x. The than expected. China’s real GDP fell 6.8%oya in increase in forward PE is driven by the 15% increase 1Q20, however the monthly data showed that March in price and a 4% decline in forward EPS. Energy activity rebounded from the dismal Jan-Feb numbers. sector re-rated the most by 58%, largely due to the On the production side, industrial production (IP) continuous EPS downgrade amid the falling oil price. beat expectations notably and recorded a sharp Banks and diversified financials, which had sequential rebound in March (+36.8%m/m sa), while underperformed during the recent market rebound, re- the March trade report which also was more resilient rated the least by c.8%. Valuations of some of the than expected. Both production and trade in March cyclical sectors including real estate (5.2x) and likely benefitted from some pent up demand industrials (8.6x) remain low, whereas IT and following the wide-scale lockdown in February. healthcare are trading at 1.5-2 standard deviation Meanwhile, retail sales rebounded by 84%m/m sa in above mean. March, and the fixed asset investment (FAI) decline Investment themes: i) Rotation into cyclical sectors narrowed from -24.5%oya in Jan-Feb to -9.3%oya in over defensive as economic recovery takes hold, with March. Overall, the rebound in March gives us recovery in 2Q led by domestic consumption, real confidence that a V-shaped recovery will continue to estate and infra-FAI (policy tailwinds in "new and take place in the coming quarters, driving a cyclical old"); ii) sectors that could benefit from a more recovery. We have moderately raised our full year permanent change in consumer behavior due to the growth forecast to 1.3% from 1.1% previously. outbreak include healthcare/grocery retailers/online Better visibility on COVID-19, but risks of second gaming/e-commerce; iii) expect industry waves and return of US-China tension remain. consolidation, benefitting industry winners with low Global COVID-19 infections remain a key driver in liability ratios and strong balance sheet.; iv) within market sentiment. On the positive side, global financial sector: less bearish on banks as expected infection growth curve did flatten over the past month, deposit rate cut in 2Q and lower financial market as the average daily growth of ex. China active rates ease funding cost amidst economic recovery; confirmed cases came down to 4.8% in April vs. 16% more cautious on insurance. of March, which has led to increasing visibility and China Model Portfolio change: We increase our discussions on a timeline for relaxation of lockdown cyclical exposure by adding Midea under consumer policies in the US and other countries that are discretionary (upgrade to OW) and SANY under the approaching or have moved beyond the peak. industrial sector. We move utilities to UW by selling Nonetheless, there have been smaller outbreaks the defensive plays Yangtze Power and GDI. Within within China, which at this stage look manageable the financial sector, we rotate from insurance and contained. Meanwhile, potential re-escalation in (downgrade to UW) into banks by trimming Ping An the US and China confrontation remains an overhang Insurance and add BoCom. after the virus concerns abate. We are OW industrials, consumer staples, healthcare, Earnings: The 1Q20 corporate earnings results consumer discretionary and real estate; Neutral season is underway, with 85 MSCI China constituents diversified financials, materials, communication reporting their earnings this week, representing ~12% services and IT (prefer EV-battery maker; UW tech of the index that report quarterly. The results hardware); UW energy, utilities, banks and insurance.
3 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Table 2: China economic heatmap
%oya 4/18 5/18 6/18 7/18 8/18 9/18 10/18 11/18 12/18 1/19 2/19 3/19 4/19 5/19 6/19 7/19 8/19 9/19 10/19 11/19 12/19 1/20 2/20 3/20 Consumption Passenger vehicle sales 11.2 7.9 2.3 -5.3 -4.6 -12.0 -13.0 -16.1 -15.8 -17.7 -17.4 -6.9 -17.7 -17.4 -7.8 -3.9 -7.7 -6.3 -5.8 -5.4 -0.9 -20.5 -81.7 -48.4 Retail sales (value) 9.4 8.5 9.0 8.8 9.0 9.2 8.6 8.1 8.2 8.2 8.2 8.7 7.2 8.6 9.8 7.6 7.5 7.8 7.2 8.0 8.0 -20.5 -20.5 -15.8 WRH 7.8 5.6 6.4 5.7 5.9 5.6 3.6 2.0 2.2 3.2 3.2 5.0 1.8 5.0 9.8 2.6 1.6 2.9 0.9 4.2 4.3 -22.2 -22.2 -12.9 Food 8.0 7.3 13.0 9.5 10.1 13.6 7.7 10.6 11.3 10.1 10.1 11.8 9.3 11.4 9.8 9.9 12.5 10.4 9.0 8.9 9.7 1.7 1.7 19.2 Garment/footwear 9.2 6.6 10.0 8.7 7.0 9.0 4.7 5.5 7.4 1.8 1.8 6.6 -1.1 4.1 5.2 2.9 5.2 3.6 -0.8 4.6 1.9 -30.9 -30.9 -34.8 Cosmetics 15.1 10.3 11.5 7.8 7.8 7.7 6.4 4.4 1.9 8.9 8.9 14.4 6.7 16.7 22.5 9.4 12.8 13.4 6.2 16.8 11.9 -14.1 -14.1 -11.6 Jewelry 5.9 6.7 7.9 8.2 14.1 11.6 4.7 5.6 2.3 4.4 4.4 -1.2 0.4 4.7 7.8 -1.6 -7.0 -6.6 -4.5 -1.1 3.7 -41.1 -41.1 -30.1 Daily-use items 12.0 10.3 15.8 11.3 15.8 17.4 10.2 16.0 16.8 15.9 15.9 16.6 12.6 11.4 12.3 13.0 13.0 12.0 12.0 17.5 13.9 -6.6 -6.6 0.3 Household electronics 6.7 7.6 14.3 0.6 4.8 5.7 4.8 12.5 13.9 3.3 3.3 15.2 3.2 5.8 7.7 3.0 4.2 5.4 0.7 9.7 2.7 -30.0 -30.0 -29.7 Online goods sales 25.0 27.3 30.5 27.3 29.2 25.8 25.2 16.4 32.3 19.5 19.5 25.1 25.0 21.8 20.0 17.1 17.7 18.3 19.2 26.7 23.0 3.0 3.0 6.3 Air passenger traffic 15.3 11.5 12.9 10.7 12.1 8.0 10.8 7.8 7.5 14.9 11.1 4.1 4.7 8.7 8.1 10.3 8.3 8.9 5.4 6.0 5.1 -5.3 -84.5 -71.7 Freight volume 7.4 8.5 6.3 6.2 7.2 8.1 9.5 6.5 8.9 6.9 0.9 8.6 6.1 5.6 5.5 6.8 5.4 5.3 2.5 5.6 5.1 -27.9 -27.9 .. No of delivered package 25.8 25.1 24.2 27.3 25.7 24.1 25.2 24.4 29.0 13.5 38.7 23.3 31.1 25.2 29.1 28.6 29.3 25.0 22.7 21.5 24.3 -16.4 0.2 23.0 Insurance premium 17.4 9.7 14.7 8.2 16.5 14.6 22.7 18.9 18.9 24.1 10.0 6.9 9.4 11.0 12.8 10.8 5.9 8.7 7.1 7.3 16.5 6.8 -14.4 .. Caixin services PMI 52.9 52.9 53.9 52.8 51.5 53.1 50.8 53.8 53.9 53.6 51.1 54.4 54.5 52.7 52.0 51.6 52.1 51.3 51.1 53.5 52.5 51.8 26.5 43.0 Industrial activities Fixed asset investment (YTD) 7.0 6.1 6.0 5.5 5.3 5.4 5.7 5.9 5.9 6.1 6.1 6.3 6.1 5.6 5.8 5.7 5.5 5.4 5.2 5.2 5.4 -24.5 -24.5 -16.1 Manufacturing (YTD) 4.8 5.2 6.8 7.3 7.5 8.7 9.1 9.5 9.5 5.9 5.9 4.6 2.5 2.7 3.0 3.3 2.6 2.5 2.6 2.5 3.1 -31.5 -31.5 -25.2 Real estate (YTD) 10.3 10.2 9.7 10.2 10.1 9.9 9.7 9.7 9.5 11.6 11.6 11.8 11.9 11.2 10.9 10.6 10.5 10.5 10.3 10.2 9.9 -16.3 -16.3 -7.7 Infrastructure (YTD) 12.4 9.4 7.3 5.7 4.2 3.3 3.7 3.7 3.8 4.3 4.3 4.4 4.4 4.0 4.1 3.8 4.2 4.5 4.2 4.0 3.8 -30.3 -30.3 -19.7 Industrial production 7.0 6.8 6.0 6.0 6.1 5.8 5.9 5.4 5.7 5.3 5.3 8.5 5.4 5.0 6.3 4.8 4.4 5.8 4.7 6.2 6.9 -13.5 -13.5 -1.1 Steel products production 8.5 10.8 7.2 8.0 6.4 9.8 11.5 11.3 9.1 10.7 10.7 11.4 11.5 11.5 12.6 9.6 9.8 6.9 3.5 10.4 11.3 -3.4 -3.4 -0.1 Cement production 3.2 1.9 0.0 1.6 5.0 5.0 13.1 1.6 4.3 0.5 0.5 22.2 3.4 7.2 6.0 7.5 5.1 4.1 -2.1 8.3 6.9 -29.5 -29.5 -18.3 Apparent oil demand 9.3 5.4 6.8 12.8 5.4 4.9 5.3 6.3 5.8 8.2 8.6 2.6 4.1 5.1 6.4 -0.2 9.1 5.5 7.2 4.2 13.9 -5.1 -6.2 -7.9 Commercial vehicle sales 11.7 15.5 17.5 2.3 0.9 -9.0 -5.1 1.7 5.2 -1.9 8.3 2.6 0.4 -11.8 -17.8 -6.3 -2.8 1.9 7.0 6.9 3.9 -7.5 -67.1 -22.6 Railway freight volume 1.4 11.8 10.1 8.7 6.7 9.7 10.1 14.0 14.0 8.2 -2.2 2.3 10.0 6.8 7.5 9.1 6.9 5.8 9.0 9.2 13.2 4.5 4.5 .. Excavator sales volume 84.5 71.4 58.8 45.3 33.0 27.7 44.9 14.9 14.4 10.0 68.7 15.7 7.0 -2.2 6.6 11.0 19.5 17.8 11.5 21.7 25.8 -15.4 -50.5 11.6 Residential sales -4.4 8.5 5.6 11.0 2.7 -0.8 -1.3 -3.8 2.5 -3.2 -3.2 1.9 2.8 -4.0 -1.7 3.4 7.3 4.6 4.5 3.0 0.6 -39.2 -39.2 -13.8 Residential new starts 4.1 24.1 20.8 36.0 31.2 17.7 14.5 22.5 23.4 4.3 4.3 19.0 18.5 5.1 7.8 5.4 4.4 8.2 27.6 -1.0 8.1 -44.4 -44.4 -11.0 Residential under construction 2.0 2.5 3.2 3.9 4.6 4.9 5.2 5.7 6.3 8.3 8.3 9.7 10.4 10.4 10.3 10.4 10.1 10.1 10.4 10.1 10.1 4.6 4.6 4.1 Total power generation 6.9 9.8 6.7 5.7 7.3 4.6 4.8 3.6 6.2 8.3 8.3 5.4 3.8 0.2 2.8 0.6 1.7 4.7 4.0 4.0 3.5 -8.2 -8.2 -4.6 Caixin manufacturing PMI 51.1 51.1 51.0 50.8 50.6 50.0 50.1 50.2 49.7 48.3 49.9 50.8 50.2 50.2 49.4 49.9 50.4 51.4 51.7 51.8 51.5 51.1 40.3 50.1 NBS manufacturing PMI 51.4 51.9 51.5 51.2 51.3 50.8 50.2 50.0 49.4 49.5 49.2 50.5 50.1 49.4 49.4 49.7 49.5 49.8 49.3 50.2 50.2 50.0 35.7 52.0 Import by region EU 27.8 18.3 -6.5 19.7 10.3 9.1 12.3 6.0 -2.7 8.5 2.5 -4.9 4.4 1.8 8.5 -3.3 -5.2 -6.5 -3.0 2.6 9.9 -18.9 -18.9 -6.5 US 20.3 11.4 9.6 11.1 2.2 -1.2 -1.8 -25.0 -35.8 -41.1 -26.2 -25.8 -25.8 -26.8 -31.4 -19.1 -22.3 -15.7 -14.3 2.7 7.8 2.4 2.4 -12.6 Japan 17.1 22.5 0.6 23.5 10.5 3.1 11.4 -1.1 -11.4 -1.1 0.2 -14.1 1.4 -15.9 -5.0 -13.0 -8.8 -6.7 -7.3 -0.1 16.4 -9.4 -9.4 4.8 EM Asia 23.6 27.0 15.7 29.2 13.9 16.5 17.2 -6.4 -16.1 -6.7 -10.8 -6.9 1.5 -6.9 -8.9 -8.0 -2.6 -9.3 -5.9 5.6 20.5 -1.7 -1.7 7.1 Brazil 1.9 26.3 15.9 18.1 28.2 40.8 94.4 58.2 41.8 50.2 22.6 7.6 20.4 -17.8 -22.1 17.6 0.8 -15.2 -7.1 3.6 10.9 -3.4 -3.4 4.2 Australia -3.1 22.4 12.0 33.7 33.8 2.9 6.1 14.5 -3.4 10.6 3.9 2.4 18.0 5.2 8.8 18.7 32.2 25.9 11.5 -9.3 42.5 5.8 5.8 -1.6 Total import 22.2 26.2 13.8 27.0 20.7 14.3 20.3 2.9 -7.6 -0.9 -4.4 -7.2 4.5 -8.2 -6.8 -4.9 -5.5 -8.2 -6.2 0.8 16.5 -4.0 -4.0 -0.9 Credit conditions Total social financing 12.7 12.2 11.8 11.5 11.5 11.2 10.8 10.3 10.3 10.9 10.6 11.2 10.8 11.0 11.2 10.8 10.7 10.7 10.6 10.7 10.7 10.7 10.7 11.5 Bank loans 12.7 12.6 12.7 13.2 13.2 13.2 e 13.1 13.5 13.4 13.4 13.7 13.5 13.4 13.0 12.6 12.4 12.5 12.4 12.4 12.3 12.1 12.1 12.7 M2 growth 8.3 8.3 8.0 8.5 8.2 8.3 8.0 8.0 8.1 8.4 8.0 8.6 8.5 8.5 8.5 8.1 8.2 8.4 8.4 8.2 8.7 8.4 8.8 10.1 Source: Bloomberg, CEIC, and J.P. Morgan. Note: Green = acceleration, yellow = deceleration, red= contraction. *WRH = wholesale, retail and hospitality.
4 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Table 3: 2020E MSCI China consensus EPS integer by sector 3/19 4/19 5/19 6/19 7/19 8/19 9/19 10/19 11/19 12/19 1/20 2/20 3/20 4/20 MSCI China 7.9 7.9 7.7 7.4 7.4 7.1 7.1 7.2 7.2 7.0 7.1 6.9 6.5 6.0 Cons Disc. 12.1 12.1 12.0 11.1 11.1 10.8 10.7 10.9 11.0 11.2 11.2 10.6 9.8 8.5 Cons. Stpl. 62.4 62.8 61.4 62.2 62.0 60.3 61.3 62.8 64.2 66.5 66.5 66.4 65.6 48.6 Comm. Serv. 7.0 7.0 6.5 6.5 6.4 6.0 6.0 6.0 6.0 6.0 6.0 6.0 5.8 5.3 Energy 57.2 57.3 55.8 55.2 54.3 52.3 52.3 52.3 52.4 51.8 52.8 49.9 35.5 50.3 Financials 85.4 84.4 81.2 79.8 79.9 77.6 77.1 77.9 78.2 77.5 78.3 77.6 76.2 72.2 Banks 53.1 52.3 50.4 49.8 49.7 48.0 47.9 48.3 48.5 48.0 48.5 48.0 47.4 44.5 Insurance 62.6 62.5 61.4 61.7 62.8 62.5 62.7 63.9 64.7 64.4 65.1 63.7 62.3 63.8 Dv. Fin. 16.0 16.2 14.7 13.7 13.6 13.0 11.9 11.9 11.9 11.9 11.8 11.8 11.2 9.1 Healthcare 11.2 11.0 10.8 10.3 10.3 10.1 9.8 9.8 9.7 8.3 8.2 8.0 7.2 5.5 Industrials 15.9 15.7 15.3 15.0 15.0 14.5 14.1 14.0 14.1 13.1 13.2 13.1 12.5 12.0 IT 43.2 43.3 41.9 40.5 39.8 37.6 36.4 36.0 35.9 33.5 33.8 33.5 31.9 25.4 Materials 109.0 110.3 106.7 101.6 99.0 95.9 90.0 89.0 89.0 85.2 87.7 87.1 85.4 78.1 Real Estate 326.9 334.2 331.3 327.2 326.2 314.4 313.1 313.2 311.1 307.3 307.6 300.7 289.4 234.4 Utilities 68.4 67.8 67.2 66.9 68.1 66.9 65.6 65.0 64.8 64.1 64.6 62.9 61.5 54.0 Source: MSCI, IBES, Datastream, J.P. Morgan. Red color indicates a decline in EPS integer compared to previous month; Green color indicates an increase in EPS integer compared to previous month.
Table 4: 2021E MSCI China consensus EPS integer by sector 3/19 4/19 5/19 6/19 7/19 8/19 9/19 10/19 11/19 12/19 1/20 2/20 3/20 4/20 MSCI China 8.5 8.8 8.7 8.5 8.5 8.1 8.1 8.1 8.1 8.0 8.0 7.9 7.6 6.3 Cons Disc. 13.6 13.8 14.8 14.2 14.3 13.7 13.7 13.9 13.9 14.2 14.1 13.8 13.4 9.6 Cons. Stpl. 71.4 69.6 68.4 70.3 70.0 68.4 69.4 70.6 71.2 73.5 73.4 73.0 72.2 64.3 Comm. Serv. 8.4 8.3 7.7 7.6 7.5 7.0 7.0 7.1 7.1 7.1 7.1 7.1 6.8 5.6 Energy 58.1 59.0 58.0 57.5 56.0 53.7 54.2 54.2 54.1 53.5 54.2 53.3 42.1 27.0 Financials 92.1 90.3 87.7 86.9 87.3 84.4 84.2 85.1 85.2 84.6 85.1 84.0 82.4 74.1 Banks 56.4 55.2 53.8 53.4 53.4 51.5 51.5 52.1 52.0 51.6 52.1 51.4 50.5 46.3 Insurance 68.1 69.2 68.9 70.1 71.9 70.4 71.3 72.5 73.2 72.5 72.9 71.1 70.2 60.0 Dv. Fin. 15.6 18.3 16.3 15.4 15.2 14.6 13.6 13.4 13.4 13.5 13.2 13.2 12.5 10.8 Healthcare 12.7 12.8 12.8 12.3 12.3 12.0 11.8 11.8 11.7 10.3 10.2 10.1 9.1 6.8 Industrials 14.3 17.2 16.8 16.4 16.3 15.9 15.5 15.4 15.4 14.4 14.5 14.5 14.3 11.6 IT 47.6 48.2 49.0 47.0 46.7 44.4 43.2 43.0 43.1 40.4 40.7 40.7 39.3 29.9 Materials 108.1 114.6 110.2 104.6 102.1 98.8 94.5 93.0 92.8 90.4 92.9 93.3 93.0 82.8 Real Estate 380.2 395.6 387.0 384.2 382.4 367.9 364.3 365.7 365.6 360.8 359.5 350.9 336.9 276.9 Utilities 80.8 77.3 76.1 74.5 75.4 73.9 72.3 71.8 71.7 71.0 71.6 69.7 68.3 59.1 Source: MSCI, IBES, Datastream, J.P. Morgan. Red color indicates a decline in EPS integer compared to previous month; Green color indicates an increase in EPS integer compared to previous month.
5 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Table 5: 2020E MSCI China consensus earnings breadth by sector: number of companies seeing (upgrades – downgrades) / (upgrades + downgrades) 3/19 4/19 5/19 6/19 7/19 8/19 9/19 10/19 11/19 12/19 1/20 2/20 3/20 4/20 MSCI China -27 -14 -13 -18 -19 -26 -20 -18 -14 -4 -2 -26 -42 -61 Cons Disc. -52 -22 -28 -42 -29 -42 -32 -18 -12 -11 -5 -57 -76 -82 Cons. Stpl. 0 0 33 39 0 27 -4 9 38 0 -14 -48 -45 -54 Comm. Serv. -20 -14 4 13 -74 -60 -25 -50 -42 -33 -11 -24 -45 -56 Energy -13 0 -27 -50 -29 20 -20 -25 0 -7 -25 -50 -33 -47 Financials -24 -15 -23 -9 -4 -22 -22 24 3 -12 20 -30 -29 -44 Banks -57 -79 -33 -31 -29 -21 -41 23 0 -68 50 -45 -59 -72 Insurance -54 8 33 69 69 54 23 33 38 38 8 -14 -14 -14 Dv. Fin. 26 44 -40 -38 -27 -65 -24 20 -13 11 -12 5 26 14 Healthcare -47 -29 -13 -52 3 -19 -20 -16 -39 -3 -45 15 -12 -52 Industrials -3 -9 -18 -10 -21 -44 -8 -30 -11 -3 3 -17 -38 -69 IT -56 -13 -40 -64 -14 -35 -18 -33 -23 36 11 -14 -36 -68 Materials -42 -45 -40 -47 -33 -24 -50 -47 -14 10 19 -17 -50 -56 Real Estate -33 29 48 9 -19 -10 0 4 -23 -24 -33 -33 -52 -63 Utilities 0 -28 0 33 -5 -30 -13 -43 -50 -40 14 -67 -81 -73 Source: MSCI, IBES, Datastream, J.P. Morgan. Red color indicates negative earnings breadth; Green color indicates positive earnings breadth.
Table 6: 2021E MSCI China consensus earnings breadth sector: number of companies seeing (upgrades – downgrades) / (upgrades + downgrades) 3/19 4/19 5/19 6/19 7/19 8/19 9/19 10/19 11/19 12/19 1/20 2/20 3/20 4/20 MSCI China 2 8 2 -15 -11 -22 -16 -6 -10 1 -1 -18 -32 -56 Cons Disc. 50 40 -26 -22 0 -33 -18 -6 -8 -15 -19 -33 -65 -71 Cons. Stpl. 20 6 41 5 14 18 0 16 28 -12 -3 -26 -37 -49 Comm. Serv. 18 -47 18 -24 -27 -74 -13 -33 -17 0 -11 -21 -29 -63 Energy -71 0 -17 -54 -23 33 -7 -41 0 20 -25 -30 -58 -47 Financials -50 -24 -2 14 13 -17 -9 48 2 -32 9 -26 -19 -46 Banks -83 -70 17 -29 22 -41 -12 60 -21 -80 20 -52 -56 -86 Insurance 50 9 33 85 54 54 38 50 54 23 -8 -23 -29 -71 Dv. Fin. - 27 -50 33 -60 -30 -31 26 0 -18 4 4 23 7 Healthcare -14 -16 36 -27 6 -26 -11 -19 -56 47 -24 8 -22 -54 Industrials 50 21 13 -9 -12 -23 -25 -21 -5 12 9 -8 -17 -63 IT 43 22 -44 -41 -8 -27 -6 -11 -16 33 31 -2 -22 -52 Materials - 50 -26 -41 -53 -12 -35 -24 -23 0 25 -23 -21 -39 Real Estate - 5 13 14 -26 -17 -21 -15 0 -31 -39 -33 -52 -57 Utilities 50 29 37 -33 -30 -43 -18 -5 -26 -26 -24 -50 -90 -82 Source: MSCI, IBES, Datastream, J.P. Morgan. Red color indicates negative earnings breadth; Green color indicates positive earnings breadth.
6 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Key Thematic Drivers
Retracing COVID-19 drawdowns unprecedented fiscal stimulus packages announced across countries have provided some relief to the After the sharp sell-off in March, equity markets had a building market anxiety. On the technical side, quarter- notable rebound over the past month. MSCI China rose end fund rebalancing also drove passive equity inflows at 14%, underperforming EM and DM by 3.6% and 9.2%, the end of March following the sharp sell-off during the respectively. While the equity rally has been less month (link). Overall, given the recent moves many spectacular in China equities relative to DM markets, major indices are once again approaching bull market looking at how much of the COVID-19 induced equity status, however it is still debatable if we are just losses have been retraced, MSCI China has recovered witnessing a bear market rally. For China, given its status roughly 56% from the trough levels, which is in-line with as FIFO (first-in first-out) in the GCC, we think there are the retracement % of US equities (S&P500 50%, Nasdaq fundamental reasons such as the March economic data 55%). Indeed, while China equities have generally moved pointing at a rebound in the coming quarters, supporting along with global markets, volatility has been less extreme, the more constructive view on China equities. We have anchored by domestic A-shares which have a lower beta to recommended to position for economic recovery in early market moves than offshore China equities. April (link), as cyclicals tend to outperform when PMIs Figure 1: Equity market performance reaccelerate from sub 50 levels.
Figure 2: Cyclicals tended to outperform after PMI reclaimed the 50% threshold Cyclical vs. Defensive PMI (RHS) 130 PMI at 50 54 120 52 110 50 100
90 48
80 46 9 9 9 9 9 9 9 9 9 9 9 0 0 0 9 0 1 1 1 1 1 1 1 1 1 1 1 2 2 2 1 2 ------l t r r r r y v c b n n g p b n c u a a p p a o e e a u u e e Source: MSCI, Bloomberg. a J A O A J J J M F M F A S N D M Table 7: MSCI China sector performance Source: MSCI, NBS, J.P. Morgan Feb 19 - Mar 23 (market Mar23 - Apr 23 % of Indeed, the recovery in China equities has been slightly correction) (market rally) Net retracement different than global trends in terms of sector allocation. Healthcare -20.3 27.1 6.8 106.2 Global market sector leadership continues to stay highly Staples -12.9 18.4 5.5 124.3 Comm. Services -18.4 16.3 -2.1 72.3 defensive, with Tech, Healthcare, Staples and Utilities Energy -31.2 15.8 -15.4 34.9 outperforming the cyclicals (link). In contrast, China Discretionary -21.4 15.6 -5.8 57.5 equities seems to be rotating away from defensive plays Materials -20.1 15.4 -4.7 61.4 and into cyclicals since April (Figure 3). Unsurprisingly, Real estate -24.6 14.6 -10.0 44.8 Industrials -19.9 13.9 -6.0 56.0 defensive plays such as healthcare and staples amidst Utilities -20.8 12.9 -8.0 48.8 COVID-19 have been the constant winners, however for IT -24.8 10.9 -13.9 33.1 April, cyclicals such as durables, materials and Financials -16.5 5.8 -10.7 29.4 semiconductors outperformed, in part driven by targeted MXCN INDEX -20.0 14.0 -6.0 56.2 policy support including: (i) subsidy/consumption Source: MSCI, J.P. Morgan. Note: color red/green refer to under/outperformance vs. MSCI China coupons for discretionary (e.g. auto, home appliance and durables), (ii) support for FAI and infrastructure The broad retracement of global equities has been driven investment that improves the demand outlook of by signs of stabilization of COVID-19 infection rates in materials, and (iii) acceleration in new infrastructure some major countries as well as increasing visibility on investment (IT, cloud, 5G). relaxation of lockdown protocols. In addition,
7 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Figure 3: Cyclicals started to outperform Defensives in April with higher fiscal deficit, to be confirmed at the annual NPC meeting (likely in late May), more rate cuts and RRR cuts, and further detailed supports for various industries such as consumption, infra and technology, (ii) market attention will shift away from 1Q earnings results to economic recovery in coming months, (iii) improving data points (e.g. PMI) that always induce cyclicals to outperform historically.
Apart from the ongoing cyclical rotation, divergences among different groups of investors are emerging (onshore vs. offshore). Following the liquidity driven rally in February, there are signs that waning onshore
Source: MSCI, J.P. Morgan retail investor support for A-shares has been partially offset by a return of northbound inflows. Margin The beginning of a sector rotation can also be seen in financing activity and A-share turnover have eased from northbound Stock Connect flows, which have picked up the peak as the impact of stay-at-home retail investor notably in April. YTD, northbound flows have recovered trading coupled with increased liquidity faded with work to see RMB27 bn in inflows, though still remain well resumption normalization. In addition, institutional below the historical trends. Meanwhile, following the investor driven block trades in the A-share market have sharp outflows in March, cyclical sectors also see also declined. Nonetheless, the decline in onshore trading significant inflows in April, which in part resonates with activity, has been partially offset by the acceleration in our constructive view on a cyclical recovery. northbound Stock Connect flows.
Figure 4: Northbound net flow Figure 5: CSI300 recovered while trading momentum down CNY BN 2015 2016 450 2017 2018 2019 2020 350
250
150
50
-50 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Wind, J.P. Morgan Source: Wind, J.P. Morgan Table 8: Northbound inflows by sector Figure 6: Block trade vs. margin financing Unit: Rmb bn Feb Mar Apr 1-23 Block trade (10DMA) Staples* 9.8 (14.1) 13.8 RMB bn, both axis Margin financing balance (RHS) Industrials 7.4 (11.8) 8.1 4.0 1150 Health Care 8.4 1.0 7.4 3.5 1100 IT (1.6) (8.1) 6.3 3.0 1050 Materials (3.3) (4.9) 3.6 2.5 Consumer Disc 0.1 (12.3) 3.2 1000 2.0 Comm. Services (0.7) (1.2) 1.2 950 Financials (1.8) (9.6) 1.1 1.5 900 Real Estate (0.3) (1.7) 1.1 1.0 Energy (0.1) (1.9) 0.6 0.5 850 Utilities (0.5) (1.1) (0.8) 0.0 800 Source: Wind, J.P. Morgan. *Note: Moutai & Wuliangye comprised 64% of April staples inflow
Source: Wind, J.P. Morgan Overall, we believe the shifts in sector allocations can carry on driven by (i) a more progressive policy stance
8 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
As for our China Model Portfolio revisions, we increase largely affected by the store closures. China telcos our cyclical exposure by adding Midea under consumer reported flat growth for 1Q, with weak mobile revenue discretionary (upgrade to OW) and SANY under the offsetting a robust fixed-line business. Materials and industrial sector. We believe the home appliance utilities were hit by the sharp decline in sales volume and segment will benefit from the release of the pent-up power generation. demand on durable goods when the outbreak situation stabilizes, and we like construction machinery on the While the overall negative impact from the COVID-19 back of the robust excavator sales amid infra FAI outbreak was severe due to the disruption on both the recovery. We reduce our defensive position and move supply and demand side, most of the companies utilities to UW by selling Yangtze Power and GDI. witnessed some recovery and business normalization in Within the financial sector, we rotate from insurance March, which is consistent with the macro activities data (downgrade to UW) into banks by trimming Ping An reported in April. In particular, some retail companies’ Insurance and adding BoCom. We believe that the management are anticipating 90% sales recovery in 2Q declining market rates and potential deposit rate cut in and complete recovery in June, although the destocking 2Q could aid bank’s NIM, while insurance is facing pressure may still pose a drag to the 2Q earnings on higher credit and market risks due to the declining bond corporate level. This reinforces our views that the yield and increasing market volatility. normalization of domestic consumption demand will be a key driver of the macro recovery in next quarters, on the 1Q20 results underway back of the gradual relaxation on the social control measures and further fiscal supports. The 1Q20 corporate earnings results season is underway, with 85 MSCI China constituents reporting their earnings We expect growth to normalize in 2H20 and into 2021. this week, representing ~12% of the index that report Our analysts forecast a strong recovery on corporate quarterly. The results generally came in-line/ahead of our earnings for CY21E at 18.3%oya, following the weak analysts’ expectation. Out of the 17 companies under our 3.7%oya for this year, which is largely in-line with our top coverage, 8 of them were in-line with our forecast and 6 down view at 3-4%oya (link). Based on the bottom-up were above. By taking into account the consensus CY21E EPS integer at 7.46, our base case MSCI China estimates of the 46 companies, 22 (35%) beat, 15 (24%) target of 92 implies a 3% re-rating on 12m forward PE to were in-line, and 26 (41%) missed. 12.3x from current at 11.9x, which is still within range particularly if the global pandemic begins to ease around Table 9: Earnings scorecard mid-year as expected. Nonetheless, risks of a potential re- No. of companies (vs. Consensus) escalation in the US and China confrontation remains an Above (>5%) in-Line Below (<5%) overhang after the virus concerns abate. Overall, we still Banks 3 0 0 Consumer Discretionary 0 1 5 see some upside on the corporate earnings outlook for next Consumer Staples 3 3 3 year when the global economy normalizes and benefitting Communication Services 1 3 2 from a lower base effects. Diversified Financials 1 0 0 Health Care 2 3 3 Industrials 2 1 2 Figure 7: MSCI China consensus EPS integer Information Technology 3 1 8 10 2020 2021 Insurance 4 0 0 9.5 Materials 3 1 1 Energy 0 0 0 9 Real Estate 0 0 1 Utilities 0 2 1 8.5 Aggregate 22 15 26 8 Source: MSCI, Company, Bloomberg, J.P. Morgan 7.5 While still early on, the reported aggregate earnings 7 (blend) growth was down 4.4%oya. Ping An Bank 6.5 (+15%oya), China Tower (+13%oya) and Angel Yeast 6 (+28%oya) saw limited impact from the outbreak and Feb 18 Aug 18 Feb 19 Aug 19 Feb 20 reported resilient growth despite downturn. Sector-wise, Source: MSCI, IBES, Datastream, J.P. Morgan. retail companies delivered a stable online profitability, thanks to the increase in online consumption during the outbreak and better cost control, while offline was
9 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Table 10: Index target based on EPS and PE scenario (assume Figure 9: COVID-19: Idea curve exit point in Schematic chart CY20E EPS growth at 4%)
EPS growth - CY21E (%) 25% 20% 15% 10% )
x -1 s.d. 10.3 82 78 75 72 (
E
P -0.5 s.d. 11.1 88 84 81 77
d w
f Avg 11.9 94 90 87 83
t e g
r +0.5 s.d 12.7 100 96 92 88 a T +1 s.d 13.5 107 102 98 94 Source: MSCI, Bloomberg, J.P. Morgan estimates.
COVID-19: rising visibility of recovery Source: J.P. Morgan insurance team estimates. Global COVID-19 infections remain a key driver of market sentiment, and on this front there have been some However, the main concern remains a risk of a second positive developments in recent weeks. The global wave of infections. While continued waves of infections infection growth curve did flatten over the past month, as are a significant risk, and even inevitable as our the average daily growth of ex. China active confirmed insurance team argues, the impact of each successive cases came down to 4.8% in April vs. 16% of March. wave of infections will likely be smaller and shorter in Indeed, according to our insurance team’s schematic duration given the heightened awareness around the issue. chart, though China is ahead of the curve, the rest of the China is being closely watched for second wave risks as world is catching up which has led to increasing visibility it is amongst the first to reopen its economy. Indeed, and discussions on a timeline for relaxation of lockdown there are some signs of second waves, particularly along policies in the US and other countries that have moved the northern border in the Heilongjiang province. In beyond the peak. In particular, we see most countries April, Heilongjiang and Shanghai registered 438 and 123 have passed the 'checkpoint A’ featured by slowing new cases, which have mostly been caused by imported infection growth rate and some countries have passed the cases. Given the different stages of the outbreak in ‘checkpoint B’ when net infections start to decline and various countries, imported cases remain a key near-term could be plausible for economic reopening. Overall, as threat. Overall, while increased monitoring, control more countries are passing the peak of the curve, equity checks and border controls have been implemented in markets will likely continue to normalize. areas with increasing cases, lockdown policies have not been as draconian as in February at this stage. The early Figure 8: COVID-19: Idea curve exit point in Schematic chart April surge in cases has improved in recent days, indicating that control measures are limiting the spread. Looking ahead, the challenge for China, and other countries, will be balancing the risk of infections (with smaller impacts) and economic recovery.
Figure 10: Provincial newly confirmed cases in April
500 437 450 April Since Apr-15 400 350 300 250 Source: J.P. Morgan insurance team estimates. 200 150 123 84 83 81 100 64 26 50 18 4 18 11 15 13 13 11 11 23 3 3 0 4 0 2
Source: NHC, Wind, J.P. Morgan
10 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
March data better than expected Figure 13: China merchandise exports and imports %oya China’s real GDP fell 6.8%oya in 1Q20, following growth of 6.0%oya in 4Q19. Based on our seasonal- 55 Imports adjustment process, in sequential terms, the economy 40 Exports contracted 34.7% q/q saar in 1Q20, compared to growth 25 of 6.9% q/q saar in the previous quarter. Meanwhile in nominal terms, 1Q20 GDP fell 5.3%oya, compared to 10 +7.4%oya in 4Q19. Overall, the 1Q GDP report was -5 better than our expectations and the monthly data showed a recovery in March from the sharp deterioration in Jan- -20 Feb due to the COVID-19 shutdown. The rebound in -35 March gives us confidence that a V-shaped recovery will 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 continue to take place in the coming quarters, and we Source: NBS, J.P. Morgan have moderately raised our full year growth forecast to 1.3% from 1.1% previously. Meanwhile, on the domestic side, retail sales rebounded by 84%m/m sa in March, and the fixed asset investment Figure 11: GDP revision (FAI) decline narrowed from -24.5%oya in Jan-Feb to - 9.3%oya in March. The overall message from the data release shows economic activity resumed notably in March amid an improved COVID-19 epidemic outlook, in line with our forecast of a V-shaped recovery.
Figure 14: China retail sales %oya 3mma Source: NBS, J.P. Morgan estimates Total
20 Retail sales For the monthly data, on the production side, industrial 15 ex. auto production (IP) beat expectations notably and recorded a 10 5 sharp sequential rebound in March (+36.8%m/m sa), 0 following a significant decline in Jan-Feb. The rebound -5 in IP aligns with the March trade report which also was -10 Auto sales value -15 more resilient than expected, with March exports (- -20 6.6%oya) and imports growth (-0.9%oya) declining by -25 -30 only single digits compared to expectations of double -35 digit declines. Both production and trade in March likely 2013 2014 2015 2016 2017 2018 2019 2020 benefitted from some pent up demand following the Source: NBS, J.P. Morgan wide-scale lockdown in February. Figure 15: FAI by industry Figure 12: China industrial production %oya Infrastructure %change 40 Manufacturing 15
5 20
-5 0 -15 %oya %3m/3m saar -25 -20 Real estate -35 -40 -45 2013 2014 2015 2016 2017 2018 2019 2020 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: NBS, J.P. Morgan Source: NBS, J.P. Morgan Nonetheless, the March rebound appears stronger than what high-frequency tracking indicators implied, and
11 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
there seem to be some inconsistencies in the details of of GDP (which measures the increase in annual fiscal March data. One area that is questionable is the retail deficit compared to last year), China's thrust of 2.4% of sales data. The retail sales report showed outperformance GDP is slightly below the global average of 2.7%, and in food (+19.2%oya) and health/medicine (+8.0%oya) well behind major DM countries such as the US and UK. and underperformance in restaurants (-46.8%oya), shoes The implementation of large fiscal packages have and clothes (-34.8%), jewelry (-30.1%), which is in line improved market sentiment and have benefitted China with our expectations. However, auto sales only declined offshore equities relatively more given their higher beta by 18.1%oya in March, which seems inconsistent with to global markets. As such, the A/H premium has eased the figures in the IP report, in which auto production over the past month after spiking in February, back to declined by 43%oya in March and auto industry value around historical averages. Nonetheless, despite the added declined by 22.4%oya. Separately, a study by recent outperformance of H-shares, 7 out of the 12 researchers at the National University of Singapore based sectors are still trading at a substantially higher A/H on UnionPay transactions suggests that retail premium than their long term averages. consumption declined by roughly 27% in the 12 week period after lockdown (most notably in dining, Figure 16: JPMe fiscal thrust of 2020 entertainment and travel-related spending), though the % of GDP 2020 JPMe Global study also confirms the gradual bottoming out in 6.0 expenditure as the epidemic outlook improves (link). 5.0 5.0 4.0 Despite the caveats in the details of the economic reports, 4.0 the broad message is that China's domestic activity is 3.2 recovering, and the economic recovery is a key driver in 3.0 2.5 2.4 2.3 1.8 2.0 1.8 our positive view on cyclical sectors going forward. The 2.0 recovery will be led by the production and investment 1.0 side (infrastructure), with consumption and service 0.0 sectors normalcy lagging behind. The normalization of DM US EU UK JP EM China Korea ASEAN domestic consumption will be a key focus in 2Q. On the Source: J.P. Morgan investment side, infra-FAI will continue to benefit from stepped-up fiscal support. 1.2 trillion yuan special local Figure 17: A/H premium (median) by sector (%) government bonds have been issued year-to-date, of 100 Current which more than 70% are related to infra-projects, and 90 another 1 trillion yuan frontloaded-quota has just been 80 avg since 2015 approved. Real estate investment recovered the first as 70 shown in March data, and we expect further relaxation at 60 50 city levels and eased restrictions on funding for real 40 estate developers will continue to support single-digit 30 growth in real estate FAI. By contrast, manufacturing 20 investment will likely stay in negative growth territory, 10 0 . . . s y s s l s e e e T l l c n t r especially related to exports or global production chain, I k g p i e c s a a i t r a a i i i t n n t F i r r e c
S l t a s a D i .
e
h n t r . s t due to major downward pressure coming from the dismal v . t B E i l u s
E u a U s l s a n D d n a M n e o n o I e
growth picture for the global economy. J.P. Morgan I H C C R expects the deepest recession since WWII in 2Q, with Source: Bloomberg, J.P. Morgan. DM collapsing by 40%q/q saar (of which the US -40%, Euro area -45%, the UK -59%, Japan -17%). Overall, our view has been that China’s policy response remains important in shaping the recovery, but will likely Policy remains supportive but gradual be more gradual and moderate relative to some other With China being the FIFO in terms of the COVID-19 major countries. In terms of monetary policy, following curve and response, domestic A-shares have the 20bps reduction in MLF/LPR rate in April, we expect outperformed offshore China equities for much of another 25bp cut along with a 25bp deposit rate cut. We February and March given the higher sensitivity to also expect another 50bp RRR cut in mid-2020, and a domestic policy, however this has changed as many special RRR cut to finance the issuance of special countries have announced fiscal packages much larger government bond. On the fiscal side, it is worth watching than China’s. Indeed, looking at the fiscal thrust as a % the NPC meeting (likely late May) which will come up with concrete fiscal package, including the increase in
12 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
budgetary fiscal deficit (JPM forecast: 3.2%), the increase in special local government bond quota (JPM forecast: 3.5 trillion) and issuance of special government Table 11: Supportive measures for cyclical sectors bond (JPM forecast: 1 trillion or above). Our estimate is Sector Date Policy highlights that the augmented fiscal deficit will reach 14.3% of Auto 16-Apr Guangdong province rolled out measures to support GDP, higher than the estimate in the 2009 big stimulus. rural consumption, which highlighted to provide Nonetheless, the fiscal impulse is higher than 2019 but unsecured loans for car purchase to residents with remains modest at 2.4% of GDP. To be fair, the good credit records. 7-Apr MIIT loosened the entry qualification for new NEV unprecedented shock and deterioration in labor market companies by removing the requirement of “R&D conditions could imply that the fiscal package could be capability”. modestly higher than our baseline assumption. 31-Mar The State Council announced a two-year extension of NEV subsidy as well as exemption from purchase tax. Though it is still arguable whether activity levels can be 13-Mar The NDRC outlined 19 measures to foster the domestic consumption sector, which highlighted restored to pre-COVID-19 levels, we expect the upward encouragement to areas that have restricted car momentum in the near term to persist, given a notable purchases to increase the car plate quotas as gap between the current operating level and the historical appropriate. average. More importantly, the stepped-up policy stance Real estate 2-Apr The MOF adjusted the investable projects for special bonds. The revamp projects of old residential along with ongoing policy roll-outs are positive for communities now qualify as projects for local recovery progress and market sentiment, as evidenced in government special bonds. Meanwhile, as guided sectors such as “old+new” infra (i.e. infrastructure plus previously, land reserves and other property related 5G/big data/ AI/ digital economy), real estate, auto and projects remain disqualified. March Several cities loosened the housing policy by lowering consumer (Table 2). Looking ahead, policy upsides may the requirement for home purchase and housing pre- stem from the finalized local government special bond sale approvals, as well as offering tax/purchase quota (J.P. Morgan estimate: Rmb3.5 trillion), as certain subsidy. projects in real estate (residential community revamp) Infrastructure 30-Mar Local media reported that the upper limit of local and infrastructure areas associated with the size of special bonds being used for project capital will rise to 25% from 20% in all provinces. approved special local government bonds. 29-Mar Guangdong province announced that it will accelerate 5G base station construction and targets to build 60k base stations by 2020. 24-Mar The MIIT issued a proposal to accelerate 5G development. 04-Mar President Xi announced the acceleration of construction of 5G network and data center (first mention). 01-Mar The NDRC announced the transformation of enterprise bond issuance to a registration-based system from an approval-based one. Consumer 7-Apr Local media reported that several regions (e.g. Guangxi province, Hangzhou, Nanjing) have announced distribution of consumption coupons with a total value of ~Rmb5.6bn. 16-Apr Guangdong province rolled out measures to support rural consumption, which highlighted to provide subsidy for home appliance and consumer electronic purchases Source: Various newswires, J.P. Morgan.
13 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
China economic data and forecasts
China economic data and forecasts Quarterly 2018F 2019F 2020F 1Q19 2Q19 3Q19 4Q19 1Q20F 2Q20F 3Q20F 4Q20F Real GDP, %-ch over a year ago 6.7 6.1 1.3 6.4 6.2 6.0 6.0 -6.8 0.9 5.0 4.8 Real GDP, %-ch over 1 quarter, saar 8.5 5.0 3.5 6.9 -34.7 43.8 21.6 5.6 Nominal GDP, %-ch over a year ago 10.5 7.8 2.0 7.9 8.3 7.6 7.4 -5.3 1.4 5.3 4.9
Consumer prices, %oya, average 2.1 2.9 3.0 1.8 2.2 2.4 2.9 3.3 4.3 3.7 3.0 Producer prices, %oya, average 3.5 -0.3 -0.7 0.2 0.5 -0.8 -1.2 -0.4 -1.4 -1.0 0.1
RRR, EOP 15.0 15.0 15.0 13.5 13.5 13.0 13.0 12.5 12.0 12.0 12.0 Benchmark lending rate, EOP 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35 1-year MLF rate, EOP 3.30 3.25 3.15 3.30 3.30 3.30 3.25 3.15 2.70 2.70 2.70 Exchange rate, EOP 6.88 6.96 6.99 6.71 6.87 7.15 6.96 7.08 7.10 7.00 6.99
Monthly Jan-19 Feb-19 Mar-19 Au g-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20
PMI-NBS 49.5 49.2 49.4 49.5 49.8 49.3 50.2 50.2 50 35.7 52 PMI-Markit 48.3 49.9 50.2 50.4 51.4 51.7 51.8 51.5 51.1 40.3 50.1
CPI, %oya 1.7 1.5 2.7 2.8 3.0 3.8 4.5 4.5 5.4 5.2 4.3 PPI, %oya 0.1 0.1 0.6 -0.8 -1.2 -1.6 -1.4 -0.5 0.1 -0.4 -1.5
FX reserves, USD bn 3087.9 3090.2 3101.0 3107.2 3092.4 3105.2 3095.6 3107.9 3115.5 3106.7 3105.0 FX reserves, monthly change, USD bn 15.2 2.3 6.1 3.5 -14.7 12.7 -9.6 12.3 7.6 -8.8 -1.7
Merchandise exports (USD), %oya 9.3 -20.7 1.1 -1.0 -3.2 -0.8 -1.3 8.1 -16.8 -17.9 -6.6 Merchandise imports (USD), %oya -0.9 -4.4 -8.2 -5.5 -8.2 -6.2 0.9 16.6 -14.9 11.0 -0.9 Trade balance, USD bn 38.4 3.0 41.2 34.7 39.1 42.4 37.4 47.3 28.6 -35.6 19.9
Industrial production, %oya, ytd 0.0 5.3 7.3 5.6 5.6 5.6 5.6 5.7 0.0 -13.5 -8.4 Industrial production, %oya 5.3 5.3 5.0 4.4 5.8 4.7 6.2 6.9 0.1 -27.0 -1.1
Fixed investment, %oya, ytd 6.1 6.1 5.6 5.5 5.4 5.2 5.2 5.4 -24.5 -24.5 -16.1 Fixed investment, %oya 6.1 6.1 4.4 4.2 4.7 3.4 5.2 11.8 -24.5 -24.5 -9.3
Retail sales, %oya, ytd 8.2 8.2 8.1 8.2 8.2 8.1 8.0 8.0 6.0 -20.5 -19.0 Retail sales, %oya 8.2 8.2 8.6 7.5 7.8 7.2 8.0 8.0 6.0 -48.4 -15.8 Source: NBS, China customs, PBOC, SAFE, Markit, J.P. Morgan forecasts
14 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Market Strategy Key investment themes Retracing COVID-19 drawdowns. After the sharp within China, which at this stage look manageable sell-off in March, equity markets had a notable and contained. Meanwhile, potential re-escalation in rebound over the past month. MSCI China rose 14%, the US and China confrontation remains an overhang underperforming EM and DM by 3.6% and 9.2%, after the virus concerns abate. respectively. While the equity rally has been less Earnings: The 1Q20 corporate earnings results spectacular in China equities relative to DM markets, season is underway, with 85 MSCI China constituent looking at how much of the COVID-19 induced reported their earnings this week, representing ~12% equity losses have been retraced, MSCI China has of the index that report quarterly. The results recovered roughly 56% of the losses, which is inline generally came in-line/ahead of our analysts’ with the retracement % of US equities (SP500 50%, expectation, with reported aggregate blend earnings Nasdaq 55%). Indeed, while China equities have fell 4.4%oya. Sector-wise, retail companies delivered generally moved along with global markets, volatility a stable online profitability thanks to the increase in has been less extreme, anchored by domestic A- online consumption and better cost control, while shares which have a lower beta to market moves than offline was largely affected by the store closures. offshore China equities. China telcos reported a flat growth for 1Q, with weak 1Q GDP contracted 6.8%, but March data better mobile revenue offsetting a robust fixed-line than expected. China’s real GDP fell 6.8%oya in business. Materials and utilities were hit by the sharp 1Q20, however the monthly data showed that March decline in sales volume and power generation. Our activity rebounded from the dismal Jan-Feb numbers. bottom-up MSCI China CY20/21E growth forecasts On the production side, industrial production (IP) currently stands at 3.7%oya and 18.3%oya beat expectations notably and recorded a sharp respectively. sequential rebound in March (+36.8%m/m sa), while Investment themes: i) Rotation into cyclical sectors the March trade report which also was more resilient over defensive as economic recovery takes hold, with than expected. Both production and trade in March recovery in 2Q led by domestic consumption, real likely benefitted from some pent up demand estate and infra-FAI (policy tailwinds in "new and following the wide-scale lockdown in February. old"); ii) sectors that could benefit from a more Meanwhile, retail sales rebounded by 84%m/m sa in permanent change in consumer behavior due to the March, and the fixed asset investment (FAI) decline outbreak include healthcare/grocery retailers/online narrowed from -24.5%oya in Jan-Feb to -9.3%oya in gaming/e-commerce; iii) expect industry March. Overall, the rebound in March gives us consolidation, benefitting industry winners with low confidence that a V-shape recovery will continue to liability ratios and strong balance sheet.; iv) within take place in the coming quarters, driving a cyclical financial sector: less bearish on banks as expected recovery. We have moderately raised our full year deposit rate cut in 2Q and lower financial market growth forecast to 1.3% from 1.1% previously. rates ease funding cost amidst economic recovery; Better visibility on COVID-19, but risks of second more cautious on insurance. waves and return of US China tension remain. Major events to watch: (i) Development of the Global COVID-19 infections remain a key driver in COVID-19 outbreak, particularly for DM countries; market sentiment. On the positive side, global how smaller scale second waves are contained; (ii) infection growth curve did flattened over the past Global policy response, particularly the size of fiscal month, as the average daily growth of ex. China measures; (iii) earnings seasons and companies’ active confirmed cases came down to 4.8% in April guidance on the pace of the recovery; (iv) vs. 16% of March, which has led to increasing infrastructure investment and overall FAI; (v) visibility and discussions on a timeline for relaxation employment conditions; (vi) annual NPC meeting of lockdown policies in the US and other countries (likely end of May), fiscal budget, government that are approaching or have moved beyond the peak. economic targets for this year; (vii) US-China Nonetheless, there have been smaller outbreaks relationship.
15 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Se ctor Allocation Overweight Property – National residential sales have started to normalize in the second half of March, with sales volume Consumer discretionary – We upgrade the sector to down by 14%oya for the month, compared to -39%oya in OW by adding the home appliance company Midea, as 2M20. Home price (+2%oya) held up well thanks to we expect demand on durable goods will recover shortly good inventory control over the past years. Our analyst when the COVID-19 situation moderates in China. We remain positive on e-commerce given the change in believes that overall sales will be broadly flat y/y in April consumer behavior, resilient online spending, increase in with the release of pent-up demand, and the decline in penetration rate and strong user growth recovery. Our 1H2020 should narrow to 5-10%oya. In addition, picks are Alibaba and Vipshop due to their solid developers will likely see a favorable operating fundamentals despite the one-off financial impact from environment on the back of credit easing, and local the virus outbreak. Meanwhile, our analyst believes the government may roll out exceptional measures to development of new retail (combination of online mitigate developers' financial risks. The sector is trading capabilities with offline resources) could lead to a strong at an attractive forward PE at 5.2x, and offering a high net profit CAGR for major players including Alibaba dividend yield at 6.3% for CY20E. during the next few years. Underweight Healthcare – We believe the sector will continue to benefit from the increasing demand for drugs and Insurance –We downgrade the sector to UW due to the healthcare services amid the COVID-19 outbreak. rising credit and market risk amid the challenging macro Moreover, the extent of price cuts in the central environment. Declining bond yield and financial market procurement program will likely accelerate generic drug volatility will drag investment income and increase the industry consolidation and drive innovative drug liability reserve provisioning of the insurers for this year. development, which is positive for the leading players. In Meanwhile, first year premium growth will remain weak the long run, we believe the large affluent population, in 1H20 due to a slowdown in face-to-face agent activities ample scientific labor pool and a strong centralized and weak footfall in banks. Our analyst has revised down regulatory authority will provide a supportive environment our CY20E EPS forecast for insurers by 14%, and expect a and offer new investment opportunities for the industry. 23% decline in the sector earnings for CY20E. We trim We prefer biotech and generic drug segments, in particular our position in Ping An Insurance to fund our position in companies with strong R&D and large innovative pipeline. the banking sector. Consumer staples – The sector is expected to deliver Utilities – We reduce our defensive position in our China robust EPS growth at 27% for this year, thanks to the Model Portfolio, and downgrade the sector to UW by resilient consumption on necessity goods during the virus selling Yangtze Power and Guangdong Investment. outbreak. We prefer grocery retailers that are highly benefitting from the increased demand in food/beverage Banks – We are less bearish on the sector outlook, as the and daily use goods, as well as favorable policy support high-frequency data supports our base case of V-shaped (stricter hygiene policy). Our top pick is Sun Art Retail macro recovery, which ease some credit risk concern on with its front-running O2O integration and market share the corporate book in the near-term. Moreover, NIM gain. We also like the baijiu sector, for which our analyst contraction could be more moderate than we forecast, on forecasts a strong sales volume growth and potential ASP the back of falling wholesale funding cost due to the hike for this year. Our pick is Moutai for its strong brand sharp decline in interbank rates. Subsiding inflation risk with robust top-line growth, high profitability and and falling market rates also open room for a deposit rate fundamental stability. cut. We added BoCom to our model portfolio due to its compelling valuations at 0.43x P/B. Industrials – We expect FAI activities to regain momentum in 2Q, supported by further fiscal policy Energy – Collapse in the oil price has posed a significant stimulus measures. Meanwhile, railway infra capex is downward pressure on the oil companies’ earnings likely to see visible pickup during 1H20 in light of the outlook, and we currently forecast a c.40% decline on the latest guidance from CRC. We recommend to play the sector EPS for CY20E. Our commodity team expects recovery theme through the construction equipment and Brent price will stay low in next quarter due to the E&C segment. C/E demand will remain intact with the significant demand destruction and increase in OPEC+ pick-up in domestic and overseas (BnR) infra activities, as supply. In addition, refining profitability may worsen in well as replacement demand driven by emission standard 2020 as well due to oversupply and accelerating upgrades. The “highway-to-railway” shift initiative should competition. Meanwhile, we expect coal price to stay also encourage more locomotive and freight wagon range-bound in the near-term, as the government is likely procurements. to maintain a stable coal price and ensure sufficient supply from coal mines during the outbreak.
16 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Neutral Asset allocation change Communication services – We expect a mixed We increase our cyclical exposure by adding Midea performance within the internet space as fundamental under consumer discretionary (upgrade to OW) and outlook diverges. We are constructive on the digital SANY under the industrial sector. We move utilities to entertainment (e.g. online gaming and music) segment UW by selling the defensive plays Yangtze Power and due to the benign regulatory environment and substantial GDI. Withins the financial sector, we rotate from improvement in the gaming industry’s content supply. insurance (downgrade to UW) into banks by trimming On the contrary, we are more cautious on the online Ping An Insurance and adding BoCom. advertising market due to the intense competition and macro uncertainty which may drag ads demand. We recommend to play the 5G theme through the telecom Key risk factors sector, for which we prefer China Mobile given its COVID-19 global outbreak. The prolonged improving earnings visibility and well-controlled capex. lockdown across countries and possibility of second IT –We maintain our cautious view on the tech hardware wave of contagion inside and outside China will sector given the demand and supply constraints across cause major disruption to global economic activities various applications after the COVID-19 outbreak. and productivity. Deep global recession in 2Q will Global smartphone demand (JPMe: -3.1%oya in 2020) is hurt China’s export sector. Worries about imported likely to stay sluggish due to the decline in consumer contagion may lead to prolonged control measures discretionary spending amid the outbreak. Our analyst and slower pace of normalization in China. expects China smartphone shipment to decline by Policy outlook. Further policy support will come, but 10%oya in 2020, with demand disruption from the major policy stimulus could be overly interpreted by the overseas markets including US and Europe. Meanwhile, market. The likelihood of large stimulus is low. On Chinese smartphone OEMs are likely to accelerate the 5G model launch in 2H20 with a lower retail price in the other hand, the risk is that rescue measures come order to boost inventory digestion. This may increase the too little too late. pricing pressure and competition of the components Deterioration in US-China confrontation and makers. We stay selective on the segment and prefer acceleration in de-globalization. Tension between Apple supply chain company (Luxshare) amid the resilient the US and China could escalate again, especially iPhone replacement demand. Meanwhile, we are also into the US election period. The bar for the Phase positive on EV-battery maker Wuxi Lead, which is well- Two deal is much higher as it will involve structural positioned to benefit from the stronger order from Tesla. issues (e.g. SOE and subsidies) which are more difficult to resolve. Moreover, the confrontation has Materials – We are positive on the cement segment, and expanded to the tech sector (entity list) and possibly expect demand will pick up substantially from a slow 1Q into new areas (e.g. financial, geopolitical issues). driven by the increased government support on The high uncertainty in the trade and business infrastructure investment. The sector is likely to environment may lead to weakened incentives for maintain a healthy profit margin at close to historically business investment and acceleration in global supply high levels, thanks to the favorable supply and demand chain outside of China. condition. We see on-going destocking pressure in other material space including steel, glass and nonferrous Fixed asset investment outlook. Fixed asset metals due to limited downstream demand amid the investment is the key to business cycle fluctuations COVID-19 outbreak. Our pick is Anhui Conch. and domestic demand. We expect infra FAI should be lifted on the back of further fiscal policy support but Diversified financials – Our analyst forecasts robust downside risk remains. Any downward surprise earnings growth at 13% for CY20E. Total underwriting would be a drag to the growth outlook. flows are expected to stay resilient driven by the increase in equity refinancing and bond issuance, while regulatory Global oil prices. Declining oil prices exacerbates measures on loosening the margin financing and the credit stresses in DM countries, and increase lowering the refinancing cost will continue to drive the downward pressure on the global economic growth. recovery on stock-pledged repo businesses. We believe Corporate stress and labor market pressure. leading brokers are in a better position to benefit from Survey-based unemployment stayed modest at 5.9% supportive policy measures include the New Securities Law, NEEQ reform, streamlining the QFII/RQFII in March, but labor force participation was down by related-rules, further loosening index futures, increase in 6% and 18.3% of urban workers remained employed corporate share buybacks, and further opening of the A- but did not go work. share market. Our pick is Citic Securities.
17 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
China Model Portfolio
Table 12: J.P. Morgan China model portfolio Ticker Price JPM Performance Portfolio MSCI Deviation P/E (x) Div Yield ROE Rating 1M% 3M% YTD% Weight (%) Wt (%) (%) FY20E FY21E 20E (%) FY20E Consumer Discretionary 244 15.6 -7.0 -4.8 30.0 27.7 2.3 25.5 17.8 0.3 14.5 Alibaba BABA US 205.2 OW 16.4 -6.3 -3.2 20.8 17.6 3.1 28.8 23.4 0.0 23.2 Midea 000333 CH 52.0 OW 11.8 -5.6 -10.7 2.5 0.0 2.5 14.2 11.2 3.2 23.4 TAL Edu TAL US 49.8 OW 5.9 2.8 3.3 2.7 0.9 1.7 264.6 58.2 0.0 4.7 Vipshop VIPS US 16.2 OW 8.1 16.2 14.4 4.0 0.4 3.7 14.6 10.4 0.0 23.2 Consumer Staples 1408 18.4 4.2 1.0 6.6 4.0 2.6 22.3 19.9 2.0 20.6 Moutai 600519 CH 1252.3 OW 22.9 18.9 5.9 3.3 0.7 2.7 32.6 26.2 1.6 32.5 Sun Art Retail 6808 HK 12.9 OW 22.9 38.4 36.5 3.3 0.2 3.1 34.3 26.8 1.3 12.8 Communication Services 130 16.3 -0.9 2.2 22.3 22.6 -0.3 22.3 17.8 1.0 11.6 China Mobile 941 HK 61.5 OW 15.3 -9.6 -6.1 2.8 2.4 0.4 10.7 10.2 5.2 9.6 Tencent 700 HK 411.6 OW 18.3 6.7 9.6 19.5 15.0 4.5 31.5 24.4 0.3 22.7 Energy 329 15.8 -25.1 -27.5 0.0 2.7 -2.7 10.7 9.5 5.2 5.5 Financials 436 5.8 -12.9 -15.8 11.5 18.3 -6.8 6.0 5.5 5.0 11.6 Banks 231 3.0 -9.2 -13.2 6.4 11.2 -4.8 4.8 4.6 6.1 12.0 BoCom 3328 HK 4.7 OW 6.8 -11.2 -15.5 2.5 0.3 2.2 4.0 3.9 7.5 9.7 CMB 3968 HK 34.6 OW 9.0 -13.5 -13.7 3.9 0.9 3.1 7.8 7.1 3.8 15.7 Insurance 486 12.4 -18.8 -19.5 3.0 5.2 -2.2 9.8 7.4 3.2 12.2 Ping An 2318 HK 78.1 OW 10.1 -17.4 -15.3 3.0 2.8 0.2 11.4 8.0 2.6 15.9 Diversified Financials 98 4.8 -13.1 -17.0 2.0 1.9 0.1 10.0 8.8 3.2 7.7 CITIC Securities 6030 HK 14.2 OW 6.1 -15.3 -20.1 2.0 0.2 1.9 12.1 10.9 3.7 8.0 Health care 241 27.1 6.7 12.0 7.4 5.1 2.3 33.6 26.3 0.8 11.7 CSPC 1093 HK 15.9 OW 13.4 -15.8 -14.2 3.3 0.5 2.8 21.1 16.4 1.6 21.5 Wuxi Bio 2269 HK 121.5 OW 30.7 19.0 23.2 4.1 0.6 3.5 94.1 67.6 0.0 12.0 Industrials 108 13.9 -7.3 -9.4 9.0 5.5 3.5 9.2 7.7 3.0 9.9 CRCC 1186 HK 8.6 OW 14.3 4.4 0.5 3.3 0.1 3.2 4.3 3.7 3.4 11.5 SANY Heavy 600031 CH 19.1 OW 19.7 19.2 12.1 2.0 0.1 1.9 12.3 11.3 2.4 29.1 Zoomlion 000157 CH 6.2 OW 9.8 -1.9 -7.5 3.7 0.0 3.7 9.1 8.2 0.0 13.2 Information Technology 664 10.9 -15.1 -5.8 4.8 4.4 0.4 22.5 18.0 1.2 10.8 Luxshare 002475 CH 41.5 OW 20.5 -8.2 13.6 3.1 0.1 3.0 44.8 38.2 0.7 23.1 Wuxi Lead 300450 CH 38.1 OW -2.6 -13.4 -15.2 1.7 0.0 1.6 43.4 27.7 0.6 18.6 Materials 789 15.4 -5.6 -9.1 2.4 2.3 0.1 9.9 9.2 3.5 11.0 Anhui Conch 914 HK 58.8 OW 18.8 7.5 3.4 2.4 0.5 1.9 8.9 9.1 3.5 21.9 Real Estate 1538 14.6 -11.0 -19.0 6.1 5.1 1.0 5.5 4.8 6.2 16.4 Aoyuan 3883 HK 8.9 OW 16.8 -22.0 -30.1 2.2 0.1 2.1 3.8 3.0 9.8 32.9 Vanke 2202 HK 24.5 OW 4.3 -18.2 -26.5 3.8 0.2 3.6 5.6 4.8 6.0 22.1 Utilities 574 12.9 -15.6 -13.1 0.0 2.3 -2.3 10.1 9.3 3.8 10.9 MSCI China 80 14.0 -7.3 -7.0 100 100 0.0 12.6 10.7 2.2 11.8 JPM China Model Portfolio 14.7 -4.3 -4.6 Source: MSCI, Datastream, Bloomberg, J.P. Morgan. Data as of 23 April 2020. Last rebalance on 19 March 2020. Past performance is not indicative of future results. Red denotes the new additions.
Table 13: J.P. Morgan China model portfolio sector allocation
Industrials % JPM MSCI Consumer Staples Weight Weight OW/UW Health care Industrials 9.0 5.5 3.5 Consumer Discretionary Consumer Staples 6.6 4.0 2.6 Real Estate Health care 7.4 5.1 2.3 Information Technology Consumer Discretionary 30.0 27.7 2.3 Diversified Financials Real Estate 6.1 5.1 1.0 Information Technology 4.8 4.4 0.4 Materials Diversified Financials 2.0 1.9 0.1 Communication Services Materials 2.4 2.3 0.1 Insurance Communication Services 22.3 22.6 -0.3 Utilities Insurance 3.0 5.2 -2.2 Energy Utilities 0.0 2.3 -2.3 Energy 0.0 2.7 -2.7 Banks Banks 6.4 11.2 -4.8 -5 -4 -3 -2 -1 0 1 2 3 4 Source: MSCI, Datastream, Bloomberg, J.P. Morgan. 23 April 2020. Source: MSCI, Datastream, Bloomberg, J.P. Morgan. 23 April 2020.
18 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
China Model Portfolio Performance Review
Our China model portfolio rose 14.7% in the past month, Figure 18: J.P. Morgan China model portfolio performance 155 outperforming MSCI China by 0.7%. Attribution from JPM China model portfolio MSCI China the sector allocation and stock selection was +93bps and -27ps. The portfolio was down 4.6%ytd, outperforming 145 MSCI China by 2.3%. 135
Sector attribution (one month) 125 Positive: Financials, healthcare, consumer staples, real estate and materials 115 Negative: Energy, utilities, consumer discretionary, 105 IT, industrials and communication services 95 Stock selection (one month) Jan 19 Mar 19 May 19 Jul 19 Sep 19 Nov 19 Jan 20 Mar 20
Top 5: Luxshare, CMB, Sun Art Retail, Moutai, Ping Source: MSCI, Bloomberg, J.P. Morgan. 23 April 2020. An Insurance Past performance is not indicative of future returns.
Bottom 5: China Vanke, CSPC Pharma, Vipshop, Table 14: Total attribution by sector Wuxi Lead, Yangtze Power (%, relative to MSCI China) 1M 3M 6M YTD Financials 1.01 (0.41) 0.42 (0.02) Revisions on April 23, 2020 Consumer Staples 0.39 0.72 0.90 0.85 We increase our cyclical exposure by adding Midea Communication Services 0.33 1.29 1.78 1.09 Materials 0.08 0.05 (0.11) (0.21) under consumer discretionary (upgrade to OW) and Information Technology 0.04 0.05 0.42 0.30 SANY under the industrial sector. We move utilities to Health Care (0.01) (0.08) (0.44) (0.13) UW by selling the defensive plays Yangtze Power and Energy (0.05) 0.62 1.08 0.74 GDI. Within the financial sector, we rotate from Utilities (0.12) 0.24 0.59 0.18 Industrials (0.13) 0.31 (0.72) 0.05 insurance (downgrade to UW) into banks by trimming Real Estate (0.39) (0.63) (0.97) (1.01) Ping An Insurance and adding BoCom. Consumer Discretionary (0.47) 0.80 1.99 0.50 Total 0.68 2.96 4.93 2.33 Previous revisions on March 19, 2020 Source: MSCI, Bloomberg, J.P. Morgan. 23 April 2020. We upgrade communication services to Neutral by adding China Mobile. We also add TAL Education under Table 15: Performance since last rebalance the consumer discretionary sector. These are funded by Pch (19 Mar – trimming our position in banks and Vipshop. Code 23 Apr 2020) MSCI China (total return) MXCN 14.4 JPM China model portfolio 15.3 MSCI China Comm. Serv. MXCN0TC 19.4 Upgrade MSCI China Bank MXCN0BK 3.9 Trim TAL Edu TAL US 3.6 Add China Mobile 941 HK 27.5 Add Vipshop VIPS US 12.9 Trim Source: MSCI, Datastream, J.P. Morgan. Past performance is not indicative of future returns.
19 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
MS CI China Index Target Base case (MXCN 92) tech supply chain and hit earnings on some of the Chinese tech hardware companies. End 2020 MSCI China target = 92 Moderate P/E re-rating Target 2021 EPS number = 7.46 Assume the global economy to recover in 2H20 when Target forward P/E = 12.3x the COVID-19 situation stabilizes, and corporate earnings to improve in 2H20 and 2021 with Assumptions normalizing business activities. Nonetheless, potential EPS outlook re-escalation in the US and China confrontation Global demand and supply shock due to the COVID- remains an overhang after the virus concerns abate, 19 outbreak has posed significant downward pressure and may limit valuation upside. to 2020 earnings growth outlook. Our bottom-up Valuation upside on the cyclical sectors, especially growth forecast currently stands at 3.7%/18.3% for for real estate and industrials which are trading at low CY20/21E, compared to 15.1% for CY19. This is P/Es of 5.2x and 8.6x respectively. largely in line with our macro growth outlook, for which we expect real GDP growth will slow to Re-rating potential on brokers (9.7x) amid the 1.3%oya for 2020. improving fundamental outlook. Insurance earnings is forecast to decline by 23.3% for Stable P/E on new consumption/high-growth sectors, CY20E partly due to high base effects. Declining including communication services and e-commerce. bond yields and equity market volatility may drag down investment income of the insurers. That said, Persistent conflict with the US on the technology long-term fundamental outlook remains intact, given front will continue to weigh on the tech hardware the better regulatory operating environment. Profit sector outlook and lead to further de-rating. margin and NBV growth should improve in long-run CNY outlook will depend on trade developments and thanks to product mix shift. domestic economic factors (growth outlook, interest Energy sector earnings are expected to decline rate, etc.). Our baseline CNY/USD forecasts are 7.1 significantly by 40%oya in CY20E due to the falling in 2Q20 and 6.99 by end-2020. oil price. Refinery margins will remain under Bull case (MXCN 103) pressure given the oversupply situation. Materials sector, except for the cement industry, is facing de- End 2020 MSCI China target = 103 stocking pressure due to the delay in demand. Target 2021 EPS number = 7.90 Robust earnings growth is expected for e-commerce Target forward P/E = 13x for CY21E, thanks to the improving operating efficiency and user growth, as well as consumption Assumptions demand recovery when the virus outbreak stabilizes. EPS outlook Better earnings visibility for the internet gaming Stronger-than expected economic recovery, strong names with improving content supply. Remain corporate earnings growth recovery when the cautious on the online ads operators due to macro COVID-19 outbreak ends, driven by the release of impact and competitive pressure. the pent-up consumption demand and FAI activities. Property developers are expected to achieve robust Consumption growth accelerates with policy contract sales amid the increase in sellable resources, measures to drive domestic demand. Better-than- continued market share gain and the more balanced expected auto sales amid consumption upgrade. demand/supply dynamics. Leading tech companies continue to win market share Lower policy rate may reduce funding costs for the and monetize traffic. Improving operating corporate sector, which together with tax cuts in 2019 environment for internet names due to lower may provide positive support for company earnings. competition and regulatory risks. Strong recovery on Downside risk to IT sector’s bottom up EPS growth the online ad revenue growth, as well as margin forecast due to the slower smartphone shipments and improvement on the fintech and business services. semiconductor demand amid the COVID-19 Corporate margins improve with lower input costs outbreak. Non-tariff conflicts between the US and and commodity prices. China in the tech space may negatively impact the
20 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Better-than-feared NIM compression on banks' PPI remains in deflation territory with slower profitability resulting from the rise in credit costs and nominal GDP growth and weakening PMI, leading to lower LPR. further downward earnings revisions. Favorable market conditions drive the investment Significant slowdown in domestic consumption. income on insurance and diversified financial sector. Tightening regulations on internet/e-commerce space, education, healthcare, etc. Visible progress on pro-market reforms, e.g. equal treatment between SOEs and non-SOEs, financial Faster-than-expected deceleration in real estate market discipline, fiscal reform, and rural land reform. activity. P/E re-rating to 13x driven by Banks’ PPOP growth deteriorates amid weak NIM COVID-19 outbreak ends sooner than expected. and lower fee income growth. Credit policy could err on two sides: either too tight (drag on economic Positive progress on the US and China Phase Two activity) or too loose at the cost of credit quality trade negotiations with tariff rollback. Both sides deterioration. reach agreement on the more contentious topics, e.g. IP, technology transfer, SOE and industry subsidy. Abandon supply-side discipline and resort to old-style, demand-driven policy stimulus. Policy support feeds through into the economic system resulting in stronger-than-expected domestic P/E de-rating to 10.3x growth recovery. COVID-19 inflection rates accelerate and with the possibility of second wave of contagion in China, Policy support comes with structural reform (SOE which causes prolonged disruption to global reform, supply-side reform) measures with limited economic activities and productivity (the concern side effects. about deep recession evolving into depression). Further recovery in TSF growth driven by stable loan US-China confrontation intensifies and expanded into growth and strong corporate bond/equity financing, new areas; de-globalization trend strengthens. while shadow-banking activity remains subdued. Policy reactions are too little and not effective, Ongoing structural reforms drive environmental leading to a faster-than-expected macro slowdown protection, technology upgrades, automation, and IT and raising concerns about the government’s abilities. infrastructure segments. Debt/GDP ratio moves up quickly again, re-igniting Strong fund inflows into both A and H share markets. debt concerns. Continuous capital account liberalization with stabilized CNY and capital flow dynamics, and Disappointment in reform measures, expansion of further capital account openness for institutional government controls, and low confidence in investors. government policies. Bear case (MXCN 72) Large-scale corporate bankruptcy and rising labor End 2020 MSCI China target = 72 market pressure Target 2021 EPS number = 7.05 Larger-than-expected CNY depreciation and intensified capital outflow pressure. Target forward P/E = 10.3x
Assumptions Table 16: MSCI China end-2020 index target and assumptions EPS potential downside End 2020E Base Bull Bear MSCI China earnings outlook deteriorates with MSCI China index target 92 103 72 significant slowdown in domestic growth. Target 2021 EPS 7.46 7.90 7.05 Target forward P/E (x) 12.3 13.0 10.3 Tech hardware earnings significantly hit by further Source: J.P. Morgan estimates US sanctions on the sector. Domestic policy reactions are too little and too slow, leading to faster-than-expected slowdown, followed by a big reversal in deleveraging and housing tightening efforts.
21 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Earnings Outlook: 3.7%/18.3% EPS Growth in 2020/21E
The 1Q20 corporate earnings results season is underway, due to lower discretionary spending and logistics with 54 MSCI China constituents reporting their earnings disruption, our analyst believes the one-off nature of such this week, representing ~6% of the index that report virus-caused operational disruption will not affect the quarterly. The results generally came in-line with our earnings power for the key leaders given their competitive analysts’ expectation. Out of the 9 companies under our positioning, consumer recognition, optimizing cost coverage, 6 of them were in-line with our forecast and 2 structure and ecosystem strength. In particular, we believe were above. By taking into account the consensus the development of new retail (combination of online estimates of the 30 companies, 9 (23%) beat, 12 (31%) capabilities with offline resources) could lead to a net were in-line, and 18 (46%) missed. profit CAGR at 23-76% for Alibaba, Tencent, JD and Meituan during 2020-23E. We remain cautious on the The reported aggregate earnings growth is 1%oya. Ping growth outlook of the online ads segment given the An Bank (+15%oya), China Tower (+13%oya) and persistent macro challenges and competitive pressure. Angel Yeast (+28%oya) saw limited impact from the outbreak and reported resilient growth despite the Tech hardware – uncertainties remain elevated downturn. Sector-wise, retail companies delivered stable We maintain our cautious view on the tech hardware online profitability, thanks to the increase in online sector given the supply and demand constraints across consumption during the outbreak and better cost control, various applications after the COVID-19 outbreak. while offline was largely affected by the store closures. Global smartphone demand (JPMe: -3.1%oya in 2020) is Telecom reported flat growth for 1Q, with weak mobile likely to stay sluggish due to the decline in consumer revenue offsetting a robust fixed-line business. Materials discretionary spending amid the outbreak. Our analyst and utilities were hit by the sharp decline in sales volume expects China smartphone shipment will decline by and power generation. While the overall negative impact 10%oya in 2020, with demand disruption from the major from the COVID-19 outbreak was severe due to the overseas markets including US and Europe. Meanwhile, disruption on both the supply and demand side, most of Chinese smartphone OEMs are likely to accelerate the the companies have witnessed some recovery and 5G model launch in 2H20 with a lower retail price in business normalization in March. order to boost inventory digestion. This may increase the pricing pressure and competition of the components Our MSCI China CY20E EPS integer was lowered by makers. For the PC segment, our analyst expects that 1.8% in April, and 8.7% since January. Downward underlying demand will turn weak from 3Q20 when the earnings revisions were seen across most of the sectors WFH momentum starts to taper off, and forecast a low- during the month, led by insurance, materials and single-digit yoy NB shipment declines for this year. industrials. Our downgrades on the insurance sector were mainly incorporating the lower investment income result Real estate –contracted sales growth remains intact from the declining bond yield, extra liability reserve National residential sales have started to normalize in the provisioning, as well as slower sales volume due to second half of March, with sales volume down by COVID-19 outbreak. Within the material sector, our 14%oya for the month, compared to -39.2%oya in 2M20. analyst has revised down our earnings on the steel and Home prices (+2%oya) continue to hold up well thanks aluminum segment substantially on the back of the poor to the good inventory control over the past years. Our commodity price environment and high inventories level. analyst believes that overall sales will be broadly flat y/y Our bottom-up MSCI China CY20/21E earnings growth in April with the release of pent-up demand, and the forecast currently stands at 3.7% and 18.3% respectively, decline in 1H2020 narrowing to 5-10%oya. Meanwhile, which is largely in-line with consensus estimates. we believe contracted sales for major listed developers will stay resilient into the year due to the increase in Sector highlights sellable resources, continued market share gains and the Internet– mixed earnings outlook across segments more balanced demand/supply dynamics. In particular, we We are constructive on the earnings outlook for the digital expect the ASP for the tier-1 cities will remain strong due entertainment (e.g. mobile gaming, music) segment given to the prevailing price caps, while the incremental hukou the substantial improvement in gaming industry’s content easing will continue to drive the volume and ASP growth supply and acceleration in subs growth. While earnings in the top tier-2 cities. Overall, we expect robust EPS impact in the e-commerce space for 1Q could be severe growth forecast at 16% and 14% for CY20/21E.
22 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Industrials – solid infra E&C and equipment segment liability reserve provisioning of the insurers for this year. We stay positive on the earnings outlook for the infra Meanwhile, first year premium growth will remain weak E&C and railway equipment sector. Key drivers include in 1H20 due to a slowdown in face-to-face agent activities a recovery on infra FAI on the back of fiscal investment and weak footfall in banks. Overall, our analyst has support (e.g. higher allocation of funds from LGB revised down our EPS forecast for the companies by 7- issuance to the infra space), improving new order growth 23%, and expect a 23% decline in the sector earnings for from overseas projects related to the BnR initiative, and this year. Looking beyond, long-term fundamental outlook increasing demand driven by replacement needs and remains intact given the product mix shift to higher- emission standard upgrades. The “highway-to-railway” margin protection products, productivity improvement in shift initiative should also encourage more locomotive the agency channel and further liability reserve and freight wagon procurements. In addition, our stabilization in the back book. Our analyst also expects analysts expect profit margins to improve due to easing cyclical underwriting to turnaround for the non-life raw material costs, positive mix changes, enhanced insurers due to stricter regulatory control and expansions pricing power, and improving operational efficiency. in the non-auto line.
Consumer staples – resilient growth outlook Diversified financial– benefit from capital market reform China consumer staples sector is forecast to deliver Our analyst forecasts a robust sector EPS growth at 13% resilient EPS growth at 27% for CY20, partly driven by for CY20E. Total underwriting flows are expected to stay the agriculture companies which is benefitting from the resilient driven by the increase in equity refinancing and surge in pork price. While the COVID-19 outbreak could bond issuance, while regulatory measures on loosening continue to weigh on the consumption spending in near- the margin financing and lowering the refinancing cost term, our analysts believe selected segments such as food will continue to drive the recovery on stock-pledged repo retailers and dairy will be more defensive and will benefit businesses. We believe leading brokers are in a better from a higher penetration rate, market consolidation and position to benefit from supportive policy measures premiumization. In particular, some key players are including the New Securities Law for which the expected to see multi-year margin expansion through registration-based IPO mechanism is implemented across streamlining execution and regional M&A, as well as its the whole onshore capital market, NEEQ reform, favorable mix change towards high-margin product. We streamlining the QFII/RQFII related-rules, further are more cautious on the beer segment given the loosening index futures, increase in corporate share significant decline in retail sales and nearly zero buybacks, and further opening of the A-share market. wholesales sales. That said, contributions from the capital market reforms measures will take time to translate into earnings. Banks – diminishing fear of NIM contraction Our analyst is turning more positive on the Chinese Energy/materials – sluggish growth outlook for CY20E banks outlook as high-frequency data supports our base Collapse in the oil price has posed a significant case of V-shaped macro recovery, which ease some downward pressure on the oil companies’ earnings credit risk concern on the corporate book in near-term. outlook, and we currently forecasts a c.40% decline on Moreover, the NIM contraction could be more moderate the sector EPS for CY20E. Our commodity team expects than we forecast, on the back of the falling wholesale Brent price will stay low in the next quarter due to the funding cost due to the sharp decline in the interbank significant demand destruction and increase in OPEC+ rates. Subsiding inflation risk and falling market rates supply. In addition, refining profitability may worsen in also open room for a deposit rate cut. Overall, we 2020 as well due to oversupply and accelerating forecast modest sector EPS growth at 5.8%/4% for competition. Within materials, we expect cement will CY20/21, respectively. benefit the most fromthe government’s stimulus measure on the infra areas, while we see on-going destocking Insurance – rising credit and market risks pressure in other materials space including steel, glass We believe declining bond yield and financial market and nonferrous metals due to demand delays and logistic volatility will drag the investment income and increase the disruption. Overall, we forecast a marginal 0.4% increase in earnings for CY20E.
23 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Table 17: Major earnings and price target revisions in past month
Rating Current Price target EPS revisions Company Code Sector Previous New price Previous New EPS20 EPS21 BoComm - H 3328 HK Banks N OW 4.7 6.2 6.5 1% 1% China Mobile 941 HK Comm. Serv. OW OW 61.5 70.0 73.0 0% 4% China Tower 788 HK Comm. Serv. N N 1.7 1.9 1.8 -9% -11% Alibaba BABA US Cons. Disc. OW OW 210.0 280.0 280.0 11% Gree Elec - A 000651 CH Cons. Disc. N OW 54.2 60.0 63.0 -13% Guangzhou Auto - H 2238 HK Cons. Disc. OW OW 6.4 10.0 10.0 -5% -4% New Oriental Education EDU US Cons. Disc. OW OW 113.8 150.0 140.0 -5% -6% SAIC Motor - A 600104 CH Cons. Disc. N N 18.6 22.0 20.0 -12% -9% Soufeiya Home Collection - A 002572 CH Cons. Disc. OW OW 19.3 22.0 23.0 -1% 4% TAL Edu TAL US Cons. Disc. OW OW 50.7 64.0 61.0 -14% Trip.com TCOM US Cons. Disc. OW OW 23.0 39.0 36.0 -8% Feihe 6186 HK Cons. Stpl. OW N 14.7 15.8 13.8 -2% -3% Moutai - A 600519 CH Cons. Stpl. OW OW 1244.5 1270.0 1450.0 1% 3% Sun Art 6808 HK Cons. Stpl. OW OW 12.5 11.5 14.0 13% China Cinda 1359 HK Div. Fin. OW OW 1.4 2.3 2.0 5% -2% China Shenhua - H 1088 HK Energy OW OW 13.7 20.0 18.0 -4% -5% CNOOC 883 HK Energy OW OW 8.2 11.6 11.8 13% 5% COSL - H 2883 HK Energy OW OW 5.8 8.9 9.0 3% 5% Offshore Oil Engineering - A 600583 CH Energy OW OW 5.0 8.4 8.4 1% -1% Petrochina - H 857 HK Energy N N 2.7 3.1 3.1 -1% 2% Sinopec - H 386 HK Energy OW OW 3.8 5.2 5.2 1% 1% Yangzhou Coal - H 1171 HK Energy OW N 5.9 9.0 7.0 -10% -10% Yantai Jereh Oilfield - A 002353 CH Energy OW OW 25.3 36.8 38.2 8% 7% 3SBio 1530 HK Healthcare OW OW 8.3 11.0 11.0 -2% -1% CR Pharma 3320 HK Healthcare N N 4.9 6.5 5.8 -10% -10% CSPC Pharma 1093 HK Healthcare OW OW 15.8 23.5 21.0 -9% -7% Sino Biopharm 1177 HK Healthcare OW OW 11.1 14.5 13.8 -6% -3% Wuxi Bio 2269 HK Healthcare OW OW 120.0 140.0 140.0 1% 1% CCCC - H 1800 HK Industrials OW OW 5.1 8.2 6.7 -10% -8% China State Construction 3311 HK Industrials OW OW 5.9 10.5 9.2 -6% 3% CRCC - H 1186 HK Industrials OW OW 8.8 14.0 14.9 7% 6% CRG - H 390 HK Industrials OW OW 4.6 8.5 9.1 7% 11% Sany Heavy - A 600031 CH Industrials N OW 19.5 17.0 23.0 -6% Shanghai Elec - H 2727 HK Industrials OW OW 2.4 3.3 3.4 4% 4% Shanghai Int'l Airport - A 600009 CH Industrials N OW 67.3 80.0 81.0 5% Shenzhen Airport - A 000089 CH Industrials OW OW 7.8 14.3 12.2 -25% -10% Xinjiang Goldwind - H 2208 HK Industrials OW OW 7.3 11.1 9.2 -10% -13% China Life Insurance - H 2628 HK Insurance OW OW 15.8 49.0 33.0 -23% -23% CPIC - H 2601 HK Insurance N OW 24.0 34.0 29.0 -12% -11% New China Life Insurance - H 1336 HK Insurance N N 24.6 37.0 23.0 -10% -1% PICC Group - H 1339 HK Insurance OW OW 2.5 4.4 3.0 -7% 8% PICC P&C 2328 HK Insurance OW OW 7.3 12.5 10.5 -12% -7% Ping An Insurance - H 2318 HK Insurance OW OW 77.8 130.0 100.0 -18% 10% Jonhon Optronic - A 002179 CH IT OW OW 34.4 41.0 40.0 -17% -18% SMIC 981 HK IT UW UW 15.0 11.0 10.5 -29% 5% Xiaomi 1810 HK IT UW UW 10.1 9.0 9.0 -9% -2% Angang Steel - A 000898 CH Materials N N 2.7 3.0 3.0 -18% -35% BBMG - H 2009 HK Materials N N 2.0 2.6 2.4 -5% -5% Chalco - H 2600 HK Materials N N 1.5 2.4 2.0 -23% -85% China Moly - H 3993 HK Materials OW OW 2.2 3.2 2.9 -4% -24% CNBM 3323 HK Materials N N 9.5 9.0 9.0 -8% -10% CR Cement 1313 HK Materials OW OW 10.1 12.0 12.0 0% -1% Jiangxi Copper - H 358 HK Materials N N 7.3 11.0 9.0 -13% -28% Maanshan I&S - H 323 HK Materials UW UW 2.2 2.4 2.0 -24% -26% Tianqi Lithium - A 002466 CH Materials UW UW 19.3 26.0 17.0 -45% -35% Wanhua Chemical - A 600309 CH Materials UW OW 42.9 42.0 50.0 -2% -4% Zijing Mining - H 2899 HK Materials OW OW 3.3 3.6 3.6 -13% -16% Seazen 1030 HK Real Estate OW OW 6.7 10.5 9.0 -1% -7% Sino-Ocean Group 3377 HK Real Estate N N 1.9 2.7 2.2 5% 2% SUNAC China 1918 HK Real Estate OW OW 32.7 51.0 46.0 -6% -7% Yuzhou Properties 1628 HK Real Estate OW OW 3.2 6.0 5.1 -13% -11% Zhenro Properties 6158 HK Real Estate N N 4.8 4.7 4.5 -9% -8% Beijing Enterprise 384 HK Utilities N N 23.2 32.5 26.6 -11% -11% China Gas 392 HK Utilities N N 26.2 42.3 32.0 -3% -6% Datang Renewable 1798 HK Utilities N OW 0.6 0.8 0.7 -17% -12% GCL New Energy 451 HK Utilities N UW 0.1 0.2 0.1 -49% -43% Longyuan 916 HK Utilities OW OW 3.7 5.6 5.6 -1% 0% Source: Bloomberg, J.P. Morgan estimates. Prices as of 22 April 2020.
24 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Figure 19: MSCI China 2020E bottom-up EPS growth contribution by sector 9% 0.2% 0.0% 0.3% 2.1% 8% 0.3% 0.3% 0.4% 7% 0.5% 1.0% 6% 2.2% 1.7% 5% 3.7%
4% 1.7% 3%
2% 1.7%
1%
0% Cons. Disc. Banks Real estate Comm. Cons. Stpl. Health care IT Div. Fin. Utilities Industrials Materials Insurance Energy MSCI China Serv.
Source: MSCI, Datastream, J.P. Morgan estimates.
Figure 20: MSCI China 2021E bottom-up EPS growth contribution by sector 20% 0.2% 0.2% 0.3% 0.3% 18.3% 18% 0.4% 0.6% 0.5% 1.2% 16% 1.5% 14% 1.6% 12% 2.2% 3.3% 10% 8% 5.9% 6% 4% 2% 0% Cons. Disc. Comm. Insurance Real Estate Industrials Banks IT Health care Energy Div. Fin. Cons. Stpl. Utilities Materials MSCI China Serv.
Source: MSCI, Datastream, J.P. Morgan estimates.
Table 18: MSCI China EPS growth forecasts by sector (bottom-up) Contribution to EPS integer EPS growth (%) 2020 EPS growth JPM JPM Consensus (%) CY19E CY20E CY21E CY19E CY20E CY21E CY19E CY20E CY21E Consumer Discretionary 45.0 8.4 9.6 13.7 35.9 13.4 43.2 35.1 10.9 38.1 Consumer Staples 13.2 49.8 63.1 70.7 24.3 26.7 11.9 24.6 28.8 12.1 Communication Services 27.6 5.4 5.8 7.3 4.9 8.5 25.5 5.0 6.7 19.3 Energy -58.3 51.0 30.8 34.7 7.6 -39.7 12.7 7.6 -53.0 40.9 Financials -4.0 73.2 72.9 80.0 16.5 -0.4 9.6 16.5 2.1 7.6 Banks 45.2 45.7 48.4 50.3 5.7 5.8 4.0 5.7 4.1 5.0 Insurance -56.7 64.5 49.5 65.8 65.6 -23.3 33.1 65.6 -7.8 15.2 Diversified Financials 7.6 8.7 9.8 11.2 32.5 12.9 14.0 32.5 16.5 13.8 Health care 11.0 5.7 7.2 9.2 37.8 26.1 27.7 37.2 25.5 23.8 Industrials 4.2 11.6 11.8 14.1 7.4 2.1 19.3 7.4 0.1 20.0 Information Technology 8.8 25.8 29.6 36.9 19.4 14.6 24.9 19.6 16.6 26.6 Materials 0.4 79.6 80.0 86.2 -7.3 0.4 7.8 -7.2 2.3 12.7 Real Estate 44.9 239.3 278.3 317.8 14.2 16.3 14.2 14.2 17.8 16.9 Utilities 7.1 51.5 56.5 61.5 20.0 9.7 8.7 20.6 14.1 11.2 MSCI China 100.0 6.1 6.3 7.5 15.1 3.7 18.3 15.1 3.7 17.1 Source: MSCI, IBES, Datastream, Bloomberg, J.P. Morgan estimates.
25 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Figure 21: MSCI China 2020E EPS growth (%) Figure 22: MSCI China 2021E EPS growth (%)
Cons. Stpl. Cons. Disc. Healthcare Insurance Real Estate Healthcare IT Comm. Serv. Cons. Disc. IT Div Fin Industrials Utilities MSCI China Real Estate Comm. Serv. Div Fin Bank Energy MSCI China Cons. Stpl. Industrials Utilities Materials Materials Insurance Bank Energy 0 5 10 15 20 25 30 35 40 45 -45 -40 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 Source: MSCI, Datastream, Bloomberg, J.P. Morgan estimates. Source: MSCI, Datastream, Bloomberg, J.P. Morgan estimates.
26 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
EPS Tracker – Monitoring Consensus Earnings Revisions
The trend of downward revisions in consensus earnings Figure 23: MSCI China consensus EPS integer continued over the past month, with MSCI China 10 2020 2021 CY20/21E EPS integer revised down by 7.2% and 5.8% 9.5 respectively. Energy sector saw the biggest downward revisions of 30% for CY20E, largely due to the plunge in 9 the oil price. Industrials earnings were lowered by 10% 8.5 mainly dragged by the airlines. Meanwhile, the earnings 8 revision breadth for CY20E (number of companies with 7.5 EPS upgrades less downgrades/total revisions made) 7 declined to 61% compared to 42% in March. Breadth worsened the most in healthcare, IT and industrials, 6.5 while utilities had a narrowing negative breadth. 6 Feb 18 Aug 18 Feb 19 Aug 19 Feb 20 Stocks with the largest 2020E EPS upgrades in the past month are Cosco Shipping, Yum China, China Source: MSCI, IBES, Datastream, J.P. Morgan. Merchants Energy Shipping, Walvax Biotech and Kaisa.
Stocks with the largest 2020E EPS downgrades in the past month are Petrochina, Trip.com, Air China, China Southern Airlines and Juneyao Airline.
Table 19: MSCI China consensus EPS revisions 2020 EPS revision (%) 2021 EPS revision (%) 1m 3m 6m 12m 1m 3m 6m 12m MSCI China -7.2 -11.9 -12.0 -20.4 -5.8 -8.9 -9.1 -16.1 Consumer Discretionary -9.7 -15.8 -11.6 -20.2 -6.7 -7.4 -3.9 -3.1 Consumer Staples -3.8 -3.4 2.9 2.4 -1.8 -2.3 1.9 3.0 Communication Services -3.7 -7.5 -5.9 -19.1 -3.4 -5.4 -3.4 -18.4 Energy -29.5 -49.3 -48.5 -53.1 -21.3 -34.9 -34.2 -39.5 Financials -3.9 -6.2 -4.4 -12.3 -4.0 -7.0 -5.6 -11.3 Banks -3.2 -5.2 -3.9 -11.6 -4.0 -6.6 -5.7 -11.2 Insurance -5.5 -8.8 -5.0 -3.7 -3.8 -7.3 -4.4 -1.0 Diversified Financials -5.1 -10.8 -8.9 -15.1 -3.5 -10.1 -8.7 -15.2 Healthcare -6.9 -15.9 -29.9 -16.5 -6.9 -14.3 -26.6 -15.2 Industrials -10.0 -13.1 -17.9 -18.9 -4.4 -5.1 -10.3 -10.6 IT -8.6 -11.7 -17.1 -31.4 -6.6 -8.4 -13.4 -22.9 Materials -4.2 -5.8 -7.0 -25.2 0.7 1.2 1.4 -18.0 Real Estate -6.7 -10.8 -11.6 -16.9 -6.5 -10.8 -11.7 -18.5 Utilities -4.8 -8.6 -9.7 -12.9 -4.4 -8.4 -8.9 -14.5 Source: MSCI, IBES, Datastream, J.P. Morgan.
Figure 24: MSCI China EPS revision breadth: number of companies seeing (upgrades – downgrades) / (upgrades + downgrades) 20 10 2020E EPS 2021E EPS 0 -10 -20 -30 -40 -50 -60 -70 Mar 19 Apr 19 May 19 Jun 19 Jul 19 Aug 19 Sep 19 Oct 19 Nov 19 Dec 19 Jan 20 Feb 20 Mar 20 Apr 20 Source: MSCI, IBES, Datastream
27 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Market Valuations
MSCI China has re-rated by 19% from its trough at 10x Figure 25: MSCI China sector-neutral P/E (x) in late-March to 11.9x currently, which is in-line with its 19 10y average at 12x. The increase in forward PE is driven by the 15% increase in price and a 4% decline on 17 forward EPS. Energy sector re-rated the most by 58%, 15 largely due to the continuous EPS downgrade amid the +1 std dev falling oil price. Banks and diversified financial, which 13 LT average had underperformed during the recent market rebound, 11 re-rated the least by c.8%. Valuations of some of the -1 std dev cyclical sectors including real estate (5.2x) and 9 industrials (8.6x) remains low, whereas IT and healthcare are trading at 1.5-2 standard deviation above mean. 7 10 11 12 13 14 15 16 17 18 19 20 Sectors with forward P/E above 10y average Consumer discretionary, communication services, Source: MSCI, IBES, Datastream. 23 April 2020. Sector neutral P/E = sector forward PE energy, healthcare, IT weighted by current sector weighting before 2019. Please see Table 20 for MSCI China sector valuations Sectors with a low forward P/E below 10x for details. Banks (4.7), real estate (5.2), industrials (8.6), insurance (8.8), materials (9.6), utilities (8.7), diversified financials (9.7)
Figure 26: MSCI China 12m forward P/E (x) Figure 27: MSCI China IT 12m forward P/E (x) 24 26 24 20 22 20 16 +1 std dev 18 +1 std dev 12 average 16 average 14 8 -1 std dev 12 -1 std dev 4 10 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 8 Source: MSCI, IBES, Datastream. 23 April 2020. 10 11 12 13 14 15 16 17 18 19 20 Source: MSCI, IBES, Datastream. 23 April 2020. Re-calculated based on the new GICS classification prior to November 2018.
Figure 28: MSCI China banks 12m forward P/E (x) Figure 29: MSCI China consumer discretionary 12m forward P/E (x) 22 27 20 26 18 25 +1 std dev 16 24 14 +1 std dev 23 12 22 10 average average 21 8 6 20 4 19 -1 std dev -1 std dev 2 18 0 17 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 15 16 17 18 19 20 Source: MSCI, IBES, Datastream. 23 April 2020. Source: MSCI, IBES, Datastream. 23 April 2020. Re-calculated based on the new GICS classification prior to November 2018.
28 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Figure 30: MSCI China insurance 12m forward P/E (x) Figure 31: MSCI China communication services 12m forward P/E (x) 40 28 36 26 32 24 +1 std dev 28 +1 std dev 22 24 20 20 average 18 16 average 12 16 8 -1 std dev 14 -1 std dev 4 12 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 10 11 12 13 14 15 16 17 18 19 20 Source: MSCI, IBES, Datastream. 23 April 2020. Source: MSCI, IBES, Datastream. 23 April 2020. Re-calculated based on the new GICS classification prior to November 2018.
Figure 32: MSCI China real estate 12m forward P/E (x) Figure 33: MSCI China energy 12m forward P/E (x) 22 24 20 22 18 20 16 18 16 14 +1 std dev +1 std dev 14 12 12 10 average average 10 8 8 6 -1 std dev 6 -1 std dev 4 4 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: MSCI, IBES, Datastream. 23 April 2020. Source: MSCI, IBES, Datastream. 23 April 2020.
Figure 34: MSCI China industrials 12m forward P/E (x) Figure 35: MSCI China utilities 12m forward P/E (x) 27 24 25 22 23 20 21 18 19 16 +1 std dev 17 +1 std dev 14 15 average 12 average 13 11 10 -1 std dev 9 8 7 -1 std dev 6 5 4 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: MSCI, IBES, Datastream. 23 April 2020. Source: MSCI, IBES, Datastream. 23 April 2020.
29 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Figure 36: MSCI China diversified financials 12m forward P/E (x) Figure 37: MSCI China healthcare 12m forward P/E (x) 24 30 28 20 26 +1 std dev 24 16 +1 std dev 22 average average 12 20 18 8 -1 std dev 16 -1 std dev 4 14 08 09 10 11 12 13 14 15 16 17 18 19 20 10 11 12 13 14 15 16 17 18 19 20 Source: MSCI, IBES, Datastream. 23 April 2020. Source: MSCI, IBES, Datastream. 23 April 2020.
Figure 38: MSCI China consumer staple 12m forward P/E (x) Figure 39: MSCI China materials 12m forward P/E (x) 26 27 24 25 +1 std dev 22 23 20 21 18 19 16 average 17 +1 std dev 14 15 -1 std dev 13 12 average 10 11 8 9 6 7 -1 std dev 4 5 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: MSCI, IBES, Datastream. 23 April 2020. Source: MSCI, IBES, Datastream. 23 April 2020.
Table 20: MSCI China sector valuations P/E (x) Prem/disc #SD Div Yield (%) P/BV (x) CY19E CY20E CY21E 12m fwd from 10y average CY20E CY21E CY20E CY21E Consumer Discretionary 29.5 26.0 18.1 22.7 2.6 0.3 0.3 0.4 3.8 3.2 Consumer Staples 28.1 22.1 19.8 21.3 -1.1 -0.1 2.0 2.3 4.6 4.0 Communication Services 24.2 22.3 17.8 20.5 7.7 0.4 1.0 1.1 2.6 2.3 Energy 6.4 10.5 9.4 10.1 3.1 0.1 5.3 5.2 0.6 0.6 Financials 6.0 6.0 5.5 5.8 -19.0 -0.9 5.0 5.5 0.7 0.6 Banks 5.1 4.8 4.6 4.7 -17.7 -0.8 6.1 6.4 0.6 0.5 Insurance 7.5 9.8 7.4 8.8 -42.0 -1.6 3.2 4.2 1.2 1.1 Diversified Financials 11.4 10.1 8.9 9.7 -7.0 -0.3 3.2 3.6 0.8 0.7 Health care 42.1 33.3 26.1 30.5 33.9 1.5 0.8 1.0 3.9 3.6 Industrials 9.4 9.2 7.7 8.6 -20.0 -1.2 3.0 3.4 0.9 0.8 Information Technology 25.9 22.6 18.1 20.9 41.7 2.3 1.2 1.4 2.4 2.2 Materials 9.9 9.9 9.2 9.6 -17.4 -0.8 3.5 3.7 1.1 1.0 Real Estate 6.4 5.5 4.8 5.2 -26.8 -1.2 6.3 7.2 0.9 0.8 Utilities 11.0 10.0 9.2 9.7 -18.3 -1.7 3.9 4.2 1.1 1.0 MSCI China 13.2 12.7 10.7 11.9 0.2 0.0 2.2 2.4 1.5 1.4 Source: MSCI, IBES, Datastream, J.P. Morgan estimates. 23 April 2020.
30 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
MS CI China Evolution – From Old to New Economy
The MSCI China index composition has changed rapidly Table 21: Top ten stocks represent 50% of MSCI China since its launch in 1992. A fairer comparison is the Code Weight Sector performance of the market and economy since 2005 with Alibaba BABA US 18.0 Cons. Disc. Tencent 700 HK 14.8 Comm. Serv. the listing of the China banks. MSCI China’s 2005-18 CCB 939 HK 3.7 Banks CAGR was 7%, vs nominal GDP CAGR of 14%. The Ping An Insurance 2318 HK 2.8 Insurance current index is 43% internet and e-commerce, which China Mobile 941 HK 2.4 Comm. Serv. reflects the increasing contribution of the consumption and ICBC 1398 HK 2.1 Banks JD.com JD US 1.6 Cons. Disc. service sector to the economy. With the growing BOC 3988 HK 1.5 Banks importance of the China onshore equity markets, MSCI Baidu BIDU US 1.4 Comm. Serv. has started to include A-shares from June 2018, which Netease NTES US 1.2 Comm. Serv. represent 11.8% of MSCI China currently. Source: MSCI, Datastream, J.P. Morgan. 22 April 2020.
Dominated by telecom and energy by 2005 Table 22: Sector weightings of MSCI China (%) In the 1990s, investors bought the China concept via 1995 2000 2005 2010 2015 Current relatively small industrials and window companies No. of stocks 24 30 75 140 157 704 (investment companies that issued shares to pay for asset Cons Disc 25 1.9 4.8 5.5 6.3 28.1 injections). The main sectors were materials, consumer Comm Serv* - 61.5 22.3 11.3 9.4 22.3 Banks - - 8.9 22.8 19.5 11.3 discretionary, utilities and industrials. The most dramatic Insurance - - 6.7 8.7 9.1 5.3 change was the listing of CMHK in October 1997, which Industrials 14.1 21.7 13.9 8.4 7.5 5.5 combined with the late ‘90s TMT bubble resulted in Real Estate 5.8 0.3 2 5.6 6.0 5.1 telecoms being 62% of MSCI China in 2000. Industrials Health Care - 0.2 0.1 0.8 2.2 5.0 Energy 0 4.4 26.5 18.1 6.5 2.7 was the second-largest sector (22%) led by CITIC IT 0.9 6.4 3.5 5.4 22.6 4.5 Pacific. By 2005, energy (27%) was the largest sector Cons Staple 7.7 0.4 2 5.2 3.1 3.9 with the listing of PetroChina, Sinopec, and CNOOC in Utilities 14.9 2.1 4.3 1.8 3.8 2.3 2000 and 2001. BoCom and CCB were listed in 2005. Materials 31.6 1.1 4.7 6.2 1.3 2.3 Div Fin - - 0.2 0.3 2.9 1.9 ADR - - - - 11.3 28.7 Internet and e-commerce are 43% of current index Source: MSCI, Bloomberg, Datastream, J.P. Morgan. 22 April 2020. *Telecom sector for MSCI China has been biased to the new economy since 1995 - 2015. the inclusion of ADRs in Nov 2015 (with 50% of free float market cap) and May 2016 (full inclusion). The 30 Figure 40: Current MSCI China index ADRs (12 in communication services, 11 in consumer Div. Fin., 1.9% Healthcare, Materials, discretionary, 3 in industrials, 2 in healthcare and one Cons. Stpl., 5.0% 2.3% inIT and diversified financials respectively) are 29% of 3.9% Banks, 11.3% IT, 4.5% MSCI China. Tencent and Alibaba are 33% of the index. Banks are 11%, whereas insurance is 5%. Materials is Communicatio just 2.3% of the index, vs 32% in 1995. Cons. Disc., n services, 28.1% 22.3% Utilities, 2.3% A-share inclusion in global benchmark indices Property, 5.1% Insurance, Energy, 2.7% Industrials, China A shares were included in MSCI China in five 5.5% 5.3% phases: June 1, 2018 (with 2.5% inclusion factor), Source: MSCI, Datastream, J.P. Morgan. 22 April 2020. September 3, 2018 (with 5% inclusion factor), May 28, 2019 (with 10% inclusion factor), August 28, 2019 (with Figure 41: China nominal GDP vs MSCI China market cap (US$bn) 15% inclusion factor) and November 26, 2019 (with 20% 14000 2000 inclusion factor and include mid-caps and ChiNext Nominal GDP (LHS) names). The current 467 A shares are 66% of the stocks 12000 MSCI China mkt cap (RHS) (704 in MSCI China) but just 11.8% of the index weight. 10000 1500 8000 1000 Meanwhile, FTSE has also started including the China A 6000 shares in its indices, with an inclusion factor of 5%/15%/25% on June19/September19/March20. Our 4000 500 derivative team forecasts total passive inflow of 2000 USD26.2bn from MSCI (USD18.1bn) and FTSE 0 0 (USD8.1bbn), and US$157bn if including active flows 1993 1996 1999 2002 2005 2008 2011 2014 2017 (assuming active flows is five times that of passives). Source: MSCI, Datastream, J.P. Morgan.
31 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
The 467 A shares in MSCI China
The current 467 A shares in MSCI China consist of 255 Table 23: MSCI China A-share breakdown by sector Shanghai- and 212 Shenzhen-listed companies, with a # of % FF Mkt % Weg in total free float market cap of US$237bn (based on a 20% stocks Cap MSCI inclusion factor and 30% foreign ownership limit) and (US$bn) China (%)* represent 11.8% of MSCI China. 72 out of the 467 A * Cons. Disc. 34 7.3 12.9 5.4 0.6 shares are dual-listed on HKSE. Total average daily Cons. Stpl. 37 7.9 36.8 15.5 1.8 turnover (3M) of the A-share constituents was US$47bn, Comm. Serv. 16 3.4 6.0 2.5 0.3 accounting for 39% of the total A-share market. Energy 14 3.0 4.7 2.0 0.2 Financials 65 13.9 56.6 23.9 2.8 Banks 22 4.7 29.7 12.5 1.5 The universe offers investors broader access to the Insurance 6 1.3 10.1 4.3 0.5 Chinese traditional sectors and domestic-oriented Div. Fin. 37 7.9 16.8 7.1 0.8 companies, which are well positioned to benefit from Health care 58 12.4 26.2 11.0 1.3 further counter-cyclical macro policy support. Consumer Industrials 80 17.1 29.9 12.6 1.5 IT 69 14.8 30.8 13.0 1.5 staples, industrials, materials, brokers and healthcare Materials 61 13.1 17.7 7.5 0.9 represent 54% of the A-share universe but just 12% of Real Estate 20 4.3 9.3 3.9 0.5 the H-share constituents. IT (internet + hardware) is 13% Utilities 13 2.8 6.1 2.6 0.3 only versus 46% in H shares and ADRs. Consumer Total 467 100 237.1 100 11.8 discretionary is dominated by e-commerce and education Source: MSCI, Bloomberg, J.P. Morgan. 22 April 2020. *with 20% inclusion factor. currently, whereas the A-share universe has higher exposure to home appliance and auto segments. Table 24: Pro-forma MSCI China stock classification Weighting (%) Consumer staples (15%/A universe) is the largest sector, Current Assume 100% inclusion A shares 11.8 40.1 followed by IT (13%), industrials (12.6%), banks H shares 22.4 15.2 (12.5%), and healthcare (11%). The biggest non-A/H Red chips 8.9 6.1 dual-listed companies included the premium liquor P chips 28.1 19.1 Moutai and Wuliangye, video surveillance vendor B shares 0.1 0.1 ADR 28.7 19.5 HikVision, hydroelectric power generator Yangtze Power, medicine manufacturer Hengrui, joint-stock banks Source: MSCI, Bloomberg, J.P. Morgan. 22 April 2020. Industrial bank and Shanghai Pudong Bank.
Overall, we expect to see gradual fund inflows into the onshore equities amid continuous capital account liberalization, in particular on the mid-cap names which was first included in MSCI in November 2019. Moreover, the increased participation of foreign institutional investors will essentially help optimizing the onshore equity market structure and improve the market efficiency.
Table 25: Top 10 non-dual-listed A shares in MSCI China Sector Price (CNY) Free float mkt cap (US$mn) Weg in MSCI China (%) 3m ADT (US$mn) Kweichow Moutai Co Ltd 600519 CH Staples 1200.0 12753.3 0.6 682.7 Wuliangye Yibin Co Ltd 000858 CH Staples 126.5 4153.2 0.2 465.8 Jiangsu Hengrui Medicine 600276 CH Health Care 95.3 3565.9 0.2 288.7 China Yangtze Power Co 600900 CH Utilities 17.1 3180.9 0.2 57.6 Industrial Bank Co Ltd 601166 CH Banks 15.8 2776.9 0.1 189.1 Shanghai Pudong Dev Bk 600000 CH Banks 10.0 2490.7 0.1 63.2 Contemporary Amperex 300750 CH Industrials 130.5 2438.6 0.1 574.9 Foshan Haitian Flavouring 603288 CH Staples 125.0 2379.6 0.1 58.8 Hangzhou Hikvision Digital 002415 CH IT 30.0 2371.0 0.1 274.8 Shenzhen Mindray 300760 CH Health Care 268.0 2297.2 0.1 188.2 Source: MSCI, Bloomberg, Datastream, J.P. Morgan. 22 April 2020.
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32 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Table 26: MSCI China A-share constituents with H-share counterparts listed on HKSE
Name Ticker Sector Price FF mkt Weg in 3m ADT H shares counterpart A/H (CNY) cap MSCI China premium/d (US$mn) (%) iscount US$mn Ticker Price (HK$) % Ping An Insura 601318 CH Insurance 72.4 6632.5 0.33 832.4 2318 HK 77.8 1.7 China Merch Bk 600036 CH Banks 32.7 5698.3 0.28 326.8 3968 HK 34.7 3.0 Ind & Comm Bk 601398 CH Banks 5.1 2317.5 0.12 160.9 1398 HK 5.1 9.9 Agricultural 601288 CH Banks 3.4 2149.0 0.11 92.6 1288 HK 3.1 21.8 China Vanke Co 000002 CH Real Estate 26.0 2140.6 0.11 357.2 2202 HK 24.6 15.6 Anhui Conch 600585 CH Materials 59.2 2001.5 0.10 290.5 914 HK 58.9 9.8 Citic Securiti 600030 CH Div. Fin. 23.2 1928.6 0.10 675.1 6030 HK 14.3 77.6 China Minsheng 600016 CH Banks 5.7 1710.1 0.09 68.0 1988 HK 5.6 12.2 Bank Of Commun 601328 CH Banks 5.1 1703.5 0.08 60.4 3328 HK 4.7 19.5 China Pacific 601601 CH Insurance 28.7 1524.9 0.08 129.7 2601 HK 24.0 30.8 Zte Corp 000063 CH IT 40.4 1316.5 0.07 894.3 763 HK 23.3 89.4 Wuxi Apptec Co 603259 CH Health Care 103.5 1285.0 0.06 194.7 2359 HK 109.4 3.4 Crrc Corp Ltd 601766 CH Industrials 6.2 1280.2 0.06 73.8 1766 HK 4.0 69.9 China Everbrig 601818 CH Banks 3.6 1199.0 0.06 61.7 6818 HK 3.0 29.2 Huatai Securit 601688 CH Div. Fin. 17.9 1111.1 0.06 251.1 6886 HK 12.6 54.8 Guotai Junan S 601211 CH Div. Fin. 16.7 1061.3 0.05 106.8 2611 HK 10.7 70.1 Bank Of China 601988 CH Banks 3.6 1058.0 0.05 48.0 3988 HK 2.9 32.3 China Railway 601390 CH Industrials 5.9 1014.7 0.05 63.6 390 HK 4.5 43.7 China Petroleu 600028 CH Energy 4.5 978.8 0.05 87.2 386 HK 3.8 30.9 China Railway 601186 CH Industrials 10.1 978.1 0.05 128.3 1186 HK 8.8 25.1 Byd Co Ltd 002594 CH Cons. Disc. 59.4 910.7 0.05 231.7 1211 HK 41.8 55.4 Haitong Securi 600837 CH Div. Fin. 12.9 884.5 0.04 191.6 6837 HK 6.9 104.6 New China Life 601336 CH Insurance 43.3 764.0 0.04 93.6 1336 HK 24.5 93.5 Gf Securities 000776 CH Div. Fin. 13.7 686.1 0.03 101.7 1776 HK 8.1 84.4 Zijin Mining 601899 CH Materials 4.1 679.6 0.03 163.1 2899 HK 3.3 33.8 Weichai Power 000338 CH Industrials 13.3 671.6 0.03 165.1 2338 HK 14.3 1.4 China Life Ins 601628 CH Insurance 27.8 653.5 0.03 72.1 2628 HK 15.7 93.6 Shanghai Fosun 600196 CH Health Care 37.6 639.4 0.03 179.8 2196 HK 28.2 45.9 Petrochina Co 601857 CH Energy 4.5 617.8 0.03 90.5 857 HK 2.7 81.9 China Shenhua 601088 CH Energy 15.4 571.8 0.03 79.9 1088 HK 13.8 21.4 China Molybden 603993 CH Materials 3.5 517.1 0.03 165.5 3993 HK 2.3 68.0 China Const Ba 601939 CH Banks 6.3 507.3 0.03 90.7 939 HK 6.0 13.8 Metallurgical 601618 CH Industrials 2.6 391.2 0.02 33.3 1618 HK 1.3 111.2 China Southern 600029 CH Industrials 5.1 374.0 0.02 61.6 1055 HK 3.5 61.9 Zoomlion Heavy 000157 CH Industrials 6.3 347.6 0.02 42.8 1157 HK 6.3 10.7 Shanghai Elect 601727 CH Industrials 4.9 338.0 0.02 18.5 2727 HK 2.4 126.9 China East Air 600115 CH Industrials 4.2 327.8 0.02 41.1 670 HK 2.9 54.3 Shang Pharm 601607 CH Health Care 20.1 327.0 0.02 89.8 2607 HK 14.0 57.1 Fuyao Glass 600660 CH Cons. Disc. 18.9 320.6 0.02 56.1 3606 HK 16.3 26.8 Aluminum Corp 601600 CH Materials 2.9 318.7 0.02 28.5 2600 HK 1.5 109.8 PICC 601319 CH Insurance 6.3 315.8 0.02 69.5 1339 HK 2.5 176.9 Xinjiang Gold 002202 CH Industrials 9.8 284.7 0.01 45.8 2208 HK 7.4 43.6 Cosco Shipping 600026 CH Energy 9.3 271.6 0.01 39.0 1138 HK 4.9 106.9 Tsingtao Brew 600600 CH Cons. Stpl. 45.7 268.9 0.01 50.9 168 HK 42.1 18.5 Huaneng Power 600011 CH Utilities 4.2 260.5 0.01 20.1 902 HK 2.7 73.2 China Citic Bk 601998 CH Banks 5.1 243.9 0.01 17.0 998 HK 3.6 53.8 Bbmg Corporati 601992 CH Materials 3.3 231.4 0.01 26.8 2009 HK 2.0 81.9 Air China Ltd 601111 CH Industrials 6.7 226.6 0.01 85.2 753 HK 5.2 41.0 Jiangxi Copper 600362 CH Materials 12.9 226.3 0.01 55.2 358 HK 7.4 90.6 Sinopec Shang 600688 CH Materials 4.3 219.6 0.01 21.1 338 HK 2.1 118.0 Cosco Shipping 601919 CH Industrials 3.8 205.3 0.01 19.5 1919 HK 2.1 96.6 Guangzhou Auto 601238 CH Cons. Disc. 9.8 197.5 0.01 31.2 2238 HK 6.5 65.2 Huadian Power 600027 CH Utilities 3.4 197.0 0.01 15.4 1071 HK 2.3 60.9 China Communic 601800 CH Industrials 8.3 192.2 0.01 102.7 1800 HK 5.1 78.7 Yanzhou Coal 600188 CH Energy 8.4 175.1 0.01 29.3 1171 HK 5.9 55.4 Maanshan Iron 600808 CH Materials 2.5 128.2 0.01 12.7 323 HK 2.3 22.3 Sinotrans 601598 CH Industrials 3.4 124.5 0.01 14.3 598 HK 1.8 106.3 Total 53,706 2.7 7,555 Source: MSCI, Bloomberg, Datastream, J.P. Morgan. 22 April 2020. The list only include the MSCI China H share constituents.
33 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Accessing China equities
China offers investors a number of ways to gain exposure lock-up period for investment principal, and allow to its equity markets: 1) HK-listed H shares, Red Chips institutional investors to hedge currency risk onshore. (2) and P Chips; 2) Shanghai and Shenzhen listed A and B On Jan 14, 2019, QFII quota doubled to USD300bn, (3) shares; and 3) US-listed ADRs. Performance of these On September 10, 2019, SAFE announced the removal of markets diverges with H shares outperforming A shares quota restrictions and country/regional restrictions for over 2016-2017, but underperforming since 2018. QFII/RQFII, and streamlining of the registration process Different factors such as i) coverage, ii) valuations, iii) (from approval-based to registration-based), (4) On accessibility, and iv) currency (FX risk) contributing to December 13, 2019, SAFE launched a consultation to the divergence. In addition, the global benchmark indices further simplify the QFII/RQFII related rules (link). inclusion and further market openness has driven steady capital flows into the onshore equities in recent years. Other key financial market openness measures: (1) Remove the foreign ownership limits for all financial Coverage: MSCI China has high exposure to the new- sectors by April 1, which was announced in the Phase economy growth sectors, with 43% in internet and e- One trade deal. (2) Loosening regulatory requirements commerce. ADRs represent 29% of the index. SHCOMP and lifting business restrictions on foreign banks and is 44% in local banks, industrials, and materials. IT is insurance companies, such as removing the business 22% of SZCOMP but 28% is in industrials and materials. track record requirements for insurers that apply to establish foreign-invested insurance companies in China, Valuations: Based on consensus, HSCEI’s 12m forward and lowering the minimum threshold for fixed-term P/E is 8x, below MSCI China’s 11.9x and SHCOMP's RMB deposits accepted by foreign bank branches from 11.2x, mainly due to its high exposure to China banks Chinese citizens. (29% of index). ChiNext, a subset of SZCOMP with 32% in IT, is trading at 12m forward P/E of 27.4x. MSCI Table 27: Sector composition of major China indices China’s ADR forward P/E is 23.2x. MSCI Accessibility: Four ways to access China A shares are: China HSCEI SHCOMP SZCOMP ChiNext Cons. Disc. 28.1 4.5 6.2 11.1 3.7 1) QFII (2003); 2) RQFII (2012); 3) Shanghai/Shenzhen Cons. Stpl. 3.9 2.7 10.2 10.3 3.9 Stock connect (2014/16); 4) offshore-listed derivatives Comm. Serv. 22.4 20.8 2.0 3.8 4.7 (ETFs, Futures, Options, Swaps, etc.). Energy 2.7 6.8 6.1 0.8 0.3 Financials 18.3 44.6 30.5 5.4 2.7 Currency: Onshore and offshore markets offer investors Banks 11.2 29.2 19.2 2.0 - different FX exposure – China A shares in CNY; B Insurance 5.2 14.4 5.7 0.1 - shares in US$/HK$; HK-listed China companies in HK$ Div. Fin. 1.9 0.9 5.7 3.3 2.7 and ADRs in US$. Different expectations on exchange Health Care 5.0 3.6 5.7 13.0 24.4 Industrials 5.5 3.2 15.9 16.7 20.9 rate movements can lead to performance divergence. IT 4.5 1.4 7.6 22.0 32.3 Latest QFII/RQFII development: (1) On June 12, 2018, Materials 2.3 1.4 8.6 11.3 6.8 Real Estate 5.0 7.1 3.5 3.8 - SAFE announced it would lift the monthly 20% cap on Utilities 2.3 3.9 3.8 1.7 0.2 fund outflows for QFII/RQFII investors, remove the Source: MSCI, Bloomberg, Datastream, J.P. Morgan. 23 April 2020. Table 28: Market valuations of major China indices PE 2020 (x) P/E 2021E (x) MXCN HSCEI SHCOMP SZCOMP ChiNext MXCN HSCEI SHCOMP SZCOMP ChiNext Consumer Discretionary 26.0 19.5 14.7 17.7 26.2 18.1 15.6 12.6 14.9 20.4 Consumer Staples 22.1 22.9 31.7 13.9 6.6 19.8 19.9 26.5 14.2 8.5 Communication Services 22.3 18.1 24.2 25.4 25.0 17.8 16.5 20.8 21.0 20.8 Energy 10.5 17.7 16.9 12.2 35.1 9.4 11.2 13.3 11.2 25.8 Financials 6.0 5.8 7.0 14.3 42.9 5.5 5.4 6.5 12.6 33.6 Banks 4.8 4.9 5.5 8.5 - 4.6 4.7 5.1 7.5 - Insurance 9.8 8.4 10.8 15.7 - 7.4 7.3 9.4 15.7 - Diversified Financials 10.1 8.9 19.8 24.4 42.9 8.9 7.8 17.7 21.7 33.6 Health Care 33.3 20.2 27.3 35.0 49.7 26.1 17.0 23.3 29.0 39.2 Industrials 9.2 5.2 13.9 21.9 31.0 7.7 4.7 11.7 18.5 24.4 Information Technology 22.6 22.3 42.7 32.3 32.9 18.1 17.3 35.4 25.3 25.8 Materials 9.9 8.8 13.9 16.5 24.4 9.2 8.6 12.1 14.1 19.9 Real Estate 5.5 5.9 6.1 6.5 - 4.8 5.0 5.4 5.6 - Utilities 10.0 15.2 13.6 11.6 16.3 9.2 13.3 12.5 10.9 14.8 Aggregate 12.7 8.3 11.6 19.2 29.0 10.7 7.5 10.3 16.6 24.7 Source: MSCI, Bloomberg, Datastream, J.P. Morgan. 23 April 2020.
34 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
MMA Fund Flows and Positioning
Shanghai/Shenzhen-HK Southbound Connect registered a net inflow of CNY17bn in April following the strong Figure 42: Shanghai/Shenzhen-HK Connect cumulative net flow inflow at CNY132 in March, and is the 14th consecutive CNY BN Southbound Northbound month of net inflows since March 2019. Overall, 1,400 cumulative net inflows are CNY236bn ytd and 1,200 CNY1206bn since the Connect debuted November 2014. Southbound trading volume (1mma) currently accounts 1,000 for 8.7% of HKSE total turnover. 800 600 Southbound position (in value terms) increased the most 400 in communication services, banks, consumer discretionary and healthcare. 200 0 Nov 14 Nov 15 Nov 16 Nov 17 Nov 18 Nov 19 Source: Wind. 22 April 2020.
Table 29: Top 20 stock position (by value) Table 30: Top 20 stock position (by % of free float) Name Code Value (HK$bn) % of FF Name Code Value (HK$bn) % of FF China Construction Bank Corp 939 145 26% China Merchants Securities Co 6099 1 75% Industrial & Commercial Bank o 1398 118 30% Digital China Holdings Ltd 861 3 73% Tencent Holdings Ltd 700 105 5% Ganfeng Lithium Co Ltd 1772 3 68% HSBC Holdings PLC 5 68 9% Koolearn Technology Holding Lt 1797 5 58% Sunac China Holdings Ltd 1918 30 36% Shanghai La Chapelle Fashion C 6116 0 58% Meituan Dianping 3690 25 11% Dalian Port PDA Co Ltd 2880 1 54% Agricultural Bank of China Ltd 1288 24 28% Chiho Environmental Group Ltd 976 0 50% Bank of China Ltd 3988 24 10% Fullshare Holdings Ltd 607 1 50% China Pacific Insurance Group 2601 18 27% XD Inc 2400 1 49% Semiconductor Manufacturing In 981 18 30% China High Speed Transmission 658 1 48% Xiaomi Corp 1810 13 18% Flat Glass Group Co Ltd 6865 1 47% China Shenhua Energy Co Ltd 1088 12 26% Orient Securities Co Ltd/China 3958 2 47% Wuxi Biologics Cayman Inc 2269 12 13% Man Wah Holdings Ltd 1999 3 46% Sino Biopharmaceutical Ltd 1177 11 16% Huaneng Power International In 902 5 45% Ping An Insurance Group Co of 2318 10 2% Greentown China Holdings Ltd 3900 3 44% Sunny Optical Technology Group 2382 10 14% YiChang HEC ChangJiang Pharmac 1558 2 44% ANTA Sports Products Ltd 2020 10 15% Guangzhou Baiyunshan Pharmaceu 874 1 44% WH Group Ltd 288 9 13% KuangChi Science Ltd 439 0 44% China National Building Materi 3323 9 24% Zhou Hei Ya International Hold 1458 2 43% New China Life Insurance Co Lt 1336 9 36% Shandong Xinhua Pharmaceutical 719 0 41% Source: HKEX, Bloomberg. Source: HKEX, Bloomberg.
Table 31: Southbound OW/UW sectors Figure 43: Southbound position and investable universe Banks Southbound position Neutral market cap Diff Comm. Serv. Banks 34% 20% 14% Cons. Disc. IT 7% 3% 3% Real Estate IT Health Care 7% 4% 2% Health Care Southbound investors' position Cons. Disc. 9% 8% 2% Industrials Materials 3% 2% 1% Insurance Div. Fin. 4% 4% 0% Div. Fin. Connect neutral market cap Cons. Stpl. Energy 2% 3% 0% Materials Cons. Stpl. 3% 3% 0% Energy Industrials 5% 6% -1% Utilities Real Estate 8% 10% -2% Utilities 2% 5% -3% 0% 5% 10% 15% 20% 25% 30% 35% Insurance 5% 11% -6% Source: HKEX, Bloomberg. Neutral market cap is free float adjusted market cap for connect Comm. Serv. 10% 20% -10% universe with southbound position. Data rank by Southbound investors’ position. Source: HKEX, Bloomberg. Neutral market cap is free float adjusted market cap for connect universe with southbound position.
35 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Shanghai/Shenzhen -HK Northbound Connect had net Figure 44: Shanghai/Shenzhen-HK Connect monthly net flow inflow of CNY44bn in April, after an outflow of CNY bn Southbound (net) Northbound (net) CNY68bn in the previous month. Overall, net inflow is 170 CNY26bn ytd and CNY1020bn since the Connect debuted in November 2014. Northbound trading volume 120 (1mma) currently accounts for 5.2% of A-share total 70 turnover. 20 Shanghai Northbound position (in value terms) increased the most in consumer staples, healthcare, industrials and -30 IT. Position decreased in consumer discretionary and utilities. -80 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20
Shenzhen Northbound position (in value terms) increased Source: Wind. 22 April 2020. the most in healthcare, consumer staples and IT. Position decreased in energy.
Table 32: Shanghai Northbound OW/UW sectors Figure 45: Shanghai Northbound position and investable universe Cons. Stpl. Southbound position Neutral market cap Diff Industrials Cons. Stpl. 25% 10% 15% Health Care Health Care 11% 7% 4% Banks Cons. Disc. Cons. Disc. 7% 5% 2% SH Northbound investors' position Utilities 4% 3% 1% Materials Insurance Insurance 7% 7% 0% IT Comm. Serv. 1% 2% -1% Div. Fin. Connect neutral market cap Energy 1% 2% -1% Utilities Real Estate 2% 4% -2% Real Estate Materials 7% 9% -2% Energy Industrials 13% 15% -2% Comm. Serv. Div. Fin. 4% 8% -3% 0% 5% 10% 15% 20% 25% IT 5% 9% -4% Banks 11% 17% -7% Source: HKEX, Bloomberg. Neutral market cap is free float adjusted market cap for connect Source: HKEX, Bloomberg. Neutral market cap is free float adjusted market cap for connect universe with northbound position. Data rank by northbound investors’ position. universe with northbound position.
Table 33: Shenzhen Northbound OW/UW sectors Figure 46: Shenzhen Northbound position and investable universe Cons. Disc. Southbound position Neutral market cap Diff IT Cons. Disc. 22% 11% 11% Cons. Stpl. Cons. Stpl. 16% 8% 8% Health Care Industrials Health Care 16% 13% 3% SZ Northbound investors' position Banks 4% 2% 2% Materials Banks Insurance 0% 0% 0% Real Estate Energy 0% 1% 0% Comm. Serv. Connect neutral market cap Utilities 0% 1% -1% Div. Fin. Real Estate 3% 4% -1% Energy Comm. Serv. 3% 4% -2% Utilities Div. Fin. 2% 3% -2% Insurance Industrials 11% 14% -4% 0% 5% 10% 15% 20% 25% 30% 35% Materials 5% 11% -6% IT 18% 26% -8% Source: HKEX, Bloomberg. Neutral market cap is free float adjusted market cap for connect Source: HKEX, Bloomberg. Neutral market cap is free float adjusted market cap for connect universe with northbound position. Data rank by northbound investors’ position. universe with northbound position.
36 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Q-score strategy
Robert Smith, PhDAC Global Quantitative Strategy J.P. Morgan Securities (Asia Pacific) Limited [email protected] (852) 2800 8569
In this section, we use the quantitative screening tool to guide stock selection in China. We present two screens: (1) stocks with highest Q-scores, (2) stocks with highest earnings score.
Table 34: Stocks with highest Q-scores Ticker Rec Price Mkt cap Value Momentum Qlty Earn. Overall (USD mn) Score Score Score Score Q-score China Aoyuan 3883 HK OW 8.8 3069 99.3% 76.2% 97.4% 75.3% 99.4% Ever Sunshine Lifestyle Services 1995 HK NC 10.0 1986 60.6% 96.9% 94.2% 98.7% 99.4% Country Garden Services Holdings 6098 HK OW 33.7 11822 37.4% 98.8% 98.3% 98.0% 99.4% KWG Group 1813 HK OW 11.0 4525 89.0% 91.6% 91.5% 95.7% 99.2% China MeiDong Auto 1268 HK NC 12.3 1838 42.8% 98.0% 98.1% 91.6% 98.7% AK Medical 1789 HK NC 22.3 3176 29.9% 97.6% 93.0% 98.1% 98.6% China Overseas Property 2669 HK N 8.5 3613 29.0% 96.9% 98.0% 96.3% 98.5% Chaowei Power 951 HK NC 2.4 335 98.5% 28.9% 74.7% 94.0% 98.4% Genertec Universal Medical Group 2666 HK NC 4.6 1019 96.0% 51.5% 73.2% 95.4% 98.3% Tianneng Power International 819 HK NC 7.8 1127 89.5% 35.4% 93.3% 97.9% 98.2% YiChang HEC ChangJiang 1558 HK NC 34.6 974 79.7% 79.3% 97.5% 92.7% 98.0% Central China Real Estate 832 HK NC 4.0 1405 98.0% 87.3% 76.1% 67.7% 97.8% China Overseas Grand Oceans 81 HK NC 4.6 2023 94.2% 79.9% 85.4% 84.6% 97.6% Kaisa Group 1638 HK NC 2.9 2314 97.6% 54.7% 71.1% 86.2% 97.3% A-Living Services Co. Ltd. Class H 3319 HK OW 38.0 2125 44.2% 97.3% 92.6% 92.2% 97.2% Logan Property Holdings 3380 HK N 12.1 8590 90.7% 71.5% 96.9% 78.5% 97.0% BOC Aviation 2588 HK NC 51.3 4589 86.3% 31.6% 76.5% 98.3% 96.7% Tiangong International 826 HK NC 2.6 862 66.3% 96.5% 61.6% 91.6% 96.6% Q Technology (Group) 1478 HK NC 8.8 1329 54.1% 85.8% 87.9% 97.6% 96.3% Concord New Energy 182 HK NC 0.3 332 98.5% 56.2% 68.2% 71.3% 96.0% Source: J.P. Morgan, Factset. 22 April 2020. NC=not covered.
Table 35: Stocks with highest earnings Q-scores Ticker Rec Price Mkt cap Value Momentum Qlty Earn. Overall (USD mn) Score Score Score Score Q-score Ever Sunshine Lifestyle Services 1995 HK NC 10.0 1986 60.6% 96.9% 94.2% 98.7% 99.4% China Literature 772 HK UW 29.9 3912 16.4% 47.2% 33.2% 98.7% 77.8% Vinda International 3331 HK NC 22.7 3507 25.7% 93.0% 67.4% 98.6% 95.4% BOC Aviation 2588 HK NC 51.3 4589 86.3% 31.6% 76.5% 98.3% 96.7% AK Medical 1789 HK NC 22.3 3176 29.9% 97.6% 93.0% 98.1% 98.6% Country Garden Services Holdings 6098 HK OW 33.7 11822 37.4% 98.8% 98.3% 98.0% 99.4% Tianneng Power International 819 HK NC 7.8 1127 89.5% 35.4% 93.3% 97.9% 98.2% Q Technology (Group) 1478 HK NC 8.8 1329 54.1% 85.8% 87.9% 97.6% 96.3% Hengan International Group 1044 HK N 65.3 10016 17.1% 69.0% 91.3% 97.3% 87.6% BYD Company Limited Class H 1211 HK UW 41.8 4929 43.0% 29.4% 14.9% 97.2% 68.2% China Railway Group Limited 390 HK OW 4.5 2432 90.3% 25.7% 58.8% 96.6% 95.1% China Overseas Property 2669 HK N 8.5 3613 29.0% 96.9% 98.0% 96.3% 98.5% COFCO Meat 1610 HK NC 2.4 1228 75.5% 8.1% 88.6% 96.2% 89.1% Shougang Fushan Resources 639 HK NC 1.5 1033 47.3% 48.2% 49.5% 96.0% 81.8% KWG Group 1813 HK OW 11.0 4525 89.0% 91.6% 91.5% 95.7% 99.2% Genertec Universal Medical Group 2666 HK NC 4.6 1019 96.0% 51.5% 73.2% 95.4% 98.3% Tingyi (Cayman Islands) Holding 322 HK OW 12.9 9390 15.5% 86.8% 78.0% 95.4% 85.5% NetDragon Websoft 777 HK NC 20.1 1458 67.7% 42.3% 65.1% 95.2% 87.5% China Resources Cement 1313 HK OW 9.9 8875 36.5% 88.9% 84.9% 94.5% 92.2% Chaowei Power 951 HK NC 2.4 335 98.5% 28.9% 74.7% 94.0% 98.4% Source: J.P. Morgan, Factset. 22 April 2020. NC=not covered.
37 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Combining J.P. Morgan Q-scores and Thematic top-down strategy
With the help of J.P. Morgan’s quant team, the strategy How is the Q-Score calculated? team has developed a screening tool to monitor current Share prices are affected by many different factors. trades and identify new ideas. Quant practitioners attempt to isolate factors that can be shown to constantly explain some of this return. The aim The output of the screen is a list of liquid and investible is to outperform the benchmark by targeting our stocks in MSCI China and filtered using the J.P. Morgan portfolios toward those stocks with positive factor Q-scores developed by the Quant team. exposures and away from those with negative factor exposures. The J.P. Morgan Q-score The J.P. Morgan Q-Score provides an indication of a The Q-Score is generated by evaluating the companies’ company’s expected return versus both its country peers prospects based on combining 10 such factors and its regional industry peers using a balanced multi- categorized into four factor families. These families are factor quantitative approach. The goal is a simple one. To current valuation, recent success or momentum, quality bias stock selection towards cheap, successful, quality attributes and a consideration of recent changes in companies with solid earnings and away from expensive, earnings and sentiment. The detail for each factor poor quality, unsuccessful companies with poor earnings. family is shown in the table below.
The higher the company scores, the higher-the-expected Liquidity / investibility criteria return (or Alpha) relative to the considered universe. A Market cap greater than US$2billion; score of 50% indicates that this company is expected to perform in line with the benchmark universe. A score Daily turnover greater than US$5 million greater than 50% indicates an expected outperformer, and Exception: Minimum of 5 stocks per market a score less than 50% indicates an expected under- performer. All scores are expressed as a percentile rank from 0% to 100%.
Value Q-score Earnings Q-score Many quant researchers have explored the ‘Value Anomaly’ and it is The market is not efficient at incorporating new information and a window of widely recognized that low P/E stocks outperform high P/E stocks over opportunity exists to exploit recent analyst revisions in earnings and the long term. Similar analysis has shown consistent results using recommendations. Similarly analyst behavioral biases lead to subsequent P/Sales, P/Dividend and P/Book ratios. Our studies have also shown changes suggesting an exploitable serial correlation in earnings that Earnings Growth can complement straight Value factors in many upgrades/downgrades. markets.
Component Factors Component Factors 12M Forward P/E vs Market (34%) Earnings Momentum 3M avg FY1&FY2, Risk Adjusted (34%) 12M Forward P/E vs Country Sector (33%) 1M change in consensus recommendations (33%) EPS Growth; forecast FY1 mean to FY2 mean (33%) Net Revisions (upgrades-downgrades) to mean FY2 EPS (33%) Momentum Q-score Quality Q-score Momentum theory for stock prices suggests that companies that do well Whilst arguably less readily observable than some other factors, it is generally in one (long term) investment period will continue to do well in the accepted that it is desirable to tilt portfolios towards highly profitable and good subsequent investment horizon. Over short time frames (<1month) quality businesses. Similarly over the long term the market also appears to studies have also highlighted the tendency of stocks to overreact reward 'earnings certainty' and penalize those stocks that carry a large degree leading to short term reversion. We have widely observed these of earnings risk. phenomenon in our own testing
Component Factors Component Factors 12M Price Momentum (75%) ROE: average of FY1 and FY2 mean forecast (50%) 1fM Price Reversion (25%) Earnings Risk: Variation in FY1 and FY2 forecast EPS (50%)
38 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Sector views
Autos (Rebecca WenAC) an unlikely worst-case scenario and see this is an opportunity to buy rather than trim. (852) 2800 8505 [email protected] Key OW stocks: Brilliance, Geely, Guangzhou Auto-H J.P. Morgan Securities (Asia Pacific) Limited & Zhongsheng. Key stocks to avoid: BYD, NIO. Key message: We believe July or 3Q20 will see annual AC growth return to positive territory. On a quarterly basis, Banks (Katherine Lei ) after the 42% yoy slippage in 1Q (wholesales), we expect (852) 2800-8552 2Q to narrow to -15% to -20%, followed by ~3-5% in 3Q [email protected] and 4Q, bringing the full year to -12%. In other words, J.P. Morgan Securities (Asia Pacific) Limited the magnitude of recovery in both production and demand should be mild. While consensus estimates Key message: We are turning positive on China banks, imply a rosier outlook in 2H, we think this might not as high frequency data supports a V-shaped recovery and materialize. Our 2H20-2021 forecasts for our entire auto easing concern on corporate loan book. Although Loan coverage across OEMs, parts, dealers and battery supply Prime Rate (LPR) reform could compress NIM, in chain are nearly 20% below the Street. Following the exchange of supports to real economy and macro recent 15% rebound, a pullback is likely post 1Q results recovery, declining market rates could aid banks’ NIM. in late April as the Street marks down forecasts. Our With subsiding inflation risk, there could be potential 2020 view remains for the sector to end flat to down by deposit rate cut, which is not in our base case. year-end while exhibiting a repeated W-shaped Drivers/catalysts/events: 1) High frequency data performance during the year. Our investment strategies support a V-shaped recovery, easing corporate asset focus on: 1) dealers who derive two-thirds of earnings quality concerns near/medium term; (2) asset quality from a resilient aftermarket business vs. the new car sales outlook in the long run is uncertain, as JPM expects market with high cyclical uncertainty; 2) components TSF/GDP to rise by 16ppt y/y to 269% by 2020, while who can deliver content growth through electrification or major concern in the near term is on consumer loans, autonomous solution, and 3) OEMs with a company- due to rise in unemployment rate; (3) LPR reform leads specific story. to compression on NIM, jeopardizing profitability, which could be partly offset by declining interbank rates; 4) Drivers/catalysts/events: China’s State Council Due to epidemic outbreak, concerns on national services announced 20 proposals and measures aiming to boost weighs on the share price, i.e. low lending rates of the domestic economy and consumption including inclusive finance, fee reduction, and involvement in bad gradual removal or cancellation of car purchase debt resolution of failed small banks. restriction. Among all, relevant to the auto space, directly and indirectly, include: Gradual removal or complete Key issues/risks: Upside: a) stronger-than-expected macro growth led by demand recovery and government cancelation of car purchase ban in cities (at discretion of policies (e.g. tax cuts); b) faster and smoother-than- local govt) currently with such restrictions; support expected shadow banking contraction. Downside: a) purchase of new energy vehicle in cities or provinces with sufficient fiscal /financial flexibility; encourage lackluster macro growth due to weaker-than-expected transaction of second hand car and title registration demand recovery and potential re-escalation of US-China trade tensions; b) liquidity squeeze due to uncoordinated across the nation; enhanced support of consumer finance de-leveraging.; c) worse epidemic impacts than expected, including auto loan. work resumption below expectation. Key issues/risks: China’s NDRC announced a specific Key OW stocks: a) CMB: best-in-class profitability, timeline on the removal of the 50-50% JV requirement in leading retail franchise & private banking, prudent risk the automotive industry. Briefly, the relaxation or mgmt. practice and high provision level, and strong removal is scheduled to come in three stages over the capital positions; b) BoCom: beneficiary of declining next five years. For passenger OEMs in which most interbank rates, low credit risks due to moderate investors are interested the timeline is set for 2022 and unsecured credit growth, attractive valuation and yield. from then the 50-50% JV restriction will be removed. Key stocks to avoid: a) MSB: pressures on capital Contrary to the negative knee-jerk reactions and raising, deterioration in asset quality, and weak business sentiment, we argue and believe that current JV setups fundamentals; b) HXB: concerns on asset quality and for most OEMs will keep the status quo for the capital strength, NIM contraction and lackluster profit foreseeable future. We believe the market has priced in growth.
39 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
AC AC Consumer (Kevin Yin ) Healthcare (Ling Wang ) (852) 2800-8521 (852) 2800-8599 [email protected] ling.wang @jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities (Asia Pacific) Limited
Our sector ranking by COVID-19 impact: travel Key message: We believe the COVID-19 outbreak (CNY travel traffic down 50% yoy; flight prices 50-70% situation is improving in China with most cities resuming off) > catering (most restaurants closed in Feb) > beer work in early March. After checking with leading (nearly zero wholesale sales; significant decline in retail pharma and biotech companies, in general companies sales) > holiday gift packs (CNY usually contributes may expect roughly 2-3 months’ delay in patient c30% of full-year sales; less than 50% of sales target enrollment in certain clinical trials and they are working achieved in 2020 CNY) > mass-market liquor (more diligently to mitigate disruptions in compliance of trial associated with dining out) > soft drinks > luxury liquor protocols (as patients were facing difficulties in getting (collection value) > milk > meat > tissues > infant medication in hospitals and doctors may not be able to formula > condiment > instant noodles. handle any adverse events in time during the outbreak). Recovery started in March: Most of our companies Regulatory process for certain NDAs is likely to see 2-3 have seen recovery signals and expect full recovery in months’ delay associated with inspection of clinical 2H20. For example, (1) CRB anticipates off-trade centers depending on the stages of the NDA process. channels (supermarket and street stores) to fully recover by end-April, on-trade channels (restaurants and night We continue to be optimistic about China’s R&D clubs) to fully recover by end-May, and complete sourcing market. Our bull thesis for the long-term recovery in Jun before peak season starts in Jul; (2) After outsourcing market outlook in China is supported by 1) a >30~40% sales disruption in Feb/Mar, Mengniu increasing global R&D outsourcing trend; 2) China expects a 70% recovery in Mar, 90% recovery in 2Q20 market becoming increasingly important growth driver and 100% in Jun; and (3) Li Ning’s offline retail sell- for multinational companies (MNCs); 3) ongoing through declines narrowed from c40% in first two weeks centralized medical reforms in China should accelerate of March, to c20% in the rest of March. It expects the transformation of the domestic pharma industry from demand to recover to normal level in Jun/Jul. predominantly generics to innovation driven. As a result, we are optimistic that the increasing levels of R&D Inventory destocking a massive pain: We estimate the spending will create a favorable environment for the destocking of channel inventory (produced in Nov-Jan) CRO/CDMO industry in China. would lead to 25~50% decline in 1H20 earnings for most companies. Mengniu and peers are offering buy-1-get-1- Increasing globalization for drug manufacturers. free, targeting to clear up all excess inventory by end- With the China market becoming an increasingly April. Bud APAC has no price cut plan for its premium important growth driver for multinational corporations beers, but will consider offering product take back/swap (MNCs), we expect to see more cross-border when expiry dates are approaching. Li Ning/Anta/Xtep collaborations and expect domestic players with strong are taking back inventory, cutting orders and giving clinical and commercial capabilities to increasingly additional rebates to distributors. On the flip side, most bridge the gap between China and the western countries. companies budget lower marketing expense for 2020. There is also a trend for domestic pharma/biotech 2020 outlook and valuation: Consensus is looking for companies to in-license novel drug candidates and 10.4%/7.5% yoy growth in 2020 sales/earnings for the 41 conduct global trials to drive future growth from overseas companies on market cap weighted average basis market. (3.7%/0.1% on simple average basis). China consumer staples are currently trading at 26.2x 12-month forward Drivers/catalysts/events: China has a large affluent P/E (around 1x standard deviation above 5-year average); population, ample scientific labor pool and a strong and discretionary at 14.0x 12-month forward P/E (around centralized regulatory authority that provides a 1x standard deviation below 5-year average. supportive environment to develop a strong domestic Our concerns and stock picks: From a short-term industry. Key issues/risks: 1) development failures of perspective, the names on our defensive list include Sun innovative new drugs; 2) medical cost control that may Art, Yonghui, Haitian, Angel. Assuming the COVID-19 lead to further price cuts; 3) tougher regulatory outbreak is under control with no material economic requirements that may lead to higher development costs; slowdown in 2H20 in China, from a long-term 4) highly regulated industry. perspective, we would suggest adding positions in those high-quality discretionary names. They are Li Ning, Key OW stocks: Wuxi Biologics (2269 HK), Sino Moutai, CRB, Mengniu. Biopharma (1177 HK), Alihealth (241 HK), and Mindray (300760 CH).
40 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Infra E&C and Machinery (Karen LiAC) segment saw high growth (+75% Y/Y). CRG’s trend mirrors that reported by CRCC. CRCC - CRCC’s 1Q20 (852) 2800-8589 new orders (Rmb3.5B, +14% Y/Y) came in stronger than [email protected] expected and are tracking well to achieve the 2020 target. J.P. Morgan Securities (Asia Pacific) Limited Specifically, construction orders were the driver Key message: We are positive on all the sub-sectors (Rmb307B, 22% Y/Y), propelled by the railway sub- exposed to China infra capex. In the E&C space, we segment (+53% Y/Y. Zoomlion - We stay positive on maintain our positive view on China’s infra E&C, given: Zoomlion, driven by 1) its favorable product portfolio (1) Major Chinese infra E&C contractors are speeding up skewed towards later-cycle machinery, in particular efforts to deleverage and shrink their balance sheets tower cranes which continue to see supply shortages; 2) through various asset monetization initiatives; (2) From a notable market-share gains for concrete machinery and top-down basis, we expect China’s slowing macros to construction cranes, which mgmt expects to continue to provide impetus for a pick-up in infra investment in see robust demand outlook for the coming two to three 2020; (3) We expect China infra activity to further years; and 3) Zoomlion retained FY20 guidance despite improve on stimulating fiscal/monetary policy and higher COVID-19 impact; 4) 1Q20 results likely to hold up infra spending post COVID-19 outbreak. In Railway better than peers. equipment space, we highlight the following key drivers: (1) Aftersales business to remain as a growth Infrastructure operators driver for CRRC; (2) We see drivers for rebound in Key message: Near term share price of infra operators demand for new-build MUs from FY20E; (3) Both has been suppressed due to concerns over impact from CRRC and ZZCRRC have been striving to reduce COVID-19. For airports, traffic disruption and tariff reliance on CRC’s rail budget, helped by expanding sales adjustment impacted near term sentiment, we however of RTV/intercity trains as China accelerates the build-out remain confident on Chinese airports’ fundamentals of intercity connections and subway networks. (4) New- beyond near-term disruption for (1) Growth runway for build locomotive demand is well supported by China’s DFS supported by consumers purchase power and better Highway-to-Railway shift which remains intact despite product offerings; (2) continuing adding to Int’l flight slower-than expected progress made during 2019. Our network, and (3) milder-than-expected diversion impact view on overall construction equipment demand from Beijing Daxing airport to BCIA . We upgrade remains positive with key demand drivers including SHIA to OW given its better position after traffic rising demand in light of pick-up of infra activities post recovery with additional landing quota, good asset COVID-19 situation as well as pre-buying activity ahead quality as well as stringent cost and budget control. For of the upcoming emission standard upgrade and further toll roads, despite the near-term suspension of national pick-up in infra activity. toll fees, we have positive outlook for JSE on mid-to- long term due to impressive margin expansion and Drivers/catalysts/events: (1) Industry sales growth for excellent capital mgmt. while stay neutral on ZJE for the C/E supported by rising PPP contribution, pickup in infra lack of focus and negative operational trend. activity and emission standard upgrades; (3) COVID-19 outbreak’s impact on E&C space is limited and Drivers/catalysts/events: (1) milder-than-expected temporary. We expect increasing infra spending in FY20 impact from COVID-19 (2) steady post COVID-19 situation. (3) Release of pent-up railway volume/throughput/traffic growth especially for higher- equipment demand; (4) For infra contractors, revenue yielding segments (int’l PAX for airports and CVs for increased driven by positive growth of domestic orders. toll roads); (3) rerating potential on the back of upside to tariffs, in our view, for railways/airports/toll roads; (4) Key issues/risks: (1) Delays in railway equipment for airports, growth of non-aero, especially DFS business procurement/delivery; (2) unexpected slowdown in to continue driving margin expansion; (5) for railway government investment; (3) margin pressure for E&C operators, potential passage of new railway land contractors and machinery players if raw material prices monetization guidelines which could allow operators to start to rise again; (4) potential capacity constraints for unlock the value of their land assets. E&C companies to fulfill the orders. Key issues/risks: (1) larger-than-expected impact from Key OW stocks: CRG – CRG’s 1Q20 orders came in COVID-19 (2) larger-than-expected deceleration in stronger-than-expected (+8% Y/Y), driven by overseas volume growth on the back of macro slowdown or contracts (+163% Y/Y) while its domestic orders disruptive global events impacting trade and travel; (2) momentum (+4% Y/Y) stayed strong and its highway
41 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
continuing deterioration of operation data (AM and PAX Defense (Patrick XuAC) for airports and CVs for toll roads); (3) potential risk of additional government intervention as part of its plans to (852) 2800 8577 reduce total social logistics costs. [email protected] J.P. Morgan Securities (Asia Pacific) Limited Key OW stocks: Shenzhen Airport Co Ltd - A (SZA) – beyond near term pressure, SZA sees strong growth Key message: The Chinese Ministry of Defense prospects on back of its consistent expansion of int’l announced that the defense budget would grow 7.5% in flight network in addition to enhancing policy support 2019 in Rmb terms, which would make it 1.8% of GDP, from the central government (in contrast to prior based on J.P. Morgan's forecast of China's GDP. We perceptions that the support was only from the Shenzhen expect China’s military expenditure to grow 7.5-8.5% in government). We see upside to SZA’s DFS business, 2019-21 with increasing focus on the air force and the given the upcoming renewal of the DFS mgmt. contract navy, assuming it to remain 1.8% of the GDP. The key (negotiations are underway likely to be finalized by early contributors for the rising defense expense are army 2020 and favor SZA through better revenue-sharing mechanization, navy expansion and the deployment of ratio). We stay positive on SZA’s growth outlook as we more advanced weapons systems. continue to see upside potential from the DFS business for the top line. Drivers/catalysts/events: (1) Rising geopolitical tensions. (2) acceleration of weapon upgrades, such as tanks, transport aircrafts and aircraft carriers. (3) CSSC Group merges with CSIC Group.
Key issues/risks: (1) Diplomatic conciliation between US and China; (2) extension of the current reform climate as China restructured military command chains; (3) the government is considering revoking the VAT-free status of some defense contractors.
Key OW stocks: Our top pick is Jonhon Optronic (002179 CH), which has the highest ROE with the highest profitability and above-average asset turnover.
Key stocks to avoid: We are cautious on CSSC Offshore and Marine Engineering Group - A (600685 CH, UW), as the company has been struggling with low operating margins and we expect recurring ROE to improve in FY20-22, driven by increased defense orders, but still be below breakeven.
42 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Insurance (MW KimAC) Internet (Alex YaoAC) (852) 2800-8517 (852) 2800-8535 [email protected] [email protected] J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities (Asia Pacific) Limited
Key message: Increased macro risk and business Key message: We expect China’s consumer Internet slowdown; tactical upgrade of CPIC-H/A. We cut PT operators (i.e. Alibaba, JD, Vipshop, PDD, Meituan, by -27% and FY20/21 EPS by -14%/-25% and Ctrip and Tongcheng eLong) to be significantly affected downgraded China Life-A to N, upgraded CPIC-H/A to by the coronavirus breakout in 1Q20 with most of the OW/N from N/UW on inexpensive valuations. First, we names posting significant revenue declines on a YoY expect volume slowdown, and forecast -32% to -8% oya basis. While the current operating environment caps the FY20E NBV growth. Second, falling bond yield could near-term share price upside, we expect reasonably lead to potential reserve provisioning and dent the limited downside from the current share prices for most earnings. Third, we re-introduce non-standard asset of these names. We expect the order of the impact from (credit risk) and equity (market risk) into our valuation the least affected to the most affected is: Alibaba, JD, framework. Near term, we forecast China insurers’ 1Q20 Vipshop, PDD, Meituan, Trip.com and Tongcheng- net profit to decline 8% to 56% oya. Ping An Group-H, eLong. Vipshop and PDD might see the most negative PICC P&C-H, and China Life-H are our top OWs due to share price reaction into the print due largely to relatively strong risk management, adequate capital position, and lower visibility of their 2021 financial outlook. strong retail franchise. Drivers/catalysts/events: (1) Progress in penetrating Drivers/catalysts/events: (1) recovery in life insurers’ traditional industries such as financial services, cloud and new business sales volume; and (2) improvement in offline retail. (2) Expanded addressable market through agency channel productivity/ headcount. penetration into lower-tier cities and overseas market. (3) Increasing cost control efforts may bring margin upside. Key issues/risks: (1) declining bond yield and (2) deteriorating macro environment. Key issues/risks: (1) Competition on multiple fronts, e.g. on subsidies, price cut, new opportunities etc. (2) Key OW stocks: Ping An Group-H: The company is Potentially intensified geo-political tension may bring relatively more defensive during macro downturn due to both operational and regulatory risks. (3) Slowdown in core earnings more sourced from morbidity/ mortality macro economy. margins. PICC P&C: Potential improvement in 1Q20 underwriting profit due to lower car accident rate as Key OW stocks: We suggest investors accumulate traffic was reduced from city lockdowns during COVID- Vipshop and JD on weakness for faster-than-average 19 period. China Life-H: Strong fundamental recovery in 2H20. turnaround in product mix and conservative B/S. Reforms under new management prioritizing value Key UW stocks: Sogou and Focus Media on weak ad creation with a clear strategy of improving sales agents demand. should drive strong NBV growth.
Key stocks to avoid: New China Life - A: We are concerned about the company’s front-book growth outlook as the company sold more short-term product with less margin. We are also cautious about the company’s larger exposure to non-standard asset.
43 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Materials (Po WeiAC) Oil & Gas (Scott DarlingAC) (852) 2800 8537 (852) 2800 8578 [email protected] [email protected] J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities (Asia Pacific) Limited
Key message: Cement: We believe cement will benefit Key message: 1) Good workload for oil services, 2) most directly from the Chinese government’s stimulus worsening refining oversupply, 3) mixed views on measures post the COVID-19 outbreak and industry chemicals, 4) risk of limited progress on NPC, and 5) gas profitability will remain at close to historical highs. demand growth moderation. Packaging paper: We believe the rebound/stabilization in domestic wastepaper prices will lead to packaging Drivers/catalysts/events: (1) China oils capex, paper price hikes. Steel/glass/aluminum: High economic growth, oil prices, refined product demand and inventories (currently sitting at historically high levels) petrochemical spreads, and (2) natural gas demand will in general be an overhang for steel/glass/aluminum growth. margins. Coal: We expect coal price will remain weak till summer 2020. EV materials: Cobalt: Expect 2020E Key issues/risks: (1) Downside risks of longer-than- supply to remain tight, and epidemic containment in expected COVID-19 impacts, (2) economic growth Africa to bring price rebound by 3Q. Lithium: Given the moderation, weak oil price trend, (3) higher domestic gas high dependence on overseas demand in the lithium production, lower LNG import; and (4) delays to reform hydroxide market, we expect lithium hydroxide prices measures. will remain weak in the near term. Precursor/cathode: 1Q20 EV cathode demand slumped 50% YoY. In 2Q, Key OW stocks: (1) SPC – Middle East Arab heavy domestic clients restarted but end EV sales have not crude to Asia OSP discounted to US$-7.4/bl after May. picked up yet; overseas demand also faces uncertainty This is nearly the biggest OSP discount in history (US$- amid the pandemic outbreak. With expectations for 7.45/bl in July 2008). The market share fight of crude oil continued policy support, we remain hopeful to see a between Saudi and Russia may continue for a large part demand rebound in 2H. of FY20. We expect the OSP big discounts in 2Q20 would significantly benefit the China refineries which Drivers/catalysts/events: (1) Policy support to counter have high feedstock exposure to Middle East crude oil, economic challenges due to the COVID-19 outbreak; (2) namely SPC (+83%) and Sinopec (c60%) refining Resumption of downstream demand; (3) Inventory business. (2) COSL, Jereh – good workload driven by destocking trajectory; (4) EV sales data and policy China oils upstream capex double-digit growth; stimulus. profitability may continue to improve driven by better operating leverage and higher utilization rates. Key issues/risks: (1) Inventory overhang; (2) Export demand impacted by global spread of COVID-19.
Key OW stocks: CR Cement, Guangdong Tapai Cement, Conch, China Jushi, and Nine Dragons Paper.
Key stocks to avoid: Ganfeng Lithium-A, Tianqi Lithium-A and Xinyi Glass
.
44 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Property (Ryan LiAC) Tech hardware (Gokul HariharanAC) (852) 2800-8529 (852) 2800-8564 [email protected] [email protected] J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities (Asia Pacific) Limited
Key message: Contracted sales have started to normalize Key message: Our recent research suggests: 1) in the second half of March, and this trend has extended smartphone sell-through has been recovering moderately into April. We therefore expect April sales to be broadly on a yoy basis, but Chinese OEMs remain cautious and flat Y/Y. While we think 2Q20 residential sales data will see more downside risks in overseas markets; 2) a 10- remain strong, we think the whole sector is unlikely to 15% cash discount is now available to boost inventory breach the peak it achieved in January as no matter how digestion, and we expect more affordable 5G models in strong the data, expectations in 2020 are unlikely to beat 2H20, but likely at the cost of de-spec and price pressure those back in January. Also, as LPR and RRR cuts are on components; 3) key de-spec areas are display, within expectations, and with a seemingly quicker fingerprint, memory, 3rd/4th cameras and casings; 4) the resolution of COVID-19 situation, the need to stimulate supply chain in China has been normalizing, but demand the property market via policy easing is not as strong. We could be a bigger concern and we expect order revision suggest shifting to laggards. This is because we believe in more components starting from 2Q20. Therefore, we that if the well-being of the sector persists, investors will stay cautious on the overall smartphone supply chain in be willing to go down the value curve and buy cheaper China. names that have underperformed. Drivers/catalysts/events: 5G smartphone unit shipment Drivers/catalysts/events: 1) better-than-expected and semi/ component inventory level are the key trends contracted sales momentum; (2) deleveraging; (3) credit to watch, especially the impact from COVID-19. and policy easing. Key issues/risks: (1) Phase II U.S.-China trade Key issues/risks (1) worse-than-expected sales discussion and supplier relocation, (2) Negative impact momentum; (2) consensus downgrades; (3) share from COVID-19 on both demand and supply. placement. Key OW stocks: (1) Innolight – leading supplier of Key OW stocks: Vanke-H (2202 HK), COLI (688 HK), advanced 400Gbps optic module, with new business CIFI (884 HK), Midea Real Estate (3990 HK), China opportunities. SCE (1966 HK). Key stocks to avoid: (1) SMIC – margins likely remain Key stocks to avoid: Evergrande (3333 HK). depressed for next two years due to heavy R&D/capex to support renewed push towards leading edge process, (2) Everwin – high exposure to OPPO/Vivo and potential earnings turnaround in 2019 already priced in.
45 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Telecom (Michelle WeiAC) Utilities (Elaine WuAC) (852) 2800-8562 (852) 2800-8575 [email protected] [email protected] J.P. Morgan Securities (Asia Pacific) Limited J.P. Morgan Securities (Asia Pacific) Limited
China Tower’s 1Q20 results in line with our forecast: Key message: China Utilities have underperformed We think the market will likely consider the top-line as HSCEI and Shanghai Composite by 1.2% and 3.8%, disappointing and EBITDA/earnings fine. 1Q20 top-line respectively, since the start of April. China gas utilities growth decelerated to 4% yoy, which we think is partly and solar names continued to be the worst-performing due to: 1) COVID-19 caused a delay of new revenue, and sub-sectors. For China solar, concern on potential 2) Operators’ cost control efforts. The company will module shipment delay due to COVID-19 is acting as a likely miss revenue target of its incentive scheme, which near-term overhang. Looking beyond, we like Xinyi implies 8% yoy growth for 2020E and appears Solar and Daqo. We recently turned positive on wind demanding given the weak revenue number in 1Q20 and farm, on 1) relative defensiveness against COVID-19; 2) operators’ determination to control tower usage costs. privatization potential and; 3) rising mix of project with We note that the street has revised down 2020 earnings no subsidy delay issue in 2021. Our preferred name is forecast by nearly 16% over the past year, but we still see Longyuan. Pullback in the gas names was led by a 14% some downside to the current estimate of Rmb7.3bn. retreat in China Gas MTD, after the block sale of its shares by SK Group. We expect the pick-up in April and China Mobile - 1Q20 mobile business affected by May gas consumption numbers to be a positive catalyst COVID-19, stable earnings: Mobile revenue declined 5% in alleviating investor concerns on gas demand growth, yoy in 1Q20. We estimate mid-single digit impact to and we continue to prefer CR Gas and ENN within the mobile service from COVID-19, partly due to fewer sector. We stay cautious on coal-fired IPPs in the voice calls, termination of second SIMs, and reduced medium term on tariff headwinds and market share loss roaming revenue to a lesser extent. Fixed-line remained to renewables. Yet, we see trading opportunities in 2Q on strong, up 37% yoy, as demand for broadband and cloud lower coal prices and rebound in power generation. etc. should have been intact during the outbreak. Total Within China Environmental stocks, our top pick is service revenue increased by 2% yoy, vs 1% for 2019 Guangdong Investment on robust dividend growth and and 6% for 4Q19. EBITDA decline accelerated to 6% attractive valuation. yoy. We think the EBITDA drop is due to 1) COVID-19 revenue impact, and 2) rising cost lines such as network Drivers/catalysts/events: (1) More supportive cost which more than offset S&M cost decrease. government policies for clean energy use, (2) improving Earnings only edged down by 1% yoy, thanks to a subsidy collection for renewable power operators, (3) depreciation decrease resulting from a change of recovery in solar equipment demand, (4) more clarity on depreciable life of certain 4G assets. the National Pipeline Company, and (5) liberalization of coal-fired benchmark tariff. China Unicom - 1Q20 mobile business affected by COVID-19, fixed-line very strong, profitability under Key issues/risks: (1) RMB depreciation, (2) potential pressure: Company reported 2% yoy service revenue slowdown in industrial output/GDP growth, (3) growth in 1Q20, which is not too bad given the negative decreasing power plants utilization hours, (4) gas volume impact from COVID-19 to mobile revenue. Mobile growth slowdown, and (5) negative changes in subscribers resumed growth in March, following a big government regulations. loss in February. EBITDA and earnings dropped by 6% yoy and 14% yoy respectively, mainly due to more Key OW stocks: (1) CR Gas, with its defensive profile personnel and G&A expenses. We see the results as and volume growth potential from M&A, (2) ENN, on mixed and not indicative of future trends, given COVID- robust growth outlook and improving margins, (3) Daqo, 19’s impact on mobile revenue and S&M expenses, and on improving polysilicon demand-supply dynamics, (4) the seemingly more aggressive G&A expense Longyuan, on generation rebound in 4Q19 and solid recognition. balance sheet and free cash flow generation vs peers, (5) GDI, the best dividend play among China utilities. Key stocks: We are OW on China Telecom, China Unicom and China Mobile, and Neutral on China Tower.
46 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
China Model Portfolio Stocks – Investment Case
Consumer discretionary and encourage more transactions; and 2) subsidize suppliers with lower take rates to enhance Alibaba (BABA US) – Alex Yao merchandise offerings. We think both approaches We forecast total revenue to grow 18% YoY this offer real value to consumers and should improve quarter to RMB 110b (2% higher than consensus), user acquisition efficiency. We see upside to and the revenue mix should be more favorable than consensus forecasts of a 7% revenue CAGR in 2019- our earlier estimate in February. We now project its 21E and 6.3% non-GAAP NPM by 2021 (vs. 5.4% in core-core CMR + commission revenue to decline 7% 2019). Our revised 2021E EPS is 26% above YoY, which we believe is more positive than the consensus. consensus expectation, as NBS released resilient TAL Education (TAL US) – DS Kim 2M20 China online physical goods retail sales (+3% YoY) thanks to accelerated online penetration. We We believe TAL offers the most definable long-term also expect its adjusted EBITDA/EPS to drop outlook, fueled by super-normal revenue growth in 12%/15% YoY, or 2%/7% above consensus, due to online, which we estimate to print ~80% CAGR and the more resilient than feared high-margin core-core account for ~36% of revenue by FY22E. revenue and the reduced need for sales and marketing expenses for the core commerce new initiatives amid We acknowledge that growing the online business the COVID-19 outbreak. will weigh on TAL’s profitability in the near term, and we model TAL to record an all-time-low OPM Cloud and new retail: near-term upside capped but this/next year. However, our deep-dive on unit long-term outlook turns more promising. Some sub- economics shows a clear path to profit, suggesting segments’ growth may be slower than our earlier online can be as much (if not more) profitable as expectation: we forecast non CMR + commission offline in a few years, with TAL just needing to revenue for China retail segment will grow 79% YoY toggle the ‘profitability switch’ by slowing customer this quarter (vs. 100+% in the previous quarter), as acquisitions. This should drive a highly visible yet the accelerated growth of grocery retail revenue will substantial profit upcycle for many years to come, in be offset by the decline of other offline retail (such as our view. Intime Department Stores). We estimate cloud revenue to grow just over 60% YoY in March Q (in- We thus see TAL as an attractive long-term line with previous quarters), as many projects are for investment, with its well thought-out strategy, best- hybrid cloud, which still requires physical on- in-class execution and (repeatedly) proven track premises installation and the pandemic has delayed record giving us comfort. Valuation isn’t cheap at the work. However, we believe the COVID-19 37x P/E on CY21E (or 52x on FY21E), but it doesn’t outbreak has accelerated the online penetration pace look prohibitive to us either given high visibility in its of both China new retail and public cloud market. We high growth. After all, time is on our side for the recently published in-depth reports on China new compounder like TAL, which can quickly shave off retail and China public cloud (“A sizable market in multiples year after year. the making”, April 7, 2020) which suggest 25%/34% Midea (000333 CH) – George Hsu upside potential respectively to Alibaba’s current market cap on a three-year valuation framework. Midea is one of the top-quality consumer companies that we would recommend investors hold for the Vipshop (VIPS US) – Andre Chang long term. The company has historically been steady We believe Vipshop’s 4Q19 result has demonstrated and has become even stronger after market an optimized cost structure with 10%+ OPM versus downturns by consolidating market share from the historical peak level of 6-7%. However, we smaller or weaker competitors. We do not think the expect the company to reinvest a meaningful portion current crisis will be an exception. In our view, of the extra margin into product merchandising, Midea will further increase its market share across leading to a stronger revenue growth outlook. In most home appliance categories during the coming addition, we believe management has found efficient year. ways to: 1) lower the free shipping threshold to RMB88 from RMB288 in order to attract new buyers
47 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
We believe home appliance demand is just delayed fully priced in: i) more aggressive store additions due to disrupted logistics and will pick up in either potentially by the franchised model; ii) further 2H20 or 2021. Therefore, any sell-off in Midea on improvement in online profitability driven by either its likely subdued performance in 1H20 should give scaling up or SG&A optimization (including delivery investors, particularly those with a long-term charge); and iii) expansion in B2B. It is possible that investment horizon, an opportunity to accumulate on after COVID-19 the Chinese government will launch dips, in our view. We are constructive on Midea’s a policy to drive market consolidation among the capability to quickly respond to the changing leading modern grocery retailers. consumer demand, strength in new product launches Banks to support sustainable growth, and channel reform, which we believe will lead to efficiency CMB (3968 HK) – Katherine Lei improvement and margin expansion. We do not CMB has the best retail franchise in China in terms of expect the near-term non-structural revenue decline providing high-quality services. Therefore, its retail to cast a shadow on Midea’s long-term structural deposits per branch were significantly higher than its growth trajectory. peers’ average. CMB has the lowest deposit costs among joint-stock Consumer staples banks and city commercial banks. This should be an advantage amid deposit-rate liberalization. Kweichow Moutai (600519 CH) – Kevin Yin Moutai's 2019 sales/earnings increased 16%/17% Rising profit contribution from retail business: Retail yoy, 1%/2% above its preliminary release on 2 Jan. business contributed ~50% of PBT, the highest Direct sales contribution increased from 5%/3%/7% among our coverage banks. in 1Q/2Q/3Q19 to 17% in 4Q19, an encouraging High NPL provision and credit costs provide a buffer result from on-going internal anti-corruption for future earnings. CMB’s NPL coverage ratio is campaign. Despite the COVID-19 impact, we revise relatively high among national banks. Its up our 2020/21 EPS forecast by 1-3%, assuming PPoP/average assets is the highest among peers. Also, 20%/25% direct sales volume in 2020/21. its PPoP/average assets is the highest among peers, Benchmarking to 30x 2021E P/E, we derive our new which should provide a buffer to earnings in coming Jun-21 PT of Rmb1,450 (from Rmb1,270). Moutai earnings periods. remains one of our China consumer top-picks. OW NIM contraction of 16bps q/q in 4Q19 was a key We think the worst is likely behind us and expect the disappointment. This was mainly driven by material recovery to be driven by: (1) increasing traffic in loan-deposit spread compression. The key upside catering channels (60-70% recovered, by our surprise is on asset quality – gross NPL formation estimation); (2) pent-up consumption (after nearly ratio declined (h/h) in 2H19, while provision level 100 days of rigid traffic control); (3) accelerating FAI continued to rise. Improvement trend on asset quality and more stimulus policy; and (4) private is unlikely to sustain due to impact of COVID-19, but consumption. We maintain our 37k tons sales volume this demonstrates CMB’s strong risk management assumption for Feitian Moutai in 2020. Given the capacity. capacity constraint, we estimate flattish sales volume growth for its series liquor (lower grade than Feitian). BoComm (3328 HK) - Katherine Lei Stronger demand might accelerate the rollout of mid- Beneficiary of declining market rates: 3-M interbank /high-end series liquor and drive a healthy product rates have declined meaningfully YTD; among large mix upgrade. banks, BoCom has the highest % of interbank Sun Art (6808 HK) – George Hsu funding in liabilities mix. The easing wholesale funding costs are positive to NIM outlook. We believe that Sun Art is one of the most defensive plays amid the COVID-19 outbreak, and such a Relatively low exposure to unsecured consumption market consensus should further drive up its share loans: Credit card loans accounted for high single price in the near term, aided by hedge funds’ market- digit % of BoCom's loan book, lower than the sector neutral strategy that must have some long positions. average. And 5-year CAGR of credit card loans was In the long run, we highlight three likely fundamental moderate. As we consider consumption loans more catalysts which we believe the market has not yet vulnerable in the current asset cycle, BoCom's NPL
48 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
formation rate is likely lower than that of peers in our miss was primarily due to operating expenses and view. losses below the line. Insurance We expect Tencent’s digital entertainment operations, particularly gaming, to be the short term catalyst in Ping An Insurance Group (2318 HK) – MW Kim 1H20 (i.e. positive benefits from the COVID-19 Following a strong start to the high-margin breakout) and mobile gaming international expansion protection-type insurance market in China (mostly to further drive the sentiment and share price in healthcare insurance), we think Ping An’s agency- 2H20. based business model will drive a sector-leading Trading at 25x/20x 2020/2021 P/E based on our fundamental re-rating of the stock. The company’s estimates against EPS growth acceleration (JPMe 20- non-core/non-insurance business streamlining 21E EPS CAGR of 25%), Tencent is our favorite outlook, starting from its P2P lending platform stock within our China Internet coverage universe. (LUFAX) and Ping An Securities, suggests a Own for multiple expansion. favorable risk/reward outlook at current share price levels, in our view. We also expect the company to be China Mobile (941 HK) – Michelle Wei the largest P&C insurer in Mainland China by 2020. For major share price drivers, we highlight: (1) non- China Mobile reported 2% yoy service revenue insurance-related business streamlining potential, as growth in 1Q20, which is not too bad given the the only G-SII in Asia; (2) a gradual decrease in negative impact from COVID-19 to mobile revenue. group earnings contribution from the bank (i.e., Mobile subscribers resumed growth in March, <20%); and (3) a strong earnings re-rating from following a big loss in February. Earnings only edged insurance operations from structural insurance market down 1% yoy, as depreciation decrease resulting developments in China. Ping An Group’s strong from depreciable life adjustment largely offset the 6% agency force and strong balance sheet make it an yoy EBITDA decline. CM management has made it outlier in China’s sales recovery period. clear that they aim at stable earnings and expect EBITDA to decline this year. We are increasingly Brokers confident that earnings and DPS will be at least CITIC Securities (6030 HK) – Jemmy S Huang stable, in light of the limited earnings decline during the COVID-19 hit 1Q20 Leading position in underwriting to benefit from positive developments. Citic maintains its top-tier Healthcare positions in both equity and bond underwriting, CSPC (1093 HK) – Sherry Yin where we expect positive momentum in the coming CSPC is a high-quality innovative pharma player in quarters driven by the launch of the STAR Market China with a diversified product portfolio focusing on and declining funding costs. cardiovascular diseases and oncology. We believe its strong R&D pipeline is well positioned for sustained Leading position in OTC derivatives products to long-term growth and we expect a strong top/bottom enjoy rising demand from PE funds. Growing PE line CAGR driven by new drug additions. CSPC won fund AUM will likely result in more demand for OTC the CP for three drugs, albumin-bounded paclitaxel, products, such as return swaps and options, in which azithromycin and amoxicillin. Citic has been one of the leading players. Albumin-bounded paclitaxel won with the lowest Declining funding costs: Costs of newly issued short price offering: CSPC bid at Rmb747/vial vs. Rmb780 term financing vehicles have declined by 50-60bps at by Hengrui, and Rmb1,150 by Celgene/Beigene) and Citic in 1H19 vs. 2H18 due to declining funding costs should enjoy priority in provincial market selection and policy support on CP issuance, which would help (Hebei, Shanxi, Liaoning, Jilin, Jiangsu, Hunan, to enhance profitability of investments and capital Guangdong, Guizhou, Shaanxi, Qinghai). The actual intermediary businesses. price cut of ~70% is in the middle range of previous market expectations (50-80%). Communication services We expect a single digit CP impact on CSPC’s top Tencent (700 HK) – Alex Yao line/bottom line, since the CP price cut also improved Non-GAAP EPS was RMB2.64 in 4Q19, 8%/4% drug affordability significantly to support robust below JPMe and Bloomberg consensus. The earnings volume ramp-up.
49 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
CSPC reported FY2019 topline growth of 25% and earnings to: (1) solid execution capability to improved bottom-line growth of 21% yesterday, both inline efficiency; (2) gaining Apple share, coupled with with JPM estimates. We expect the company to robust AirPods shipment growth; (3) favorable forex. maintain ~20% revenue growth in FY20, but lower We believe the better-than-expected demand for our profit growth estimate to 15%. iPhone 11 and stronger iPhone upcycle in 2020 could lead to further earnings upside. Remain OW. Wuxi Biologics (2269 HK) – David Li Wuxi Lead (300450 CH) – Rebecca Wen An integrated end-to-end R&D service provider, Wuxi is a play on the increasing trend of R&D Company’s positive drivers include: (1) robust outsourcing in biologics drug development. The net revenue growth (~30% CAGR toward 2021E) is profit attributable to shareholders increased more than expected, driven by industry capacity expansion and 58% y/y for FY2019, which is fairly in-line with our solid backlog orders; (2) order wins – we believe forecast and slightly beat the consensus estimate Wuxi Lead is well positioned to win orders from tier- based on Bloomberg. 1 Korean/Japanese battery makers as they expand capacity in China before the subsidy phases out in Wuxi ranks in the top percentile for growth exposure. 2021; Wuxi Lead’s recent order wins with LG, Tesla We forecast EPS growth sustaining at 42-47% p.a and Northvolt prove its ability to capture overseas annually till FY22E. Our confidence on growth stems customers’ expansions. from 1) R&D outsourcing has become an increasingly popular option in biologics development; Industrials 2) Wuxi has built a good reputation in the industry Zoomlion (1157 HK) – Karen Li through its advanced technology platforms and efficient services; and 3) strong growth in number of Zoomlion is now our top pick in the C/E space; new projects and service backlogs. raising estimates and PT; maintain OW on A and H: China’s crane sales growth moderated in June driven Wuxi Biologics (Wuxi) sustained its strong growth in by high base, hence not a concern to us, while we see FY19 with top/bottom line growth of 57% y/y and upside to our full-year sales growth of 65% Y/Y for 60% y/y, respectively. The results were fairly in-line Zoomlion. We raise EPS by 23%/40% for FY19/20E, with JPMe and slightly beat consensus. Total backlog which now stand at 12~22% ahead of consensus, also increased by 55.4% y/y from US5.1bn in Dec-19 while we expect upward revision momentum to to US$7.9bn in Mar-20. The strong growth was continue. driven by a solid increase in the number of new projects in each development process and CRCC (1186 HK) – Karen Li contributions from existing customers as they move The outlook for infra capex in China has improved, from pre-clinical to the clinical stage. We believe given the pro-growth policy and easing funding Wuxi’s recent advancement in the vaccine business constraints as counter-cyclical measures in light of as well as upcoming potential catalysts related to its the COVID-19 impact. CRCC’s operational trends proprietary technology platforms will allow the since mid-2019 have stood out as the best among all company to continue to attract more projects to Chinese isnfra E&C contractors during the same sustain its strong growth. reporting period. Technology SANY Heavy Industry (600031 CH) – Karen Li Luxshare (002475 CH) – Gokul Hariharan Our positive view on SANY Heavy is based on the We believe Luxshare is a beneficiary of AirPods improving risk-reward, given the better-than- Pro’s debut, as we estimate 60-70% of AirPods expected project restarts and work resumption in assembly goes to Luxshare. We saw orders related to China post-COVID-19, driving better excavator sales AirPods Pro revised upward in 3Q19, while the in the peak season. SANY is a leading construction higher ASP of AirPods Pro, coupled with favorable equipment producer in China and has been expanding forex, could further propel sales growth for both its market share within China in different product companies. Meanwhile, GM for AirPods is likely not categories. We expect domestic excavator demand to dilutive (if not accretive) to Luxshare blended GM. remain supported for the remainder of the year, given Furthermore, the company guided for 45-55% yoy an improving infra spend outlook and solid 2019 earnings growth, which is above our and market replacement demand despite potential delays in expectation. We attribute this stronger-than-expected emissions standard upgrades. Moreover, late-cycle
50 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
machines continue to see stronger demand growth. prospect mainly supported by the infra sector (>40% We also see scope for margin expansion, given of cement demand), while demand from the property potential price hikes and easing raw material cost market (slightly <40%) will likely be more moderate. pressure Supply discipline is largely expected especially in East China for 2020, given the low level of net SANY Heavy reported its FY19 results. The bottom- increase in capacity (~14.9mn tons) and exit of line coming in at Rmb11.2B (+83% Y/Y), in line capacity in East China (Anhui Chaohu, Jiangsu with the mid-point of the pre-announced profit range, Huaihai and Zhejiang). See details below: meeting JPMe (Rmb11.1B). We highlight a few key positives from the results: (1) Better-than-expected Real Estate Op-CF; (2) Payout maintained at c30% in line with China Vanke (2202 HK) – Ryan Li its existing policy, standing out as a positive given the payout cuts by peers; (3) Blended GPM also beat Vanke’s 2019 result was up 15% Y/Y yet it was a expectations. Note that a briefing call will be hosted miss to consensus and our estimates, mainly due to post its 1Q20 results (scheduled on April 29th). less than expected delivery and higher tax burden. Maintain OW on SANY, viewing current risk-reward However as margin is inline, the earnings trend into as attractive, in light of the stronger-than-expected 2020 and 2021 should remain broadly in shape at industry demand and SANY’s solid fundamentals. high-teen CAGR. We expect Vanke’s ROE to remain stable at around 20%, with a stable DP business and Materials the new IP business to start contributing more in Conch Cement (914 HK) – Po Wei 2020. While Vanke has always been perceived as a pure developer, with incrementally more investment Conch Cement is the second-largest cement producer into the IP rental business, we believe the market may in China (after CNBM), with total cement capacity of start giving them credit on such. We continue to like 300Mt (vs CNBM: 407Mt). With nearly 80% of the Vanke as we think Vanke will consistently be able to company’s capacity located in the Eastern and deliver a higher-than-industry ROE via its effective Southern regions, we believe Conch is well- use of working capital. positioned to leverage tighter markets and higher utilization levels in the region. Looking ahead, policy China Aoyuan (3883 HK) – Karl Chan measures to support urbanization and reduce capacity Aoyuan’s FY19 core net profit jumped 65% Y/Y to set the stage for improved utilization rates. Rmb3.9 bn, 5% below our estimate due to more We think the cement demand is delayed, not SG&A and taxes. Payout ratio (on reported net profit diminished: while most local governments’ official basis) came down from 40% to 35%, which is slightly day for work resumption is 10 February, construction disappointing. Adjusted net gearing (on attributable workers may need to go through 14 days’ quarantine, equity; adding back returned consideration for Aeon so demand may only begin to pick up gradually at the Life) went down slightly from 170% in 1H19 to end of Feb or early March, and normalize in mid- 163% by end-2019. With contracted liabilities of March, assuming the virus outbreak subsides. In this Rmb86 bn on the balance sheet, we believe 2020E case, demand should pick up fairly strongly in mid- earnings growth should stay strong. We think the key March across China. In a worst-case scenario in focus at the results briefing will be on (1) sales which the outbreak lasts until April/May, demand guidance (we expect >10% growth in 2020E); (2) should pick-up strongly in 2H20, too. Overall, we plans for non-property businesses (“other businesses” believe 2020 demand should be little impacted with saw a loss of Rmb10 mn in segment profit, which we losses in 1Q being offset by a recovery in 2Q and believe is due to the retail business); (3) onwards. redevelopment conversion; (4) payout guidance; (5) deleverage plans. Overall, management remains optimistic on the 2020 outlook and kept its sales target unchanged at roughly flat YoY. It’s expected that negative impacts from COVID-19 in 1Q20 could largely be offset by sales in 2Q-4Q20 after demand returns to normal levels in Apr-May (currently construction lines at 60-80% while property at 40-60% resumption rate). For FY20, the firm foresees an overall stable demand
51 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Appendix
Table 36: Regional and country valuations
Source: MSCI, IBES, Datastream, Bloomberg, J.P. Morgan. Data as of 22 April 2020.
52 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Table 37: J.P. Morgan China daily valuations
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) Advertising Focus Media - A Yao, Alex CNY UW 002027.SS 4.38 -0.90 4.60 5.0 9,075 138.1 2019 0.19 0.31 -52.5 62.5 23.2 14.3 4.1 3.3 18.6 25.9 2.3 1.3 Mkt Cap Weighted Aggregates 9,075 138.1 23.2 14.3 4.1 3.3 18.6 25.9 2.3 1.3 Aerospace & Defense AECC Aviation Power - A Xu, Patrick CNY UW 600893.SS 23.96 0.29 14.00 -41.6 7,609 66.3 2020 0.46 0.49 -4.7 7.3 52.4 48.8 1.8 1.8 3.5 3.7 0.6 0.6 AVIC Electromechanical - A Xu, Patrick CNY OW 002013.SZ 8.13 1.50 10.00 23.0 4,141 48.7 2020 0.29 0.33 7.4 13.6 28.0 24.7 2.8 2.5 10.3 10.8 0.8 0.9 Mkt Cap Weighted Aggregates 11,751 115.0 43.8 40.3 2.2 2.1 5.9 6.2 0.7 0.7 Air Freight & Logistics BEST Inc. Wong, Calvin C CNY OW BEST 5.65 4.82 7.50 32.7 2,195 7.8 2020 -0.14 1.35 -73.4 NM na 29.7 4.0 3.5 1.5 15.1 na na SF Holding Co Ltd - A Wong, Calvin C CNY N 002352.SZ 49.03 0.04 49.00 -0.1 30,582 139.9 2019 1.28 1.33 24.0 4.4 38.3 36.7 5.2 4.7 10.8 12.7 0.5 0.5 STO Express Co Ltd - A Wong, Calvin C CNY UW 002468.SZ 16.66 0.97 14.10 -15.4 3,600 24.3 2019 0.94 0.80 -29.8 -15.3 17.7 20.9 2.8 2.6 16.3 12.8 2.1 1.8 YTO Express Group - A Wong, Calvin C CNY UW 600233.SH 12.11 4.40 9.30 -23.2 4,835 38.5 2019 0.70 0.71 4.3 1.8 17.2 16.9 2.9 2.6 16.2 14.6 1.3 1.3 Yunda Holding Co Ltd - A Wong, Calvin C CNY N 002120.SZ 30.39 1.13 29.50 -2.9 9,552 43.3 2019 1.19 1.22 -1.8 2.2 25.5 25.0 5.1 4.4 21.4 19.0 1.2 1.2 ZTO Express (Cayman) Inc. Wong, Calvin C CNY OW ZTO 28.97 3.84 28.50 -1.6 22,666 65.7 2020 6.92 8.81 -4.3 27.4 29.7 23.3 3.6 3.1 14.0 15.4 0.0 0.0 Mkt Cap Weighted Aggregates 73,430 319.6 30.5 28.8 4.4 3.9 13.5 14.5 0.6 0.6 Airport Services Beijing Capital International Airport (0694) Li, Karen CNY OW 0694.HK 5.15 -4.45 13.00 152.4 2,878 10.0 2019 0.56 0.30 -15.4 -46.6 8.4 15.7 0.9 0.8 10.4 5.5 5.2 3.2 Guangzhou Baiyun International Airport Co., Ltd - A Li, Karen CNY OW 600004.SS 14.99 2.46 24.00 60.1 4,379 32.1 2019 0.36 0.28 -34.8 -23.1 41.8 54.3 1.9 1.9 4.7 3.5 0.7 0.6 Shanghai International Airport - A Li, Karen CNY OW 600009.SS 70.98 5.50 81.00 14.1 19,307 148.2 2019 2.61 1.44 18.9 -44.9 27.2 49.4 4.3 4.1 16.7 8.5 1.1 0.6 Shenzhen Airport Co Ltd - A Li, Karen CNY OW 000089.SZ 7.86 1.03 12.20 55.2 2,275 22.8 2020 0.21 0.37 -26.2 72.3 36.8 21.3 1.3 1.2 3.6 6.0 0.7 1.2 Mkt Cap Weighted Aggregates 28,839 213.1 28.3 44.5 3.3 3.2 13.2 7.2 1.4 0.9 Aluminum Aluminum Corp of China - A Wei, Po CNY N 601600.SS 2.88 -0.35 3.20 11.1 6,059 24.3 2020 0.01 0.05 -79.4 603.3 na 53.6 0.9 0.9 0.2 1.7 0.0 0.0 Aluminum Corp of China - H Wei, Po CNY N 2600.HK 1.49 0.00 2.00 34.2 2,865 5.7 2020 0.01 0.05 -79.4 603.3 na 25.3 0.4 0.4 0.2 1.7 0.0 0.0 Mkt Cap Weighted Aggregates 8,924 30.0 na 44.5 0.7 0.7 0.2 1.7 0.0 0.0 Apparel Retail HLA Corp Ltd - A Yao, Qian CNY OW 600398.SS 6.23 -0.32 11.30 81.4 3,951 9.3 2019 0.78 0.88 1.2 13.5 8.0 7.1 1.9 1.8 25.6 26.2 7.5 8.5 Mkt Cap Weighted Aggregates 3,951 9.3 8.0 7.1 1.9 1.8 25.6 26.2 7.5 8.5 Apparel, Accessories & Luxury Goods
53 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) Lao Feng Xiang - A Hsu, George CNY OW 600612.SS 39.35 0.85 49.00 24.5 2,906 12.5 2019 2.69 3.05 16.9 13.1 14.6 12.9 3.0 2.7 21.5 21.7 3.3 3.7 Li Ning (2331) Yao, Qian CNY OW 2331.HK 23.25 -2.31 28.80 23.9 7,241 62.6 2020 0.65 0.83 4.6 27.5 32.8 25.7 6.4 5.5 20.4 22.4 0.9 1.1 Peacebird Fashion - A Yao, Qian CNY OW 603877.SS 15.69 -0.06 17.40 10.9 1,055 3.2 2020 1.06 1.23 -9.5 16.1 14.8 12.8 2.0 1.8 13.7 14.8 3.4 3.9 Semir Garment - A Yao, Qian CNY N 002563.SZ 7.10 -0.14 9.00 26.8 2,706 13.5 2019 0.57 0.53 -8.7 -7.3 12.4 13.4 1.6 1.5 13.5 11.8 4.5 4.2 Shenzhou International (2313) Yao, Qian CNY N 2313.HK 88.05 -1.73 83.00 -5.7 17,078 63.7 2020 3.71 4.43 9.4 19.5 21.7 18.2 4.4 3.9 21.0 22.7 2.5 3.0 Xtep International Yao, Qian CNY OW 1368.HK 2.85 1.79 4.80 68.4 871 3.1 2020 0.28 0.33 -7.9 15.2 9.2 8.0 0.9 0.8 9.5 10.6 6.4 7.4 Mkt Cap Weighted Aggregates 31,857 158.6 22.2 18.5 4.3 3.8 19.7 21.0 2.5 2.9 Application Software Cheetah Mobile Inc Sullivan, James CNY NR CMCM 1.95 -0.51 na na 262 1.1 2016 na na na na na na na na na na na na Glodon - A Zhang, Kevin CNY N 002410.SZ 46.57 0.98 37.00 -20.5 7,432 57.5 2020 0.35 0.42 64.8 20.8 na na 15.2 14.1 11.6 13.1 0.4 0.4 OneConnect Financial Technology Yao, Alex CNY OW OCFT 9.68 -3.87 20.00 106.6 3,568 4.4 2020 -3.92 -3.07 -14.9 -21.7 na na 5.0 5.7 NM NM na na Mkt Cap Weighted Aggregates 15,478 122.9 na na 8.4 8.1 5.6 6.3 0.2 0.2 Asset Management & Custody Banks China Cinda Asset Management Co Ltd (1359) Lei, Katherine CNY OW 1359.HK 1.41 -1.40 2.00 41.8 6,596 6.8 2020 0.41 0.45 20.7 8.2 3.1 2.9 0.3 0.3 8.7 8.9 9.6 10.4 Noah Holdings Ltd Lei, Katherine CNY OW NOAH 24.40 4.77 35.00 43.4 1,467 11.5 2020 13.44 17.09 -19.7 27.1 12.9 10.1 1.3 1.2 10.3 12.3 0.0 0.0 Mkt Cap Weighted Aggregates 8,063 18.3 4.9 4.2 0.5 0.5 9.0 9.5 7.9 8.5 Auto Parts & Equipment Fuyao Glass - A (600660 CH) Wen, Rebecca Y CNY UW 600660.SS 18.93 0.64 15.50 -18.1 6,703 52.0 2020 0.78 1.29 -32.9 66.9 24.4 14.6 2.3 2.1 9.6 15.1 3.7 2.5 Fuyao Glass - H (3606) Wen, Rebecca Y CNY N 3606.HK 16.32 -0.24 17.00 4.2 5,283 6.4 2020 0.78 1.29 -32.9 66.9 19.2 11.5 1.8 1.7 9.6 15.1 4.6 3.1 Huayu - A (600741 CH) Wen, Rebecca Y CNY N 600741.SS 20.19 0.30 18.00 -10.8 8,985 68.9 2020 1.54 1.97 -24.9 27.8 13.1 10.3 1.2 1.1 9.6 11.6 4.2 3.2 Minth (0425) Wen, Rebecca Y CNY OW 0425.HK 17.60 1.73 24.00 36.4 2,613 13.4 2020 1.03 1.64 -29.9 58.7 15.6 9.8 1.2 1.1 8.1 12.1 3.6 2.6 Nexteer (1316) Wen, Rebecca Y USD N 1316.HK 3.91 -6.68 4.10 4.9 1,265 4.7 2020 0.04 0.09 -56.7 118.4 12.6 5.8 0.7 0.6 5.5 11.4 6.4 2.4 Ningbo Joyson - A Wen, Rebecca Y CNY UW 600699.SS 19.42 -2.80 15.00 -22.8 3,392 180.6 2020 0.41 0.69 -46.9 70.2 47.8 28.1 1.7 1.9 3.8 6.9 0.4 0.2 Ningbo Tuopu Group Co Ltd - A Wen, Rebecca Y CNY UW 601689.SS 21.23 2.07 9.00 -57.6 3,162 69.4 2019 0.44 0.47 -38.8 8.4 48.6 44.8 3.0 2.8 6.3 6.5 1.3 0.0 Xinyi Glass (0868) Fu, Han HKD UW 0868.HK 8.95 -0.44 8.10 -9.5 4,611 12.8 2020 0.85 0.87 -23.9 2.3 10.5 10.3 1.5 1.3 15.1 13.4 0.0 0.0 Mkt Cap Weighted Aggregates 36,014 408.2 22.3 15.8 1.7 1.6 9.2 12.1 3.1 2.0 Automobile Manufacturers BAIC Motor Corp LTD (1958) Lai, Nick YC CNY OW 1958.HK 3.14 1.29 4.50 43.3 3,247 3.9 2019 0.51 0.52 -9.4 1.4 5.6 5.6 0.5 0.4 8.3 8.0 6.6 5.9 Brilliance China Automotive (1114) Lai, Nick YC CNY OW 1114.HK 6.86 0.59 9.00 31.2 4,466 17.0 2020 1.40 1.57 4.2 12.1 4.5 4.0 0.8 0.7 18.8 17.8 0.0 3.3 BYD Company Limited - A Lai, Nick YC CNY UW 002594.SZ 58.25 -1.99 45.00 -22.7 22,432 216.1 2019 0.61 0.43 -40.2 -29.2 95.5 na 2.8 2.8 3.0 2.1 0.2 0.1 BYD Company Limited - H Lai, Nick YC CNY UW 1211.HK 43.25 2.00 30.00 -30.6 15,225 56.8 2019 0.61 0.43 -40.2 -29.2 64.8 91.5 1.9 1.9 3.0 2.1 0.2 0.2 Chongqing Changan Automobile - A Lai, Nick YC CNY UW 000625.SZ 9.02 -1.85 9.00 -0.2 4,967 60.4 2019 -0.60 0.12 NM NM na 74.7 1.0 1.0 NM 1.3 0.2 0.0 Chongqing Changan Automobile - B Lai, Nick YC CNY N 200625.SZ 3.61 0.00 4.50 24.7 420 1.2 2019 -0.60 0.12 NM NM na 27.3 0.4 0.4 NM 1.3 0.5 0.0
54 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) DongFeng Motor Co., Ltd. (0489) Lai, Nick YC CNY N 0489.HK 4.97 0.61 5.50 10.7 1,831 12.3 2020 1.43 1.51 -4.5 6.0 3.2 3.0 0.3 0.2 8.9 8.2 5.5 7.4 Geely Automobile Holdings Ltd. (0175) Lai, Nick YC CNY OW 0175.HK 11.48 0.70 18.00 56.8 13,562 95.7 2020 0.76 0.84 -15.6 10.7 13.8 12.5 1.6 1.5 12.2 12.3 2.1 1.8 Great Wall Motor - A Lai, Nick YC CNY N 601633.SS 7.99 -0.62 9.00 12.6 10,294 28.6 2020 0.46 0.50 -6.8 7.9 17.4 16.1 1.3 1.2 7.5 7.8 2.5 2.3 Great Wall Motor - H Lai, Nick YC CNY N 2333.HK 4.90 -1.21 5.00 2.0 5,771 19.9 2020 0.46 0.50 -6.8 7.9 9.8 9.0 0.7 0.7 7.5 7.8 4.4 4.1 Guangzhou Automobile Group - A Lai, Nick YC CNY N 601238.SS 9.76 -0.31 11.00 12.7 9,283 29.0 2020 0.76 0.89 18.3 15.8 12.8 11.0 1.2 1.1 9.4 10.1 1.5 1.8 Guangzhou Automobile Group - H Lai, Nick YC CNY OW 2238.HK 6.34 -0.94 10.00 57.7 5,512 29.6 2020 0.76 0.89 18.3 15.8 7.6 6.5 0.7 0.6 9.4 10.1 2.6 3.1 NIO Lai, Nick YC CNY UW NIO 3.09 2.32 2.00 -35.3 3,182 228.6 2019 -11.05 -4.15 -50.5 -62.5 na na na na na 62.7 na na SAIC Motor Corp - A Lai, Nick YC CNY N 600104.SS 18.37 -0.97 20.00 8.9 30,296 83.0 2020 1.80 2.03 -18.0 13.1 10.2 9.0 0.8 0.8 8.2 8.9 4.8 3.9 Mkt Cap Weighted Aggregates 130,488 882.0 31.2 20.1 1.4 1.3 7.0 8.5 2.2 2.1 Automotive Retail Baoxin Auto Group Limited (1293) Lai, Nick YC CNY N 1293.HK 0.94 0.00 1.10 17.0 344 0.2 2020 0.16 0.18 -29.5 14.4 5.5 4.8 0.3 0.3 5.6 6.1 0.0 0.0 China ZhengTong Auto Service Holding Limited (1728) Lai, Nick YC CNY N 1728.HK 1.12 0.00 1.40 25.0 320 2.3 2020 0.22 0.27 -17.2 21.2 4.6 3.8 0.2 0.2 4.3 5.0 0.0 6.6 Zhongsheng Group Holdings (0881) Lai, Nick YC CNY OW 0881.HK 29.95 0.34 32.00 6.8 8,899 17.4 2020 1.53 1.77 -22.9 15.8 17.9 15.5 2.6 2.3 15.1 15.5 1.5 1.1 Mkt Cap Weighted Aggregates 9,563 19.9 17.0 14.7 2.4 2.1 14.4 14.8 1.4 1.3 Biotechnology 3SBio (1530) Li, David CNY OW 1530.HK 8.30 0.36 11.00 32.5 2,720 15.6 2020 0.62 0.71 61.0 14.5 12.3 10.7 1.7 1.5 15.0 14.8 0.0 0.0 Athenex, Inc. Wang, Ling USD OW ATNX 8.54 -0.23 30.00 251.3 697 7.3 2020 -1.87 -1.13 23.2 -39.5 na na 3.8 3.0 NM NM na na BeiGene – ADR Wang, Ling USD OW BGNE 160.68 1.36 215.00 33.8 12,409 50.9 2020 -1.44 -1.57 18.7 9.0 na na 5.5 18.3 NM na 0.0 0.0 Beigene (6160) Wang, Ling USD OW 6160.HK 95.70 -0.52 129.00 34.8 12,397 1.2 2020 -1.44 -1.57 18.7 9.0 na na 5.5 18.3 NM na 0.0 0.0 CStone Pharmaceuticals Wang, Ling CNY OW 2616.HK 9.00 4.17 18.00 100.0 1,175 0.6 2020 -1.86 -2.07 -17.2 11.4 na na 14.8 16.5 na na na na Innovent Biologics (1801) Wang, Ling CNY OW 1801.HK 34.85 1.90 38.00 9.0 6,037 20.7 2020 -0.81 -0.97 -40.5 19.1 na na 7.1 9.1 NM NM na na Shanghai Junshi Biosciences Wang, Ling CNY OW 1877.HK 33.95 0.59 37.00 9.0 3,435 1.6 2020 -0.95 -1.24 -0.1 30.5 na na 4.6 5.7 NM NM na na Mkt Cap Weighted Aggregates 38,869 97.9 0.9 0.8 5.7 14.2 1.0 1.0 0.0 0.0 Brewers Beijing Yanjing Brewery - A Yin, Kevin CNY UW 000729.SS 5.96 0.51 5.50 -7.7 2,359 9.2 2017 na na na na na na na na na na na na Budweiser Asia Pacific Yin, Kevin USD OW 1876.HK 21.00 -2.10 29.00 38.1 35,885 34.9 2020 0.06 0.09 -5.5 47.8 42.3 28.6 3.5 3.2 8.4 11.6 0.8 1.2 China Resources Beer (0291) Yin, Kevin CNY OW 0291.HK 36.10 0.56 45.00 24.7 15,111 41.7 2020 0.50 1.06 23.5 112.5 66.1 31.1 5.2 4.7 11.0 17.1 0.6 1.3 Tsingtao Brewery - A Yin, Kevin CNY OW 600600.SS 47.28 1.05 51.00 7.9 9,016 50.9 2019 1.34 1.12 27.5 -16.4 35.2 42.1 3.4 3.2 8.0 6.1 1.3 1.1 Tsingtao Brewery - H Yin, Kevin CNY OW 0168.HK 43.35 -1.03 56.00 29.2 7,557 11.5 2019 1.34 1.12 27.5 -16.4 29.5 35.3 2.8 2.7 8.0 6.1 1.5 1.3 Mkt Cap Weighted Aggregates 69,928 148.3 43.7 30.7 3.6 3.4 8.6 11.1 0.9 1.2 Coal & Consumable Fuels China Coal Energy - A Wei, Po CNY N 601898.SS 3.86 -0.77 3.70 -4.1 7,224 10.2 2020 0.42 0.44 -10.4 5.9 9.2 8.7 0.5 0.5 5.6 5.7 3.3 3.4
55 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) China Coal Energy - H Wei, Po CNY N 1898.HK 2.03 -2.87 2.70 33.0 3,473 2.2 2020 0.42 0.44 -10.4 5.9 4.4 4.2 0.2 0.2 5.6 5.7 6.8 7.2 China Shenhua Energy - A Wei, Po CNY OW 601088.SS 15.30 -0.52 19.00 24.2 42,956 68.1 2020 2.00 1.95 -4.8 -2.2 7.7 7.8 0.8 0.8 10.9 10.3 7.8 7.7 China Shenhua Energy - H Wei, Po CNY OW 1088.HK 13.70 0.29 18.00 31.4 35,159 50.7 2020 2.00 1.95 -4.8 -2.2 6.3 6.4 0.7 0.6 10.9 10.3 9.6 9.4 Shaanxi Coal Industry Co Ltd - A Wei, Po CNY N 601225.SS 7.08 -0.28 8.20 15.8 9,994 27.9 2019 1.15 1.19 4.3 3.4 6.2 6.0 1.2 1.0 21.4 19.1 4.7 4.9 Shanxi Xishan Coal & Electricity - A Wei, Po CNY UW 000983.SZ 4.82 -1.43 4.50 -6.6 2,144 13.3 2019 0.63 0.63 10.5 -0.7 7.6 7.7 0.7 0.7 9.7 9.1 6.9 6.8 Yanzhou Coal Mining - A Wei, Po CNY N 600188.SS 8.37 -0.83 10.00 19.5 3,497 23.6 2020 1.58 1.62 -17.3 2.6 5.3 5.2 0.7 0.7 14.0 13.3 5.7 5.8 Yanzhou Coal Mining - H Wei, Po CNY N 1171.HK 5.87 -0.84 7.00 19.3 1,478 11.9 2020 1.58 1.62 -17.3 2.6 3.4 3.3 0.5 0.4 14.0 13.3 8.8 9.1 Mkt Cap Weighted Aggregates 105,927 208.1 6.9 7.0 0.8 0.7 11.5 10.8 7.7 7.6 Commodity Chemicals Guangzhou Tinci Materials - A Wei, Po CNY UW 002709.SZ 25.86 0.19 9.20 -64.4 1,983 53.4 2019 0.18 0.24 -78.3 34.0 na na 4.9 4.7 3.5 4.5 0.1 0.1 Hengli Petrochemical - A Ong, Parsley Rui Hua CNY OW 600346.SS 13.99 1.23 20.00 43.0 13,901 60.9 2020 2.08 1.89 34.3 -8.9 6.7 7.4 1.9 1.5 34.4 22.4 5.9 6.8 Rongsheng Petro Chemical - A Ong, Parsley Rui Hua CNY UW 002493.SZ 11.93 -0.33 9.50 -20.4 10,594 13.9 2020 0.78 0.83 119.4 7.5 15.4 14.3 2.5 2.0 9.4 15.6 1.3 1.4 Sinopec Shanghai Petchem - A Darling, Scott L CNY OW 600688.SS 4.52 7.11 5.63 24.6 6,900 23.5 2020 0.30 0.33 47.2 9.6 15.0 13.7 2.0 1.8 11.9 13.9 3.9 3.8 Sinopec Shanghai Petchem - H Darling, Scott L CNY OW 0338.HK 2.21 1.84 3.05 38.0 3,084 6.1 2020 0.30 0.33 47.2 9.6 6.7 6.1 0.9 0.8 11.9 13.9 8.7 8.5 Tongkun Group - A Ong, Parsley Rui Hua CNY OW 601233.SS 12.10 -1.79 17.00 40.5 2,118 53.4 2019 1.55 2.48 33.2 60.6 7.8 4.9 1.3 1.0 17.1 23.0 1.9 4.1 Mkt Cap Weighted Aggregates 38,580 211.2 10.3 9.8 2.1 1.8 19.2 17.5 4.0 4.4 Computer & Electronics Retail Gome Retail (0493) Hsu, George CNY UW 0493.HK 0.94 -1.05 0.50 -46.8 2,499 14.6 2020 -0.07 -0.06 -49.6 -14.8 na na 1.7 1.9 NM NM 0.0 0.0 Suning.com Co - A Hsu, George CNY N 002024.SZ 8.63 -0.92 9.50 10.1 11,275 75.4 2019 1.20 0.39 -16.7 -67.5 7.2 22.2 0.9 0.9 3.4 3.1 4.2 1.4 Mkt Cap Weighted Aggregates 13,774 90.0 5.9 18.1 1.0 1.1 2.8 2.6 3.4 1.1 Construction & Engineering China Communications Construction - A Li, Karen CNY N 601800.SS 8.12 -1.22 7.30 -10.1 18,540 104.3 2020 1.22 1.35 5.2 9.9 6.6 6.0 0.5 0.5 8.3 8.5 3.0 3.3 China Communications Construction - H Li, Karen CNY OW 1800.HK 5.08 0.59 6.70 31.9 10,602 16.7 2020 1.22 1.35 5.2 9.9 3.8 3.5 0.3 0.3 8.3 8.5 5.3 5.8 China Railway Construction - A Li, Karen CNY OW 601186.SS 9.82 -1.50 15.60 58.9 18,824 137.3 2020 1.87 2.20 26.0 17.2 5.2 4.5 0.6 0.5 11.5 12.1 2.8 3.3 China Railway Construction - H Li, Karen CNY OW 1186.HK 8.57 -2.61 14.90 73.9 15,016 15.5 2020 1.87 2.20 26.0 17.2 4.2 3.6 0.5 0.4 11.5 12.1 3.5 4.1 China Railway Group Limited - A Li, Karen CNY OW 601390.SS 5.80 -1.19 9.10 56.9 18,703 67.5 2020 1.06 1.22 10.3 14.5 5.5 4.8 0.6 0.5 11.2 11.7 3.2 3.7 China Railway Group Limited - H Li, Karen CNY OW 0390.HK 4.55 -0.44 9.10 100.0 13,412 10.9 2020 1.06 1.22 10.3 14.5 3.9 3.4 0.4 0.4 11.2 11.7 4.5 5.1 China State Construction (3311) Li, Karen HKD OW 3311.HK 5.99 1.87 9.20 53.6 3,902 4.6 2020 1.19 1.36 11.4 14.0 5.0 4.4 0.7 0.6 13.6 14.1 6.0 6.8 Sinoma International Engineering - A Wei, Po CNY OW 600970.SS 5.96 -1.49 8.00 34.2 1,476 20.1 2020 0.85 0.89 -7.1 4.9 7.0 6.7 0.9 0.8 13.4 12.6 2.6 2.8 Sinopec Engineering Group (2386) Li, Karen CNY OW 2386.HK 3.49 2.05 5.40 54.7 1,994 3.5 2019 0.60 0.67 57.8 12.5 5.3 4.7 0.5 0.5 9.9 10.4 6.4 8.4 Mkt Cap Weighted Aggregates 102,469 380.4 5.1 4.5 0.5 0.5 10.6 11.0 3.7 4.2 Construction Machinery & Heavy Trucks Changsha Zoomlion Heavy Industry - A Li, Karen CNY OW 000157.SZ 6.18 -2.22 8.10 31.1 6,812 44.8 2020 0.70 0.77 25.4 10.3 8.9 8.1 1.1 1.1 13.2 12.8 0.0 2.5
56 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) Changsha Zoomlion Heavy Industry - H Li, Karen CNY OW 1157.HK 6.13 -0.65 7.40 20.7 6,176 11.1 2020 0.70 0.77 25.4 10.3 8.1 7.3 1.0 1.0 13.2 12.8 0.0 2.7 China Shipbuilding Industry Co Ltd - A Xu, Patrick CNY UW 601989.SS 4.29 1.18 3.40 -20.7 13,808 52.7 2019 0.05 0.04 76.4 -33.9 81.0 na 1.1 1.1 1.4 0.9 0.4 0.3 CRRC Corp - A Li, Karen CNY OW 601766.SS 6.19 -0.64 11.10 79.3 25,076 67.0 2019 0.46 0.60 18.0 29.2 13.3 10.3 1.3 1.2 10.0 12.0 2.9 3.7 CRRC Corp - H Li, Karen CNY OW 1766.HK 4.05 0.25 8.30 104.9 14,997 15.5 2019 0.46 0.60 18.0 29.2 8.0 6.2 0.8 0.7 10.0 12.0 4.8 6.2 CSSC Offshore and Marine Engineering Group - A Xu, Patrick CNY UW 600685.SS 15.22 2.49 4.20 -72.4 1,765 20.6 2020 1.45 0.23 274.4 -83.9 10.5 65.0 1.8 1.7 18.3 2.6 0.0 0.0 CSSC Offshore and Marine Engineering Group - H Xu, Patrick CNY N 0317.HK 5.08 2.63 4.60 -9.4 388 0.6 2020 1.45 0.23 274.4 -83.9 3.2 19.8 0.5 0.5 18.3 2.6 0.0 0.0 Lonking Holdings Ltd (3339) Li, Karen CNY N 3339.HK 2.63 -2.59 1.90 -27.8 1,452 2.5 2019 0.34 0.23 25.8 -31.7 7.1 10.5 1.4 1.3 16.8 10.7 8.9 6.1 Sany Heavy Industry - A Li, Karen CNY OW 600031.SS 19.11 -2.00 23.00 20.4 20,546 239.6 2019 1.33 1.59 69.6 19.4 14.4 12.0 3.9 3.2 30.8 29.1 2.1 2.5 Sinotruk (3808) Lai, Nick YC CNY UW 3808.HK 15.66 1.03 10.00 -36.1 5,579 10.0 2020 1.18 1.13 -2.4 -3.9 12.1 12.6 1.3 1.2 11.5 10.2 2.5 2.4 Weichai Power - A Li, Karen CNY N 000338.SZ 13.16 -1.94 14.00 6.4 14,856 141.1 2019 1.22 1.04 12.9 -14.8 10.8 12.6 2.3 2.1 23.1 17.5 3.9 3.3 Weichai Power - H Li, Karen CNY N 2338.HK 13.84 -0.72 14.30 3.3 14,281 26.5 2019 1.22 1.04 12.9 -14.8 10.4 12.1 2.2 2.0 23.1 17.5 4.1 3.5 Zhengzhou Yutong Bus - A Lai, Nick YC CNY N 600066.SS 12.50 -1.11 12.50 0.0 3,906 39.6 2020 0.83 0.91 -4.8 8.8 15.0 13.8 1.6 1.6 10.6 11.7 8.0 7.6 Mkt Cap Weighted Aggregates 129,644 671.5 18.8 10.2 1.8 1.7 15.9 14.6 2.8 3.3 Construction Materials BBMG - A Wei, Po CNY N 601992.SS 3.26 -0.61 3.90 19.6 4,914 25.8 2020 0.37 0.38 7.9 3.0 8.7 8.5 0.5 0.5 6.4 6.3 4.0 4.1 BBMG - H Wei, Po CNY N 2009.HK 1.96 0.00 2.40 22.4 2,700 3.2 2020 0.37 0.38 7.9 3.0 4.8 4.7 0.3 0.3 6.4 6.3 7.2 7.4 China Jushi - A Fu, Han CNY OW 600176.SS 8.30 -0.72 10.30 24.1 4,103 52.2 2020 0.57 0.63 -7.0 11.7 14.7 13.1 1.7 1.6 12.1 12.5 2.2 2.4 China National Building Material Company (3323) Wei, Po CNY N 3323.HK 9.45 -0.63 9.00 -4.8 6,583 48.7 2020 1.23 1.39 -5.8 13.4 7.1 6.2 0.8 0.8 12.2 12.7 3.8 4.3 China Resources Cement (1313) Wei, Po HKD OW 1313.HK 10.26 1.58 12.00 17.0 8,649 18.8 2020 1.19 1.18 -3.5 -0.5 8.6 8.7 1.5 1.4 18.8 17.1 5.6 5.6 Conch Cement Co Ltd - A Wei, Po CNY OW 600585.SS 57.92 -2.70 56.20 -3.0 43,327 296.6 2020 6.52 6.30 0.8 -3.4 9.4 9.7 1.9 1.7 24.7 20.4 3.2 3.2 Conch Cement Co Ltd - H Wei, Po CNY OW 0914.HK 58.75 -1.09 60.00 2.1 40,172 69.3 2020 6.13 5.98 -3.4 -2.5 8.8 9.0 1.8 1.6 21.9 18.6 3.5 3.4 Guangdong Tapai Group Co - A Wei, Po CNY OW 002233.SZ 13.75 -1.22 13.70 -0.4 2,314 61.5 2020 1.52 1.59 4.0 4.9 9.1 8.6 1.6 1.4 17.8 17.4 6.4 6.7 Huaxin Cement Co Ltd - A Wei, Po CNY OW 600801.SS 25.76 -2.16 28.00 8.7 7,624 109.3 2019 3.16 3.30 27.8 4.6 8.2 7.8 2.5 2.1 34.6 28.9 4.1 4.3 Wannianqing - A Wei, Po CNY OW 000789.SZ 13.20 -1.64 14.00 6.1 1,486 50.3 2020 1.71 1.69 -0.4 -1.2 7.7 7.8 1.8 1.6 24.9 21.5 5.3 5.2 Mkt Cap Weighted Aggregates 121,871 735.8 9.0 9.0 1.7 1.5 21.6 18.5 3.7 3.7 Consumer Finance Jianpu Technology Yao, Alex CNY OW JT 0.75 4.17 9.50 1,166.7 125 0.1 2019 0.42 1.19 NM 181.4 12.6 4.5 0.5 0.4 5.8 17.4 na na VCredit Holdings Ltd (2003) Cai, George CNY N 2003.HK 5.92 0.85 7.00 18.2 381 0.3 2020 0.43 0.76 225.3 79.5 12.7 7.1 0.7 0.6 10.3 10.5 0.0 0.0 Mkt Cap Weighted Aggregates 506 0.4 12.7 6.4 0.7 0.6 9.2 12.2 0.0 0.0 Copper Jiangxi Copper Co Ltd - A Wei, Po CNY UW 600362.SS 12.80 -0.54 12.50 -2.3 6,257 48.5 2020 0.60 0.71 -14.7 18.2 21.3 18.0 0.8 0.8 3.9 4.4 1.6 1.6 Jiangxi Copper Co Ltd - H Wei, Po CNY N 0358.HK 7.26 -1.09 9.00 24.0 3,244 6.0 2020 0.60 0.71 -14.7 18.2 11.0 9.3 0.4 0.4 3.9 4.4 3.0 3.0
57 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) Mkt Cap Weighted Aggregates 9,500 54.5 17.8 15.1 0.7 0.7 3.9 4.4 2.1 2.1 Data Processing & Outsourced Services Huifu Payment (1806) Yao, Alex CNY OW 1806.HK 2.11 0.96 8.00 279.1 341 0.9 2019 0.20 0.28 45.3 43.4 9.9 6.9 1.0 0.9 11.8 14.9 na na Mkt Cap Weighted Aggregates 341 0.9 9.9 6.9 1.0 0.9 11.8 14.9 na na Department Stores Rainbow Department Store - A Hsu, George CNY OW 002419.SZ 9.18 2.91 11.00 19.8 1,555 12.8 2020 0.66 0.80 -8.2 22.1 14.0 11.4 1.5 1.4 10.1 12.0 4.2 5.1 Mkt Cap Weighted Aggregates 1,555 12.8 14.0 11.4 1.5 1.4 10.1 12.0 4.2 5.1 Distillers & Vintners Kweichow Moutai Co - A Yin, Kevin CNY OW 600519.SS 1252.26 0.62 1450.00 15.8 222,056 662.7 2020 38.20 47.57 16.5 24.5 32.8 26.3 9.9 8.3 32.5 34.3 1.6 1.9 Hongfa Technology - A Xu, Patrick CNY UW 600885.SS 29.37 -1.81 21.00 -28.5 3,088 45.3 2019 0.91 1.07 -3.2 17.7 32.3 27.4 4.5 4.0 14.5 15.4 1.0 1.1 TBEA - A Xu, Patrick CNY OW 600089.SS 7.80 -3.23 8.70 11.5 4,090 102.6 2020 0.62 0.60 32.2 -3.8 12.6 13.1 0.8 0.8 6.4 5.9 2.8 2.7 Zhongshan Broad Ocean Motor - A Wen, Rebecca Y CNY UW 002249.SZ 3.82 -1.04 2.40 -37.2 1,276 20.5 2019 0.12 0.09 NM -21.6 31.7 40.4 1.4 1.3 4.4 3.3 0.0 0.0 Zhuzhou CRRC Times Electric Co Ltd (3898) Li, Karen CNY OW 3898.HK 23.80 0.00 43.00 80.7 3,610 8.7 2019 2.29 2.74 2.9 19.7 9.5 7.9 1.2 1.0 12.9 13.8 2.1 2.5 Mkt Cap Weighted Aggregates 61,508 1176.7 50.3 47.9 5.8 3.9 11.7 9.6 0.5 0.6 Electronic Components Accelink - A Hariharan, Gokul CNY N 002281.SZ 29.49 -4.87 28.00 -5.1 2,696 100.8 2018 na na na na na na na na na na na na BOE Technology - A Kwon, Jay CNY N 000725.SZ 3.77 -1.05 2.40 -36.3 18,519 662.1 2018 na na na na na na na na na na na na Dongshan Precision - A Hariharan, Gokul CNY OW 002384.SZ 22.57 -2.97 23.65 4.8 5,118 235.2 2019 0.90 1.18 78.9 30.9 25.0 19.1 3.7 3.2 15.9 18.0 0.7 1.6 Everwin Precision - A Zhang, Kevin CNY UW 300115.SZ 17.99 -3.75 9.00 -50.0 2,311 134.8 2020 0.25 0.45 171.1 80.3 72.0 40.0 3.7 3.4 5.2 8.8 0.1 0.3 JONHON Optronic - A Xu, Patrick CNY OW 002179.SZ 34.83 1.31 40.00 14.8 5,413 49.9 2020 1.16 1.44 11.6 23.6 29.9 24.2 4.0 3.5 14.3 15.4 0.5 0.6 Lens Technology Co Ltd - A Hariharan, Gokul CNY N 300433.SZ 16.18 -4.03 10.00 -38.2 8,968 256.6 2018 na na na na na na na na na na na na Luxshare - A Hariharan, Gokul CNY OW 002475.SZ 41.45 -0.96 27.50 -33.7 31,297 552.2 2019 0.72 0.93 9.2 29.2 57.4 44.4 11.2 9.5 21.9 23.1 0.3 0.7 OFILM Group Co Ltd - A Yang, William CNY UW 002456.SZ 14.26 -3.91 6.60 -53.7 5,465 424.5 2019 0.16 0.31 NM 98.0 90.4 45.7 4.3 3.9 4.8 8.9 0.0 0.2 Sunny Optical Technology Group Co. (2382) Yang, William CNY N 2382.HK 105.90 -0.94 120.00 13.3 14,979 168.2 2020 4.45 5.55 22.2 24.7 21.7 17.4 6.5 5.0 33.7 32.3 0.9 1.1 Mkt Cap Weighted Aggregates 94,766 2584.5 32.4 23.4 5.5 4.6 14.6 15.3 0.3 0.5 Electronic Equipment & Instruments China Railway Signal & Communication Corp Ltd (3969) Li, Karen CNY OW 3969.HK 3.75 -0.79 7.30 94.7 4,253 2.5 2019 0.39 0.46 1.4 16.7 8.7 7.5 0.9 0.8 11.8 11.2 4.6 5.4 Hangzhou HikVision Digital Technology Co., Ltd - A Hariharan, Gokul CNY OW 002415.SZ 29.90 -0.27 40.00 33.8 39,442 275.4 2019 1.41 1.72 14.8 21.8 21.2 17.4 6.1 5.1 31.7 32.0 2.1 2.4 Hollysys Automation Technologies Ltd. Li, Karen USD OW HOLI 13.96 3.95 28.00 100.6 844 3.0 2020 2.25 2.60 7.6 15.6 6.2 5.4 0.8 0.7 13.5 13.8 1.4 1.6 Universal Scientific Industrial (Shanghai) - A Hariharan, Gokul CNY N 601231.SS 17.06 -2.07 9.10 -46.7 5,240 94.0 2018 na na na na na na na na na na na na Zhejiang Dahua Technology Co., Ltd - A Hariharan, Gokul CNY N 002236.SZ 16.33 -1.09 19.50 19.4 6,910 160.5 2019 1.05 1.22 23.9 16.7 15.6 13.4 3.2 2.6 22.4 21.5 0.8 1.0
58 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) Mkt Cap Weighted Aggregates 56,689 535.4 17.4 14.4 4.7 3.9 25.9 25.9 1.9 2.2 Electronic Manufacturing Services AAC Technologies Holdings (2018) Yang, William CNY N 2018.HK 36.40 -1.49 48.00 31.9 5,735 82.8 2020 2.06 2.57 12.2 24.5 16.1 13.0 1.9 1.8 12.4 14.5 2.7 3.0 Goertek - A Hariharan, Gokul CNY UW 002241.SZ 17.98 -3.02 6.60 -63.3 8,236 276.9 2019 0.41 0.55 52.7 34.5 44.0 32.7 3.6 3.3 8.4 10.4 0.4 0.6 Wuxi Lead - A Wen, Rebecca Y CNY OW 300450.SZ 38.09 -2.78 43.00 12.9 4,739 147.3 2019 0.85 0.90 0.8 6.3 44.9 42.2 8.4 7.3 20.1 18.6 0.6 0.6 Mkt Cap Weighted Aggregates 18,710 506.9 35.7 29.1 4.3 3.9 12.6 13.7 1.2 1.3 Environmental & Facilities Services A-Living Services Chan, Karl Man Ho CNY OW 3319.HK 38.90 -0.51 44.00 13.1 6,692 30.0 2020 1.27 1.62 37.5 27.5 28.0 22.0 6.3 5.2 24.6 25.9 1.4 1.8 China Everbright International Ltd (0257) Tsui, Stephen T HKD OW 0257.HK 4.42 0.68 8.00 81.0 3,503 11.2 2019 0.82 1.00 -7.1 22.3 5.4 4.4 0.7 0.6 14.1 15.5 5.5 6.7 Country Garden Services Chan, Karl Man Ho CNY OW 6098.HK 35.40 1.14 39.00 10.2 12,383 36.3 2020 0.74 1.01 28.7 37.1 43.8 31.9 12.6 9.5 32.5 34.0 0.6 0.8 Mkt Cap Weighted Aggregates 22,578 77.6 33.1 24.7 8.9 6.9 27.3 28.7 1.6 2.0 Fertilizers & Agricultural Chemicals China BlueChemical Ltd (3983) Darling, Scott L CNY OW 3983.HK 1.13 -0.88 2.47 118.6 672 0.9 2019 0.23 0.09 -24.7 -60.4 4.6 11.6 0.3 0.3 7.0 2.7 10.9 4.3 Mkt Cap Weighted Aggregates 672 0.9 4.6 11.6 0.3 0.3 7.0 2.7 10.9 4.3 Footwear Anta Sports (2020) Yao, Qian CNY OW 2020.HK 63.60 0.00 74.00 16.4 22,031 94.6 2020 1.96 2.77 -1.4 41.3 29.7 21.0 6.7 5.5 24.2 28.6 1.0 1.4 Mkt Cap Weighted Aggregates 22,031 94.6 29.7 21.0 6.7 5.5 24.2 28.6 1.0 1.4 Gas Utilities Beijing Enterprises Holdings Limited (0392) Wu, Elaine HKD N 0392.HK 26.10 -0.19 32.00 22.6 4,250 8.1 2020 6.33 6.64 -0.7 4.9 4.1 3.9 0.4 0.4 10.2 9.8 4.3 4.5 China Gas Holdings Limited (0384) Wu, Elaine HKD N 0384.HK 23.80 2.59 26.60 11.8 16,026 62.5 2020 1.75 1.95 7.5 11.5 13.6 12.2 2.9 2.5 23.3 21.9 2.2 2.6 China Resources Gas Group Limited (1193) Wu, Elaine HKD OW 1193.HK 43.05 2.50 48.00 11.5 12,354 20.6 2020 2.46 2.72 6.3 10.4 17.5 15.8 3.1 2.7 18.8 18.4 2.1 2.4 ENN Energy Holdings Limited (2688) Wu, Elaine CNY OW 2688.HK 82.55 3.90 93.30 13.0 11,988 33.4 2020 5.22 5.81 3.4 11.3 14.5 13.0 2.9 2.5 21.1 20.5 2.4 2.8 Kunlun Energy Company Limited (0135) Wu, Elaine CNY OW 0135.HK 4.48 3.46 8.00 78.6 4,810 15.2 2020 0.72 0.78 7.4 8.4 5.7 5.3 0.7 0.6 11.9 12.0 7.0 7.6 Mkt Cap Weighted Aggregates 49,428 139.8 13.2 11.9 2.5 2.2 19.4 18.7 2.9 3.3 Gold Zijin Mining Group - A Wei, Po CNY OW 601899.SS 4.15 2.22 4.10 -1.2 13,492 152.0 2020 0.17 0.19 -6.7 11.4 24.2 21.7 2.0 1.9 8.4 9.0 2.5 2.7 Zijin Mining Group - H Wei, Po CNY OW 2899.HK 3.42 3.01 3.60 5.3 10,163 18.3 2020 0.17 0.19 -6.7 11.4 18.2 16.3 1.5 1.4 8.4 9.0 3.3 3.6 Mkt Cap Weighted Aggregates 23,655 170.3 21.6 19.4 1.8 1.7 8.4 9.0 2.8 3.1 Health Care Distributors Shanghai Pharmaceuticals Holding - A Yin, Sherry CNY OW 601607.SS 19.60 -0.96 23.00 17.3 5,320 104.6 2019 1.49 1.67 8.9 12.3 13.2 11.7 1.3 1.2 10.4 10.9 1.9 2.0 Shanghai Pharmaceuticals Holding - H Yin, Sherry CNY OW 2607.HK 14.12 0.43 19.00 34.6 1,674 8.7 2020 1.49 1.78 3.5 19.7 8.7 7.3 0.8 0.8 9.8 10.9 3.1 3.2
59 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) Sinopharm Group (1099) Yin, Sherry CNY OW 1099.HK 19.82 -0.90 24.00 21.1 7,981 31.1 2019 2.04 2.12 9.0 3.7 8.9 8.6 1.2 1.1 14.1 13.4 3.3 3.6 Mkt Cap Weighted Aggregates 14,975 144.4 10.4 9.5 1.2 1.1 12.3 12.2 2.8 3.0 Health Care Equipment MicroPort (0853) Yin, Sherry USD NR 0853.HK 18.60 -0.96 na na 3,846 34.5 2019 na na na na na na na na na na na na Shenzhen Mindray - A Yin, Sherry CNY OW 300760.SZ 270.52 -0.77 291.00 7.6 46,423 248.1 2019 3.85 4.83 25.9 25.4 70.3 56.0 17.8 14.6 27.9 28.6 0.4 0.5 Mkt Cap Weighted Aggregates 50,269 282.6 64.9 51.7 16.5 13.5 25.7 26.5 0.4 0.5 Health Care Technology Alibaba Health (0241) Yin, Sherry CNY OW 0241.HK 19.60 3.48 10.70 -45.4 29,617 78.8 2020 0.01 0.09 NM 568.4 na na 71.3 53.2 10.4 31.2 0.0 0.0 Ping An Healthcare and Technology (1833) Yin, Sherry CNY OW 1833.HK 111.80 -2.53 90.00 -19.5 15,396 81.8 2020 -0.61 0.07 -12.5 NM na na 12.1 12.0 NM 0.8 0.0 0.0 Mkt Cap Weighted Aggregates 45,013 160.6 na na 51.0 39.1 6.9 20.8 0.0 0.0 Heavy Electrical Equipment Dongfang Electric Corporation Limited - A Xu, Patrick CNY UW 600875.SS 8.90 -0.78 5.50 -38.2 3,883 27.2 2020 0.38 0.40 -7.4 4.3 23.4 22.5 0.9 0.9 3.9 4.0 2.6 3.1 Dongfang Electric Corporation Limited - H Xu, Patrick CNY OW 1072.HK 4.06 -1.46 6.00 47.8 1,619 0.9 2020 0.38 0.40 -7.4 4.3 9.8 9.4 0.4 0.4 3.9 4.0 6.1 7.5 Nari Technology - A Xu, Patrick CNY N 600406.SS 20.62 -2.87 19.00 -7.9 13,453 85.4 2019 0.84 0.95 -9.1 12.6 24.4 21.7 3.2 2.9 13.4 13.9 1.6 1.8 Shanghai Electric Group Company Limited - A Xu, Patrick CNY UW 601727.SS 4.92 0.41 3.10 -37.0 10,523 18.7 2020 0.22 0.23 -3.0 4.5 22.1 21.1 1.1 1.1 5.2 5.2 1.2 1.3 Shanghai Electric Group Company Limited - H Xu, Patrick CNY OW 2727.HK 2.35 -0.84 3.40 44.7 4,595 2.2 2020 0.22 0.23 -3.0 4.5 9.6 9.2 0.5 0.5 5.2 5.2 2.8 2.9 Xinjiang Goldwind - A Hon, Alan CNY N 002202.SZ 9.91 -0.20 10.35 4.4 5,344 40.4 2020 0.88 0.95 71.8 7.8 11.3 10.5 1.3 1.2 9.3 9.8 2.8 3.0 Xinjiang Goldwind - H Hon, Alan CNY OW 2208.HK 7.28 -0.27 9.20 26.4 727 4.9 2020 0.88 0.95 71.8 7.8 7.6 7.0 0.8 0.8 9.3 9.8 4.2 4.5 Mkt Cap Weighted Aggregates 40,144 179.7 19.4 17.9 1.7 1.6 8.4 8.6 2.1 2.4 Highways & Railtracks Jiangsu Expressway - A Li, Karen CNY N 600377.SS 9.91 -0.90 9.60 -3.1 7,047 11.3 2019 0.88 0.49 0.9 -43.8 11.3 20.1 1.8 1.8 16.2 8.8 4.7 4.7 Jiangsu Expressway - H Li, Karen CNY OW 0177.HK 8.61 -1.82 10.70 24.3 5,597 7.0 2019 0.88 0.49 0.9 -43.8 9.0 16.0 1.4 1.4 16.2 8.8 5.9 5.9 Zhejiang Expressway (0576) Li, Karen CNY N 0576.HK 5.04 -1.56 6.50 29.0 2,824 5.8 2019 0.86 0.58 7.4 -32.4 5.4 7.9 0.8 0.8 15.6 9.9 8.1 8.1 Mkt Cap Weighted Aggregates 15,468 24.0 9.4 16.4 1.5 1.4 16.1 9.0 5.7 5.7 Home Furnishings Oppein Home Group - A Hsu, George CNY OW 603833.SS 108.28 1.22 115.00 6.2 6,424 26.0 2019 4.60 5.00 22.9 8.7 23.6 21.7 5.0 4.2 23.2 21.1 0.9 0.9 Suofeiya Home Collection - A Hsu, George CNY OW 002572.SZ 19.25 -0.41 23.00 19.5 2,479 30.1 2020 1.22 1.47 3.3 20.4 15.8 13.1 2.9 2.6 19.3 20.8 2.9 3.5 Mkt Cap Weighted Aggregates 8,903 56.1 21.4 19.3 4.4 3.8 22.1 21.0 1.4 1.6 Hotels, Resorts & Cruise Lines China CYTS Tours Holding Co - A Hsu, George CNY NR 600138.SS 10.16 -0.29 na na 1,038 29.3 2016 na na na na na na na na na na na na Huangshan Tourism Development - A Hsu, George CNY NR 600054.SS 8.69 -0.46 na na 764 7.7 2016 na na na na na na na na na na na na Jinmao Hotel (6139) Li, Ryan CNY N 6139.HK 2.45 0.00 3.70 51.0 632 0.0 2019 0.16 0.17 6.9 6.8 14.4 13.5 0.8 0.9 5.6 6.4 15.3 15.9
60 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) Mkt Cap Weighted Aggregates 2,434 37.1 3.7 3.5 0.2 0.2 1.4 1.7 4.0 4.1 Household Appliances Gree Electric Appliances - A Hsu, George CNY OW 000651.SZ 54.87 1.24 63.00 14.8 46,594 432.1 2019 4.10 4.19 -5.8 2.1 13.4 13.1 3.2 2.8 25.3 22.9 3.7 3.8 Hangzhou Robam Appliances - A Hsu, George CNY OW 002508.SZ 31.84 2.22 34.00 6.8 4,265 39.2 2019 1.67 1.79 7.4 7.5 19.1 17.8 4.4 3.9 24.6 23.4 2.6 2.8 Midea Group - A Hsu, George CNY OW 000333.SZ 51.99 1.15 62.00 19.3 48,333 253.6 2019 3.61 3.61 17.6 0.0 14.4 14.4 3.5 3.2 26.5 23.4 3.8 3.1 Zhejiang Supor - A Hsu, George CNY N 002032.SZ 67.68 0.50 68.00 0.5 7,846 18.7 2019 2.33 2.72 14.5 16.7 29.1 24.9 8.1 7.0 29.9 30.1 1.7 2.0 Mkt Cap Weighted Aggregates 107,038 743.5 15.2 14.7 3.8 3.3 26.2 23.7 3.6 3.3 Hypermarkets & Super Centers Sun Art (6808) Hsu, George CNY OW 6808.HK 12.90 3.20 14.00 8.5 15,879 24.2 2020 0.33 0.43 12.4 28.0 35.3 27.6 4.4 4.0 12.8 15.2 1.3 1.6 Yonghui Superstores - A Hsu, George CNY OW 601933.SS 10.80 0.19 13.00 20.4 14,590 129.0 2019 0.22 0.30 43.6 36.7 48.6 35.6 5.2 5.0 10.8 14.2 1.4 2.0 Mkt Cap Weighted Aggregates 30,469 153.2 41.7 31.4 4.8 4.5 11.9 14.7 1.4 1.8 Independent Power Producers & Energy Traders CGN Power (1816) Hon, Alan CNY OW 1816.HK 1.93 -0.52 2.35 21.8 11,318 6.2 2020 0.20 0.20 -2.5 3.6 9.0 8.7 0.9 0.9 10.7 10.4 4.5 4.7 China National Nuclear Power - A Hon, Alan CNY N 601985.SS 4.41 -1.12 5.45 23.6 9,690 18.5 2019 0.31 0.35 1.8 14.2 14.2 12.5 1.4 1.3 10.1 10.8 2.8 3.2 China Power International (2380) Tsui, Stephen T CNY N 2380.HK 1.54 2.67 1.30 -15.6 1,949 4.6 2019 0.16 0.17 44.6 2.4 8.7 8.5 0.4 0.4 5.2 5.2 5.8 4.1 China Resources Power Holdings (0836) Tsui, Stephen T HKD OW 0836.HK 8.96 -0.88 11.00 22.8 5,527 10.0 2019 1.47 1.59 78.1 8.1 6.1 5.6 0.6 0.5 9.7 9.9 6.5 7.1 Datang International - A Tsui, Stephen T CNY UW 601991.SS 2.12 -0.47 1.20 -43.4 5,538 4.0 2019 0.09 0.08 41.9 -17.8 22.4 27.3 0.8 0.8 3.8 3.1 2.2 1.5 Datang International - H Tsui, Stephen T CNY N 0991.HK 1.06 2.91 1.00 -5.7 2,531 1.0 2019 0.09 0.08 41.9 -17.8 10.3 12.5 0.3 0.3 3.8 3.1 4.9 3.2 Huadian Fuxin (0816) Hon, Alan CNY N 0816.HK 1.28 -0.78 1.31 2.3 1,389 1.8 2020 0.26 0.32 17.3 22.4 4.4 3.6 0.3 0.3 6.2 7.2 5.4 6.6 Huadian Power International Corporation Limited - A Tsui, Stephen T CNY N 600027.SS 3.48 -0.85 2.50 -28.2 4,845 14.3 2019 0.32 0.29 119.0 -8.7 10.8 11.9 0.6 0.6 7.0 6.2 3.7 2.9 Huadian Power International Corporation Limited - H Tsui, Stephen T CNY N 1071.HK 2.38 -0.42 1.90 -20.2 3,029 2.8 2019 0.32 0.29 119.0 -8.7 6.8 7.4 0.4 0.4 7.0 6.2 5.9 4.7 Huaneng Power Int'l - A Tsui, Stephen T CNY UW 600011.SS 4.22 0.48 3.20 -24.2 9,104 18.3 2019 0.30 0.26 535.0 -13.9 14.2 16.5 0.7 0.7 4.9 4.1 4.9 3.0 Huaneng Power Int'l - H Tsui, Stephen T CNY N 0902.HK 2.77 5.32 2.50 -9.7 5,462 13.6 2019 0.30 0.26 535.0 -13.9 8.5 9.9 0.4 0.4 4.9 4.1 8.2 5.1 SDIC Power - A Hon, Alan CNY N 600886.SS 7.39 -1.07 9.15 23.8 7,079 21.4 2019 0.68 0.68 9.5 0.0 10.8 10.8 1.2 1.1 12.2 11.3 3.3 3.3 Mkt Cap Weighted Aggregates 67,461 116.6 11.4 12.1 0.8 0.8 7.9 7.6 4.5 3.9 Industrial Machinery CIMC Enric Holdings Ltd Xu, Patrick CNY OW 3899.HK 3.47 0.00 7.00 101.7 900 2.4 2020 0.52 0.56 12.8 7.7 6.1 5.6 0.8 0.7 13.8 13.7 6.6 7.1 Estun Automation - A Li, Karen CNY OW 002747.SZ 10.70 0.28 15.00 40.2 1,278 25.3 2019 0.13 0.19 4.4 50.7 85.4 56.7 4.9 4.0 6.2 7.9 0.7 0.7 Haitian International Holdings (1882) Xu, Patrick CNY OW 1882.HK 13.98 -1.83 18.00 28.8 2,879 2.6 2020 1.14 1.33 3.1 16.5 11.2 9.6 1.4 1.3 13.3 14.0 2.9 3.4 Han's Laser - A Hariharan, Gokul CNY N 002008.SZ 29.01 -1.66 30.50 5.1 4,370 107.3 2019 0.81 1.36 -50.0 68.4 36.0 21.4 3.4 3.1 9.9 15.2 0.9 1.1 Jiangsu Hengli Hydraulic - A Xu, Patrick CNY UW 601100.SS 68.01 -1.15 38.00 -44.1 8,467 37.6 2019 1.25 1.54 31.8 23.0 54.3 44.2 11.1 9.4 22.2 23.0 0.6 0.7 Shenzhen Inovance Technology Co. Ltd - A Li, Karen CNY OW 300124.SZ 30.20 0.94 38.00 25.8 7,086 48.7 2019 0.62 0.74 -12.0 19.3 48.9 41.0 7.4 6.4 15.7 16.6 0.6 0.7
61 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) Siasun Robot & Automation Co. Ltd - A Li, Karen CNY UW 300024.SZ 13.78 -0.86 11.20 -18.7 3,035 71.2 2019 0.22 0.23 -23.8 4.9 62.8 59.9 3.3 3.2 5.4 5.4 0.3 0.3 Techtronic Industries (0669) Xu, Patrick USD OW 0669.HK 56.95 2.43 78.00 37.0 13,447 41.3 2020 0.38 0.46 14.1 19.2 19.1 16.1 3.5 3.0 19.3 20.2 2.1 2.6 Yinghe Technology - A Wen, Rebecca Y CNY N 300457.SZ 40.68 -2.09 43.00 5.7 2,159 52.0 2019 0.52 1.07 -50.3 103.3 77.6 38.2 4.9 4.3 6.4 12.0 0.1 0.0 Mkt Cap Weighted Aggregates 43,621 388.4 39.6 30.8 5.5 4.7 15.9 17.3 1.3 1.6 Insurance Brokers Fanhua Inc. Kim, MW CNY NR FANH 20.62 0.29 na na 1,341 6.0 2018 na na na na na na na na na na na na Mkt Cap Weighted Aggregates 1,341 6.0 na na na na na na na na Integrated Oil & Gas PetroChina - A Darling, Scott L CNY N 601857.SS 4.55 2.02 5.05 11.0 117,550 90.9 2020 0.06 0.08 -76.2 37.9 76.6 55.6 0.6 0.6 0.8 1.0 1.3 1.1 PetroChina - H Darling, Scott L CNY N 0857.HK 2.70 0.75 3.09 14.4 63,761 71.1 2020 0.06 0.08 -76.2 37.9 41.6 30.1 0.3 0.3 0.8 1.0 2.4 2.0 Sinopec Corp - A Darling, Scott L CNY OW 600028.SS 4.55 0.89 5.84 28.4 77,761 87.7 2020 0.28 0.31 -40.3 10.5 16.1 14.5 0.7 0.6 4.4 4.4 4.4 4.1 Sinopec Corp - H Darling, Scott L CNY OW 0386.HK 3.78 0.53 5.22 38.1 59,051 84.8 2020 0.28 0.31 -40.3 10.5 12.2 11.0 0.5 0.5 4.4 4.4 5.7 5.4 Mkt Cap Weighted Aggregates 318,123 334.5 42.8 32.2 0.5 0.5 2.4 2.5 3.1 2.8 Integrated Telecommunication Services China Telecom (0728) Wei, Michelle CNY OW 0728.HK 2.59 1.57 4.30 66.0 27,047 27.3 2020 0.26 0.28 1.9 9.4 9.2 8.4 0.5 0.5 5.9 6.3 4.9 5.4 China Tower (0788) Wei, Michelle CNY N 0788.HK 1.74 1.16 1.80 3.4 39,516 130.3 2020 0.04 0.05 28.2 27.6 41.8 32.8 1.5 1.5 3.6 4.5 1.2 1.6 China Unicom - H Wei, Michelle CNY OW 0762.HK 5.01 2.24 10.50 109.6 19,780 34.1 2020 0.39 0.44 4.7 13.1 11.8 10.5 0.4 0.4 3.7 4.1 3.4 3.8 Mkt Cap Weighted Aggregates 86,343 191.8 24.7 20.0 1.0 0.9 4.3 5.0 2.9 3.3 Interactive Home Entertainment Bilibili Yao, Alex CNY N BILI 30.20 5.71 25.00 -17.2 9,767 149.5 2019 -4.03 -5.45 51.9 35.1 na na 11.9 16.6 NM NM na na Douyu Chen, Daniel CNY N DOYU 7.25 3.57 7.50 3.4 2,367 11.5 2020 2.29 3.49 1,581.5 52.2 22.4 14.7 2.4 2.0 13.6 16.8 na na Huya Chen, Daniel CNY OW HUYA 15.44 1.78 19.00 23.1 3,581 56.3 2020 3.28 5.71 62.7 74.0 33.4 19.2 2.7 2.3 12.8 15.9 na na NetEase Yao, Alex CNY OW NTES 348.67 1.24 400.00 14.7 45,147 282.3 2020 98.27 117.90 -4.1 20.0 25.2 21.0 5.1 4.4 26.5 27.1 1.2 1.5 Mkt Cap Weighted Aggregates 60,862 499.6 21.5 17.3 6.0 6.1 20.9 21.7 0.9 1.1 Interactive Media & Services Autohome Inc Yao, Alex CNY N ATHM 75.78 -0.49 70.00 -7.6 8,906 54.2 2020 29.04 34.91 8.8 20.2 18.5 15.4 3.5 2.8 22.3 21.4 na na Baidu.com Yao, Alex CNY OW BIDU 101.75 0.34 140.00 37.6 35,333 521.4 2020 33.55 55.68 468.4 66.0 21.5 13.0 1.3 1.1 8.9 12.4 na na BitAuto Holdings Limited Yao, Alex CNY OW BITA 11.51 3.51 18.00 56.4 891 5.0 2019 -0.93 10.29 -89.3 NM na 7.9 0.6 0.5 5.7 7.0 na na Momo Inc Chen, Daniel CNY OW MOMO 22.99 0.92 36.00 56.6 4,792 118.7 2020 13.08 17.09 -0.6 30.6 12.5 9.5 2.4 1.9 21.5 22.2 na na Phoenix New Media Ltd Yao, Alex CNY OW FENG 1.40 6.06 10.00 614.3 102 0.1 2018 na na na na na na na na na na na na Sina Corp Yao, Alex USD OW SINA 33.15 0.27 54.00 62.9 2,438 27.1 2020 0.53 1.02 NM 92.2 62.2 32.4 0.5 0.5 5.8 6.6 na na Sogou Yao, Alex USD UW SOGO 3.31 -1.19 4.00 20.8 1,295 4.4 2019 0.22 0.27 -14.0 23.5 15.1 12.3 1.2 1.1 9.8 10.8 na na Tencent (0700) Yao, Alex CNY OW 0700.HK 411.60 0.54 530.00 28.8 501,243 1229.5 2020 10.66 14.14 9.5 32.6 35.3 26.6 6.4 5.2 22.7 23.8 0.3 0.3
62 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) Weibo Corporation Yao, Alex USD N WB 35.94 1.35 41.00 14.1 8,258 80.6 2020 1.87 2.55 -13.0 36.0 19.2 14.1 2.9 2.4 19.8 21.3 na na Wise Talent Information Technology (Liepin) (6100) Yao, Alex CNY N 6100.HK 16.28 0.12 18.00 10.6 1,095 1.0 2020 0.34 0.59 48.8 70.5 43.3 25.4 2.5 2.3 7.9 11.6 0.0 0.0 YY Inc Chen, Daniel CNY OW YY 60.66 1.56 70.00 15.4 5,039 62.7 2020 5.37 25.20 -87.9 369.3 80.1 17.1 1.4 1.2 8.6 13.8 na na Mkt Cap Weighted Aggregates 569,392 2104.8 34.2 25.1 5.9 4.8 21.5 22.8 0.2 0.3 Internet & Direct Marketing Retail Alibaba Group Holding Limited Yao, Alex CNY OW BABA 209.96 1.26 280.00 33.4 550,830 3571.3 2020 56.68 45.18 69.7 -20.3 26.3 33.0 46.6 38.6 23.2 22.7 na na JD.com, Inc. Chang, Andre CNY OW JD 44.99 4.05 52.00 15.6 65,759 735.5 2020 3.18 8.99 -62.0 182.4 na 35.5 8.8 7.7 9.8 17.2 na na Maoyan Entertainment Wei, Michelle CNY OW 1896.HK 9.99 -1.87 17.00 70.2 1,457 3.0 2020 0.08 0.77 -79.7 824.5 na 11.9 1.1 1.0 2.6 12.2 0.0 0.0 Meituan Dianping (3690) Yao, Alex CNY OW 3690.HK 100.00 -1.28 120.00 20.0 70,851 386.9 2020 0.12 2.23 -71.3 1,811.6 na 41.0 5.8 5.0 3.7 15.6 na na Pinduoduo Inc. Chang, Andre CNY UW PDD 52.15 2.38 21.00 -59.7 68,367 300.4 2020 -3.88 2.51 -36.1 NM na na 16.0 13.0 NM 17.4 na na Tongcheng-Elong (0780) Kim, DS CNY OW 0780.HK 12.46 3.83 16.00 28.4 3,311 9.8 2020 0.21 0.62 -37.8 200.4 54.8 18.2 1.7 1.6 7.7 14.2 na na Trip.com Group Ltd Yao, Alex CNY OW TCOM 23.00 -1.08 36.00 56.5 12,198 233.6 2020 -3.73 10.21 NM NM na 16.0 1.1 1.1 NM 9.0 0.0 0.0 Uxin Yao, Alex CNY N UXIN 1.57 3.29 2.30 46.5 440 3.0 2019 -4.79 -2.59 -68.0 -46.0 na na na na na 30.0 na na Vipshop Chang, Andre CNY OW VIPS 17.55 0.98 20.00 14.0 11,706 104.7 2020 7.87 11.19 33.5 42.2 15.8 11.1 3.0 2.3 23.2 25.4 na na Yunji Inc. Chang, Andre CNY N YJ 3.21 13.43 3.70 15.3 700 0.3 2020 0.79 1.73 NM 120.6 29.0 13.1 4.5 3.3 26.4 35.4 na na Mkt Cap Weighted Aggregates 785,617 5348.5 18.9 30.3 35.4 29.3 17.9 20.9 0.0 0.0 Internet Services & Infrastructure AtHub - A Hariharan, Gokul CNY N 603881.SS 58.33 -2.18 32.00 -45.1 1,734 68.5 2019 0.94 1.23 38.4 30.8 62.1 47.5 10.5 8.9 18.3 20.4 0.3 0.4 GDS Holdings Hariharan, Gokul CNY OW GDS 60.32 3.71 58.00 -3.8 8,908 81.5 2020 -0.35 1.19 -90.3 NM na na 5.5 5.3 2.3 4.5 na na Sinnet - A Hariharan, Gokul CNY OW 300383.SZ 25.54 -2.63 22.30 -12.7 5,551 261.0 2019 0.68 1.16 57.1 71.0 37.5 21.9 4.7 4.0 13.2 19.5 0.4 0.7 Wangsu - A Hariharan, Gokul CNY N 300017.SZ 8.68 -3.45 15.00 72.8 2,981 138.9 2019 0.75 0.64 128.3 -15.2 11.5 13.6 2.1 1.9 19.3 14.3 1.0 2.2 Mkt Cap Weighted Aggregates 19,174 549.9 18.3 12.8 5.2 4.7 9.5 11.8 0.3 0.6 Investment Banking & Brokerage China Galaxy Securities Co (6881) Huang, Jemmy S CNY N 6881.HK 3.72 -1.33 4.60 23.7 4,866 10.4 2019 0.45 0.46 57.6 1.8 7.6 7.4 0.5 0.5 6.7 6.5 4.2 4.2 China International Capital Corporation (3908) Huang, Jemmy S CNY OW 3908.HK 11.06 0.00 18.40 66.4 5,687 19.9 2019 1.03 1.20 21.6 17.2 9.9 8.4 0.9 0.9 10.0 10.8 2.0 2.4 China Merchants Securities Company Ltd - A Huang, Jemmy S CNY UW 600999.SS 17.98 -1.69 8.90 -50.5 17,003 55.2 2019 0.97 1.03 46.7 6.2 18.6 17.5 1.7 1.6 8.4 8.5 1.9 2.0 China Merchants Securities Company Ltd - H Huang, Jemmy S CNY N 6099.HK 8.39 -0.12 9.80 16.8 7,253 1.9 2019 0.97 1.03 46.7 6.2 7.9 7.4 0.7 0.7 8.4 8.5 4.4 4.7 CITIC Securities - A Huang, Jemmy S CNY UW 600030.SS 22.92 -1.16 17.30 -24.5 35,644 622.6 2019 0.98 1.08 26.7 9.7 23.3 21.3 1.7 1.7 7.6 8.0 1.9 2.1 CITIC Securities - H Huang, Jemmy S CNY OW 6030.HK 14.20 -0.56 19.00 33.8 20,186 50.9 2019 0.98 1.08 26.7 9.7 13.2 12.1 1.0 1.0 7.6 8.0 3.4 3.7 GF Securities Co Ltd - A Huang, Jemmy S CNY UW 000776.SZ 13.63 -0.51 10.70 -21.5 14,663 90.8 2019 0.95 1.08 68.9 13.5 14.3 12.6 1.1 1.1 8.2 8.7 2.4 2.8 GF Securities Co Ltd - H Huang, Jemmy S CNY OW 1776.HK 8.11 -0.86 11.80 45.5 7,975 8.1 2019 0.95 1.08 68.9 13.5 7.8 6.8 0.6 0.6 8.2 8.7 4.5 5.1 Guotai Junan Securities - A Huang, Jemmy S CNY UW 601211.SS 16.70 -0.48 12.40 -25.7 20,542 99.9 2019 0.99 1.01 41.5 1.4 16.8 16.6 1.2 1.2 7.5 7.2 2.3 2.4 Guotai Junan Securities - H Huang, Jemmy S CNY N 2611.HK 10.84 -0.37 13.60 25.5 12,188 2.6 2019 0.99 1.01 41.5 1.4 10.0 9.8 0.7 0.7 7.5 7.2 3.9 4.0
63 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) Haitong Securities - A Huang, Jemmy S CNY UW 600837.SS 12.80 -0.54 9.50 -25.8 17,319 177.4 2019 0.78 0.84 72.0 7.6 16.4 15.3 1.2 1.1 7.4 7.5 1.8 2.0 Haitong Securities - H Huang, Jemmy S CNY OW 6837.HK 6.92 0.29 10.50 51.7 8,558 23.1 2019 0.78 0.84 72.0 7.6 8.1 7.5 0.6 0.5 7.4 7.5 3.7 4.0 Huatai Securities - A Huang, Jemmy S CNY UW 601688.SS 17.71 -0.95 14.10 -20.4 17,906 231.8 2019 0.85 0.89 28.1 4.8 20.9 20.0 1.3 1.3 6.6 6.6 1.8 2.0 Huatai Securities - H Huang, Jemmy S CNY OW 6886.HK 12.66 0.32 15.50 22.4 11,701 13.6 2019 0.85 0.89 28.1 4.8 13.7 13.1 0.9 0.8 6.6 6.6 2.8 3.1 Mkt Cap Weighted Aggregates 201,490 1408.2 15.8 14.8 1.2 1.1 7.6 7.8 2.6 2.8 Leisure Facilities Shenzhen Overseas Chinese Town - A Li, Ryan CNY OW 000069.SZ 6.33 1.44 9.00 42.2 7,331 43.7 2019 1.47 1.76 13.9 19.6 4.3 3.6 0.8 0.6 18.9 19.4 5.8 6.9 Mkt Cap Weighted Aggregates 7,331 43.7 4.3 3.6 0.8 0.6 18.9 19.4 5.8 6.9 Life & Health Insurance China Life Insurance - A Kim, MW CNY N 601628.SS 28.09 0.57 29.00 3.2 112,075 67.9 2020 1.56 1.78 -24.2 13.7 18.0 15.8 2.0 1.9 11.1 12.5 1.9 2.2 China Life Insurance - H Kim, MW CNY OW 2628.HK 15.82 0.00 33.00 108.6 57,696 116.6 2020 1.56 1.78 -24.2 13.7 9.2 8.1 1.0 1.0 11.1 12.5 3.8 4.3 New China Life Insurance - A Kim, MW CNY UW 601336.SS 43.26 0.07 19.00 -56.1 19,050 86.1 2020 3.00 4.11 -35.8 37.2 14.4 10.5 1.5 1.3 10.6 13.3 1.7 2.4 New China Life Insurance - H Kim, MW CNY N 1336.HK 24.65 0.20 23.00 -6.7 9,922 40.0 2020 3.00 4.11 -35.8 37.2 7.5 5.5 0.8 0.7 10.6 13.3 3.3 4.6 Ping An Insurance Group - A Kim, MW CNY OW 601318.SS 72.16 0.12 90.00 24.7 186,198 774.8 2020 6.23 8.91 -23.9 43.0 11.6 8.1 1.7 1.5 15.9 19.9 2.6 3.7 Ping An Insurance Group - H Kim, MW CNY OW 2318.HK 78.05 0.32 100.00 28.1 183,512 446.9 2020 6.23 8.91 -23.9 43.0 11.4 8.0 1.7 1.5 15.9 19.9 2.6 3.7 Mkt Cap Weighted Aggregates 568,454 1532.4 12.6 9.6 1.7 1.5 14.2 17.4 2.6 3.5 Life Sciences Tools & Services Genscript Biotech Corporation (1548) Li, David USD NR 1548.HK 13.18 2.49 na na 2,823 14.4 2019 na na na na na na na na na na na na Viva Biotech Li, David CNY OW 1873.HK 4.77 1.27 5.50 15.3 961 2.6 2020 0.29 0.42 53.4 45.7 15.0 10.3 3.0 2.4 20.8 24.5 na na WuXi AppTec - A Li, David CNY OW 603259.SS 102.30 -2.71 120.00 17.3 21,381 197.2 2020 1.46 2.02 29.0 37.7 69.9 50.7 9.2 8.1 14.5 17.6 0.3 0.4 WuXi AppTec - H Li, David CNY OW 2359.HK 109.10 -2.85 120.00 10.0 2,400 16.9 2020 1.46 2.02 29.0 37.7 68.1 49.5 8.9 7.9 14.5 17.6 0.3 0.4 Wuxi Biologics (2269) Li, David CNY OW 2269.HK 121.50 1.25 140.00 15.2 20,343 95.9 2020 0.99 1.41 31.3 42.5 na 78.6 10.9 9.6 12.0 14.9 0.0 0.0 Mkt Cap Weighted Aggregates 47,908 327.0 34.9 58.7 9.2 8.1 12.7 15.5 0.2 0.2 Marine COSCO SHIPPING Holdings Co Ltd - A Li, Karen CNY N 601919.SS 3.79 1.88 4.80 26.6 5,466 17.8 2019 0.31 0.05 154.3 -84.3 12.4 78.7 1.2 1.3 12.3 1.6 0.0 0.0 COSCO SHIPPING Holdings Co Ltd - H Li, Karen CNY OW 1919.HK 2.09 0.00 3.00 43.5 2,755 2.7 2019 0.31 0.05 154.3 -84.3 6.2 39.7 0.6 0.6 12.3 1.6 0.0 0.0 Mkt Cap Weighted Aggregates 8,221 20.5 10.3 65.6 1.0 1.1 12.3 1.6 0.0 0.0 Marine Ports & Services China Merchants Port Holdings Co Ltd (0144) Wong, Calvin C HKD NR 0144.HK 9.08 -0.22 na na 3,866 10.8 2019 1.37 1.44 -37.7 5.4 6.6 6.3 0.4 0.4 5.9 6.1 6.5 6.8 COSCO SHIPPING Ports Ltd (1199) Wong, Calvin C USD OW 1199.HK 3.70 -4.39 10.00 170.3 1,502 3.5 2019 0.09 0.10 -13.7 13.8 5.2 4.6 0.3 0.3 5.8 6.0 7.7 8.7 Shanghai International Port (Group) - A Wong, Calvin C CNY UW 600018.SS 4.29 0.23 5.10 18.9 14,033 21.9 2019 0.41 0.47 -8.5 16.1 10.6 9.1 1.2 1.1 12.0 12.8 3.5 4.1 Mkt Cap Weighted Aggregates 19,402 36.2 9.4 8.2 1.0 0.9 10.3 11.0 4.4 5.0
64 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) Movies & Entertainment Alibaba Pictures Wei, Michelle CNY N 1060.HK 0.94 0.00 1.60 70.2 3,230 5.8 2020 -0.01 0.03 13.1 NM na 33.7 1.6 1.5 NM 5.0 0.0 0.0 China Film - A Wei, Michelle CNY OW 600977.SS 12.36 -0.96 16.00 29.4 3,257 25.5 2019 0.56 0.63 -30.2 11.9 22.1 19.8 2.0 1.9 9.1 9.7 2.3 2.5 IMAX China Wei, Michelle USD N 1970.HK 11.30 -1.91 18.00 59.3 510 0.6 2020 0.09 0.13 -25.8 36.6 15.5 11.4 1.7 1.5 11.9 14.3 2.7 2.8 iQiyi Yao, Alex CNY N IQ 18.43 -0.75 23.00 24.8 11,513 191.0 2020 -11.29 -7.73 -20.2 -31.6 na na 10.4 9.4 NM NM na na Tencent Music Entertainment Yao, Alex CNY OW TME 11.12 1.46 15.00 34.9 17,625 92.9 2020 2.06 2.79 -15.0 35.6 38.3 28.2 2.8 2.6 9.3 11.5 na na Wanda Film - A Wei, Michelle CNY N 002739.SZ 14.99 -1.38 17.00 13.4 4,398 58.1 2019 0.78 0.92 6.4 17.6 19.2 16.3 1.6 1.5 9.4 9.3 0.8 1.0 Zhejiang Huace Film & TV Co. Ltd - A Wei, Michelle CNY N 300133.SZ 7.47 -2.23 8.30 11.1 1,851 27.5 2019 -0.73 0.19 NM NM na 38.4 2.4 2.2 NM 6.0 0.2 0.1 Mkt Cap Weighted Aggregates 42,384 401.4 19.8 19.3 4.5 4.1 5.7 7.3 0.3 0.3 Multi-line Insurance China Pacific Insurance Group - A Kim, MW CNY N 601601.SS 29.21 1.00 27.00 -7.6 35,621 130.2 2020 2.33 2.89 -24.0 24.2 12.6 10.1 1.5 1.4 12.0 14.5 4.1 4.8 China Pacific Insurance Group - H Kim, MW CNY OW 2601.HK 24.00 0.21 29.00 20.8 26,753 64.1 2020 2.33 2.89 -24.0 24.2 9.4 7.6 1.1 1.1 12.0 14.5 5.5 6.4 Mkt Cap Weighted Aggregates 62,374 194.2 11.2 9.0 1.4 1.3 12.0 14.5 4.7 5.5 Office Services & Supplies Shenzhen Selen - A Hariharan, Gokul CNY N 002341.SZ 5.57 -1.24 7.00 25.7 906 86.1 2019 0.32 0.36 24.1 10.6 17.2 15.5 1.2 1.1 7.0 7.3 0.5 0.6 Mkt Cap Weighted Aggregates 906 86.1 17.2 15.5 1.2 1.1 7.0 7.3 0.5 0.6 Oil & Gas Drilling China Oilfield Services Limited - A Mu, Lei CNY OW 601808.SS 12.90 7.77 15.73 21.9 8,689 38.1 2020 0.67 0.84 17.0 24.7 19.2 15.4 1.9 1.7 9.2 11.6 1.2 1.2 China Oilfield Services Limited - H Mu, Lei CNY OW 2883.HK 5.94 1.89 9.00 51.5 3,657 19.9 2020 0.67 0.84 17.0 24.7 8.1 6.5 0.8 0.7 9.2 11.6 2.9 2.9 Mkt Cap Weighted Aggregates 12,346 58.0 15.9 12.7 1.5 1.4 9.2 11.6 1.7 1.7 Oil & Gas Equipment & Services Offshore Oil Engineering Co., Ltd. - A Mu, Lei CNY OW 600583.SS 5.47 10.06 8.44 54.3 3,414 23.3 2020 0.35 0.44 5,512.1 23.2 15.4 12.5 0.7 0.5 5.2 4.3 1.9 2.4 Sinopec Oilfield Service - A Mu, Lei CNY OW 600871.SS 1.99 2.05 2.26 13.6 3,973 12.3 2020 0.06 0.07 19.8 18.0 34.5 29.2 2.6 1.7 10.2 6.9 0.0 0.0 Sinopec Oilfield Service - H Mu, Lei CNY OW 1033.HK 0.58 1.75 0.83 43.1 1,058 0.7 2020 0.06 0.07 19.8 18.0 9.2 7.8 0.7 0.4 10.2 6.9 0.0 0.0 Yantai Jereh Oilfield - A Mu, Lei CNY OW 002353.SZ 26.70 5.58 38.18 43.0 3,610 88.3 2020 1.86 2.38 30.7 28.1 14.4 11.2 2.0 1.6 15.9 16.2 0.8 1.0 Mkt Cap Weighted Aggregates 12,055 124.7 20.9 17.2 1.7 1.2 10.5 8.9 0.8 1.0 Oil & Gas Exploration & Production CNOOC (0883) Darling, Scott L CNY OW 0883.HK 8.44 2.43 11.75 39.2 48,622 141.5 2020 0.58 0.73 -57.8 27.1 13.4 10.5 0.8 0.7 5.7 7.0 4.5 4.5 Mkt Cap Weighted Aggregates 48,622 141.5 13.4 10.5 0.8 0.7 5.7 7.0 4.5 4.5 Oil & Gas Storage & Transportation Sinopec Kantons (0934) Darling, Scott L HKD OW 0934.HK 3.29 7.87 3.79 15.2 1,055 1.5 2019 0.56 0.52 11.3 -8.8 5.8 6.4 0.7 0.6 11.8 9.7 6.0 6.3
65 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) Mkt Cap Weighted Aggregates 1,055 1.5 5.8 6.4 0.7 0.6 11.8 9.7 6.0 6.3 Packaged Foods & Meats Angel Yeast Co - A Yin, Kevin CNY OW 600298.SS 37.63 -0.19 38.80 3.1 4,377 51.2 2020 1.24 1.49 13.6 20.2 30.3 25.2 5.4 4.8 19.1 20.2 1.2 1.4 China Feihe Limited Yin, Kevin CNY N 6186.HK 14.76 0.27 13.80 -6.5 17,013 31.7 2020 0.56 0.68 16.1 20.8 24.1 20.0 7.5 6.1 34.4 33.8 1.7 2.0 China Mengniu Dairy Yin, Kevin CNY OW 2319.HK 27.50 1.48 35.00 27.3 13,873 42.5 2020 1.04 1.28 -1.2 23.6 24.2 19.6 3.0 2.7 13.2 14.5 0.8 1.0 Dali Foods (3799) Yin, Kevin CNY OW 3799.HK 4.75 -0.21 6.40 34.7 8,393 4.6 2020 0.29 0.32 2.4 9.8 15.1 13.8 3.3 3.0 23.0 23.1 4.0 4.4 Haitian Flavoring & Food - A Yin, Kevin CNY OW 603288.SS 125.85 -0.45 130.00 3.3 47,987 76.8 2020 2.34 2.73 18.1 16.7 53.8 46.1 17.0 14.4 34.6 33.9 1.1 1.3 Inner Mongolia Yili - A Yin, Kevin CNY OW 600887.SS 30.73 1.32 32.50 5.8 26,370 235.1 2019 1.13 1.26 6.7 11.7 27.2 24.3 6.1 5.5 21.7 22.2 2.2 2.5 Shuanghui - A Yin, Kevin CNY OW 000895.SZ 41.56 -1.52 42.00 1.1 19,357 91.2 2020 1.82 2.02 10.2 11.3 22.9 20.6 8.0 7.7 35.7 38.3 3.9 4.4 Tingyi (0322) Yin, Kevin CNY OW 0322.HK 13.90 0.43 15.80 13.7 10,075 19.8 2020 0.49 0.53 -17.4 9.0 25.9 23.8 3.8 3.5 12.7 14.1 1.9 2.1 Uni-President China (0220) Yin, Kevin CNY OW 0220.HK 7.75 0.52 9.60 23.9 4,319 4.1 2020 0.33 0.37 5.7 10.0 21.2 19.3 2.2 2.1 10.4 11.1 3.8 4.2 Want Want (0151) Yin, Kevin CNY N 0151.HK 5.61 2.37 7.10 26.6 8,987 13.9 2020 0.29 0.31 5.1 5.7 17.6 16.6 4.0 3.9 23.4 23.8 4.8 5.1 WH Group (0288) Yin, Kevin USD OW 0288.HK 7.78 1.57 10.70 37.5 14,784 45.4 2020 0.10 0.10 -3.9 4.2 10.5 10.0 1.6 1.4 16.5 15.8 4.3 4.5 Mkt Cap Weighted Aggregates 175,535 616.3 30.8 26.8 8.3 7.3 26.2 26.5 2.3 2.6 Paper Packaging Yunnan Energy New Material - A Wen, Rebecca Y CNY N 002812.SZ 51.00 -1.22 40.00 -21.6 5,798 98.4 2020 1.24 1.61 17.7 30.0 41.1 31.6 7.5 6.3 20.0 21.7 0.2 0.5 Mkt Cap Weighted Aggregates 5,798 98.4 41.1 31.6 7.5 6.3 20.0 21.7 0.2 0.5 Paper Products Nine Dragons Paper Holdings Ltd (2689) Wei, Po CNY OW 2689.HK 7.28 -1.75 8.50 16.8 4,408 15.4 2020 0.86 0.87 4.7 0.3 7.7 7.7 0.8 0.7 10.4 9.8 4.4 4.4 Mkt Cap Weighted Aggregates 4,408 15.4 7.7 7.7 0.8 0.7 10.4 9.8 4.4 4.4 Personal Products Hengan (1044) Yin, Kevin CNY N 1044.HK 66.85 0.75 54.00 -19.2 10,262 36.3 2020 3.19 3.07 -2.9 -3.9 19.2 19.9 3.8 3.6 20.6 18.6 3.6 3.4 Shanghai Jahwa - A Yao, Qian CNY UW 600315.SS 30.58 10.00 24.30 -20.5 2,897 22.2 2020 0.66 0.75 -20.6 14.4 46.4 40.5 3.1 3.0 6.9 7.5 0.6 0.7 Mkt Cap Weighted Aggregates 13,159 58.4 25.1 24.5 3.7 3.5 17.5 16.1 2.9 2.8 Pharmaceuticals China Medical System (0867) Yin, Sherry CNY OW 0867.HK 9.43 -0.84 12.00 27.3 3,018 10.1 2019 0.83 0.88 10.9 6.4 10.4 9.8 2.2 2.0 22.8 21.3 3.8 4.0 China Resources Double-Crane - A Li, David CNY N 600062.SS 13.29 2.07 13.00 -2.2 1,957 27.9 2020 1.11 1.23 10.1 10.8 11.9 10.8 1.5 1.3 12.9 12.9 2.3 2.3 China Resources Pharmaceutical Group (3320) Li, David HKD N 3320.HK 4.93 1.23 5.80 17.6 3,998 7.5 2020 0.56 0.63 7.4 12.2 8.8 7.8 0.7 0.7 8.4 8.8 2.4 2.7 China Resources Sanjiu - A Li, David CNY OW 000999.SZ 29.85 -0.03 35.00 17.3 4,125 55.1 2020 1.90 2.15 -12.9 13.4 15.7 13.9 2.1 1.8 13.9 14.1 1.2 1.2 CSPC Pharmaceutical Group (1093) Yin, Sherry CNY OW 1093.HK 15.94 0.76 21.00 31.7 12,827 79.7 2020 0.69 0.88 15.0 28.5 21.3 16.5 4.3 3.6 21.5 23.7 1.6 2.0 Hengrui - A Wang, Ling CNY N 600276.SS 96.05 -1.49 97.00 1.0 59,966 300.2 2020 1.48 1.88 22.5 27.0 64.9 51.1 13.7 10.9 23.5 23.8 0.1 0.1 Shanghai Fosun Pharmaceutical Group - A Li, David CNY OW 600196.SS 36.39 -1.91 37.00 1.7 13,165 230.8 2019 1.25 1.62 18.7 29.6 29.0 22.4 3.1 2.8 11.1 13.2 0.9 1.0
66 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) Shanghai Fosun Pharmaceutical Group - H Li, David CNY OW 2196.HK 29.65 2.24 35.00 18.0 9,806 18.3 2019 1.25 1.62 18.7 29.6 21.6 16.7 2.3 2.1 11.1 13.2 1.2 1.4 Sino Biopharm (1177) Wang, Ling CNY OW 1177.HK 11.26 1.62 13.80 22.6 18,289 88.6 2020 0.26 0.34 19.8 33.4 40.0 30.0 3.8 3.5 11.3 13.4 0.5 0.6 Mkt Cap Weighted Aggregates 127,150 818.2 44.4 34.8 8.1 6.6 18.3 19.4 0.7 0.8 Property & Casualty Insurance PICC Group - A Kim, MW CNY UW 601319.SS 6.27 -0.63 2.70 -56.9 37,548 63.6 2020 0.41 0.51 -20.6 22.7 15.2 12.4 1.3 1.2 9.2 10.4 1.2 1.6 PICC Group - H Kim, MW CNY OW 1339.HK 2.47 -1.59 3.00 21.5 13,569 15.4 2020 0.41 0.51 -20.6 22.7 5.5 4.5 0.5 0.4 9.2 10.4 3.2 4.5 PICC Property and Casualty (2328) Kim, MW CNY OW 2328.HK 7.22 -1.37 10.50 45.4 20,721 31.0 2020 0.84 1.08 -22.6 27.5 7.8 6.1 0.8 0.7 10.7 12.6 4.5 5.7 ZhongAn Online P&C Insurance (6060) Kim, MW CNY N 6060.HK 25.00 -1.77 22.00 -12.0 4,002 22.2 2020 -0.28 0.61 -34.7 NM na 37.4 1.7 1.6 NM 5.4 0.0 0.0 Mkt Cap Weighted Aggregates 75,839 132.3 10.6 10.6 1.1 1.0 9.1 10.8 2.4 3.2 Publishing China Literature Limited (0772) Yao, Alex CNY UW 0772.HK 30.90 1.15 24.00 -22.3 3,581 14.7 2019 1.12 1.36 10.2 21.9 25.3 20.7 1.5 1.4 5.9 7.9 0.0 0.0 Mkt Cap Weighted Aggregates 3,581 14.7 25.3 20.7 1.5 1.4 5.9 7.9 0.0 0.0 Railroads Daqin Railway - A Li, Karen CNY OW 601006.SS 6.82 0.59 12.20 78.9 14,312 29.8 2019 0.92 0.92 -6.0 0.4 7.4 7.4 0.9 0.8 12.5 11.8 6.7 6.8 Guangshen Railway Co Ltd - A Xu, Patrick CNY N 601333.SS 2.36 -0.42 2.40 1.7 2,360 10.1 2020 0.11 0.13 3.4 22.9 21.6 17.6 0.6 0.6 2.6 3.2 2.6 3.2 Guangshen Railway Co Ltd - H Xu, Patrick CNY OW 0525.HK 1.55 0.65 2.60 67.7 1,417 0.9 2020 0.11 0.13 3.4 22.9 13.0 10.5 0.3 0.3 2.6 3.2 4.4 5.4 Mkt Cap Weighted Aggregates 18,089 40.8 9.7 9.0 0.8 0.8 10.4 10.0 6.0 6.2 Real Estate Development Agile Group Holdings Ltd (3383) Li, Ryan CNY OW 3383.HK 8.14 0.37 12.20 49.9 4,114 10.2 2020 2.05 2.28 5.8 11.2 3.6 3.3 0.5 0.5 14.0 15.5 12.9 14.0 China Aoyuan Group Chan, Karl Man Ho CNY OW 3883.HK 8.88 0.79 13.50 52.0 3,083 12.5 2020 2.25 2.83 43.6 26.0 3.6 2.9 1.1 0.9 32.9 32.1 9.7 12.2 China Evergrande Group (3333) Li, Ryan CNY N 3333.HK 12.96 1.89 10.00 -22.8 22,138 44.3 2020 1.79 2.03 36.0 13.6 6.6 5.8 1.0 0.9 14.8 15.4 7.5 8.6 China Jinmao (0817) Li, Ryan CNY N 0817.HK 5.21 0.97 5.60 7.5 7,912 18.0 2020 0.72 0.87 30.5 20.3 6.6 5.5 0.9 0.8 15.2 14.6 6.1 7.3 China Merchants Shekou Industrial Zone Holdings - A Li, Ryan CNY OW 001979.SZ 17.17 3.37 26.00 51.4 19,157 31.9 2019 2.28 2.68 18.4 17.5 7.5 6.4 1.7 1.4 22.0 22.6 6.8 8.0 China Overseas Land & Investment (0688) Li, Ryan HKD OW 0688.HK 26.20 0.58 32.00 22.1 37,039 63.3 2020 5.12 5.73 9.8 11.8 5.1 4.6 0.8 0.7 14.4 14.4 4.8 5.5 China Resources Land (1109) Li, Ryan CNY OW 1109.HK 31.10 0.97 40.00 28.6 28,615 71.5 2020 4.34 4.83 5.5 11.2 6.5 5.9 1.0 0.9 13.0 13.2 4.1 4.7 China SCE Group Chan, Karl Man Ho CNY OW 1966.HK 3.30 0.30 5.60 69.7 1,781 6.4 2020 1.06 1.36 24.3 28.8 2.9 2.2 0.6 0.5 17.8 19.5 9.2 12.5 China Vanke - A Li, Ryan CNY OW 000002.SZ 26.00 -0.50 36.00 38.5 35,689 344.7 2020 4.01 4.65 15.2 16.0 6.5 5.6 1.3 1.1 22.1 21.9 5.2 6.1 China Vanke - H Li, Ryan CNY OW 2202.HK 24.45 -0.20 38.50 57.5 4,978 31.0 2020 4.01 4.65 15.2 16.0 5.6 4.8 1.1 1.0 22.1 21.9 6.0 7.1 CIFI Holdings Chan, Karl Man Ho CNY OW 0884.HK 5.63 1.99 7.80 38.5 5,729 18.3 2020 1.08 1.31 22.2 20.9 4.8 3.9 1.1 0.9 23.0 23.6 7.4 8.9 Country Garden Holdings (2007) Li, Ryan CNY OW 2007.HK 9.62 2.01 14.50 50.7 26,866 42.1 2020 2.19 2.36 22.2 7.7 4.0 3.7 1.0 0.9 28.2 25.1 7.7 8.3 Financial Street - A Li, Ryan CNY OW 000402.SZ 6.69 -0.45 11.00 64.4 2,823 10.1 2019 1.25 1.38 14.5 10.3 5.3 4.8 0.6 0.5 11.3 11.5 6.7 6.7 Gemdale Corp. - A Li, Ryan CNY N 600383.SS 13.16 -0.60 12.70 -3.5 8,385 67.0 2019 2.02 2.35 12.8 16.2 6.5 5.6 1.1 1.0 18.0 18.5 6.0 7.0
67 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) Grandjoy Holdings Group - A Li, Ryan CNY N 000031.SZ 5.29 -0.75 7.00 32.3 2,932 11.9 2019 0.72 0.83 -5.4 14.1 7.3 6.4 1.1 1.0 19.4 15.6 1.9 2.2 Greenland Holdings - A Li, Ryan CNY OW 600606.SS 5.36 -0.56 9.00 67.9 9,207 37.6 2019 1.20 1.48 28.0 23.8 4.5 3.6 0.8 0.7 18.5 20.1 6.4 8.1 Guangzhou R&F Properties (2777) Li, Ryan CNY OW 2777.HK 9.34 -0.11 17.50 87.4 3,883 20.1 2020 3.07 3.39 2.3 10.4 2.8 2.5 0.4 0.3 12.4 12.7 14.3 16.7 KWG Group (1813) Li, Ryan CNY OW 1813.HK 11.32 0.89 14.50 28.1 4,619 13.5 2020 1.89 2.18 -14.6 15.7 5.5 4.7 0.8 0.7 16.0 16.7 9.3 10.7 Logan Property Chan, Karl Man Ho CNY N 3380.HK 11.90 0.51 13.50 13.4 8,449 10.1 2020 2.20 2.67 22.6 21.6 4.9 4.1 1.4 1.0 30.6 28.8 8.1 9.8 Longfor Group (0960) Li, Ryan CNY OW 0960.HK 38.35 1.59 42.00 9.5 29,612 38.3 2020 3.34 3.98 6.8 19.2 10.5 8.8 2.0 1.7 18.5 19.7 4.0 4.7 Midea Real Estate Chan, Karl Man Ho CNY OW 3990.HK 19.00 1.17 30.00 57.9 3,017 5.0 2020 4.23 5.26 17.1 24.5 4.1 3.3 0.9 0.8 23.5 24.7 9.5 11.8 Poly Developments & Holdings - A Li, Ryan CNY OW 600048.SS 15.89 -0.38 22.00 38.5 26,599 189.6 2019 2.33 3.09 46.3 32.8 6.8 5.1 1.4 1.1 20.8 23.2 4.1 5.5 Ronshine China Holdings Chan, Karl Man Ho CNY OW 3301.HK 7.68 -0.26 10.00 30.2 1,700 3.3 2020 2.19 2.56 17.4 16.8 3.2 2.7 0.6 0.5 20.9 20.8 9.3 10.8 Seazen Group Chan, Karl Man Ho CNY OW 1030.HK 6.81 1.49 9.00 32.2 5,183 18.1 2020 1.43 1.67 23.8 17.0 4.4 3.7 1.1 0.9 29.2 26.2 8.0 9.4 Seazen Holdings - A Chan, Karl Man Ho CNY OW 601155.SS 30.65 0.29 43.00 40.3 9,771 70.7 2019 5.21 6.60 47.3 26.6 5.9 4.6 1.8 1.3 34.2 32.7 5.8 7.1 Shanghai Shimao - A Li, Ryan CNY OW 600823.SS 4.07 -0.25 5.60 37.6 2,155 7.2 2019 0.89 1.01 39.1 13.3 4.6 4.0 0.6 0.5 13.4 14.0 12.2 13.8 Shimao Property Holdings (0813) Li, Ryan CNY OW 0813.HK 30.65 0.82 38.00 24.0 13,682 36.6 2020 3.82 4.54 15.5 18.7 7.3 6.2 1.2 1.1 15.9 16.4 5.1 6.1 Shui On Land Ltd (0272) Li, Ryan CNY N 0272.HK 1.29 0.00 1.60 24.0 1,342 1.9 2019 0.34 0.26 43.5 -23.8 3.5 4.6 0.2 0.2 4.0 2.3 9.0 9.1 Sino-Ocean Group Holding Limited (3377) Li, Ryan CNY N 3377.HK 1.90 -1.55 2.20 15.8 1,867 2.8 2020 0.44 0.51 25.7 15.4 4.0 3.4 0.3 0.2 6.0 6.7 10.1 11.7 SUNAC China Li, Ryan CNY OW 1918.HK 33.05 1.23 46.00 39.2 19,793 154.1 2020 6.68 7.10 7.4 6.3 4.5 4.3 1.3 1.0 31.4 26.5 5.5 6.0 Times China Holdings (1233) Chan, Karl Man Ho CNY OW 1233.HK 12.24 -0.65 20.00 63.4 3,067 13.1 2020 3.31 3.91 15.5 18.1 3.4 2.9 0.9 0.7 29.9 28.4 8.9 10.5 Yuzhou Properties (1628) Chan, Karl Man Ho CNY OW 1628.HK 3.21 1.90 5.10 58.9 2,163 4.1 2020 0.91 1.14 29.9 25.4 3.2 2.6 0.6 0.5 19.0 20.2 10.8 13.5 Zhenro Properties Group Chan, Karl Man Ho CNY N 6158.HK 4.90 1.87 4.50 -8.2 2,762 4.0 2020 0.73 0.89 22.6 22.2 6.2 5.0 1.0 0.9 15.0 15.8 3.0 3.7 Mkt Cap Weighted Aggregates 360,111 1413.6 6.1 5.2 1.2 1.0 20.3 20.0 6.0 7.0 Real Estate Operating Companies Poly Property Development Chan, Karl Man Ho CNY N 6049.HK 78.40 -1.94 69.00 -12.0 5,395 18.7 2019 0.95 1.35 55.6 41.6 75.4 53.3 6.7 6.3 16.0 12.5 0.3 0.5 Sichuan Languang Justbon Chan, Karl Man Ho CNY OW 2606.HK 39.15 -2.12 72.00 83.9 900 4.9 2020 3.37 4.41 8.7 30.7 10.6 8.1 2.4 2.0 24.9 27.1 3.8 4.9 Mkt Cap Weighted Aggregates 6,295 23.5 66.2 46.8 6.1 5.7 17.3 14.5 0.8 1.1 Real Estate Services Colour Life Services Chan, Karl Man Ho CNY OW 1778.HK 3.46 -1.42 8.00 131.2 635 1.7 2019 0.38 0.42 8.8 10.1 8.3 7.6 1.2 1.0 14.7 14.6 4.6 5.3 Mkt Cap Weighted Aggregates 635 1.7 8.3 7.6 1.2 1.0 14.7 14.6 4.6 5.3 Regional Banks Bank of Nanjing - A Cai, George CNY N 601009.SS 7.36 -0.14 7.60 3.3 8,812 42.8 2019 1.50 1.48 14.7 -1.3 4.9 5.0 0.8 0.7 14.9 14.0 6.1 5.8 Bank of Ningbo - A Cai, George CNY OW 002142.SZ 23.40 0.30 32.00 36.8 17,205 103.9 2019 2.58 2.71 20.0 5.3 9.1 8.6 1.5 1.3 14.4 13.9 2.0 2.1 Chongqing Rural Commercial Bank (3618) Lei, Katherine CNY N 3618.HK 3.09 -1.28 3.10 0.3 3,987 5.6 2019 0.99 0.93 9.5 -6.3 2.8 3.0 0.4 0.3 12.8 11.3 7.5 7.0 Huishang Bank (3698) Lei, Katherine CNY UW 3698.HK 2.78 2.21 2.50 -10.1 4,360 0.2 2019 0.81 0.83 12.9 1.5 3.1 3.1 0.4 0.3 12.7 10.9 2.6 2.6 Mkt Cap Weighted Aggregates 34,364 152.5 6.5 6.3 1.1 0.9 14.1 13.3 3.8 3.7
68 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) Renewable Electricity Datang Renewable (1798) Hon, Alan CNY OW 1798.HK 0.60 1.69 0.72 20.0 563 0.3 2020 0.15 0.19 33.7 27.8 3.6 2.8 0.2 0.2 8.1 8.4 7.2 9.1 Longyuan (0916) Hon, Alan CNY OW 0916.HK 3.70 -0.54 5.60 51.4 3,837 7.2 2020 0.63 0.69 17.8 9.4 5.3 4.9 0.5 0.4 9.3 9.4 3.7 4.1 Sichuan Chuantou - A Hon, Alan CNY UW 600674.SS 8.51 -1.85 8.45 -0.7 5,288 10.5 2019 0.74 0.74 -9.1 0.0 11.5 11.5 1.4 1.3 12.6 11.6 3.2 3.2 Yangtze Power - A Hon, Alan CNY OW 600900.SS 17.30 0.46 20.55 18.8 53,725 53.2 2019 1.04 1.05 1.0 0.8 16.7 16.5 2.5 2.4 15.6 14.9 3.9 3.9 Mkt Cap Weighted Aggregates 63,413 71.2 15.4 15.3 2.3 2.2 14.9 14.3 3.9 3.9 Research & Consulting Services Centre Testing International Group - A Xu, Patrick CNY N 300012.SZ 16.80 0.72 16.00 -4.8 3,931 61.5 2020 0.33 0.46 14.2 40.8 51.2 36.4 7.7 6.4 16.1 19.2 0.2 0.3 Mkt Cap Weighted Aggregates 3,931 61.5 51.2 36.4 7.7 6.4 16.1 19.2 0.2 0.3 Restaurants Xiabuxiabu (0520) Yin, Kevin CNY OW 0520.HK 6.83 0.00 16.50 141.6 942 5.0 2019 0.53 0.64 22.8 20.5 11.7 9.7 2.6 2.2 23.5 24.3 4.8 9.1 Yum China Holdings Inc Yin, Kevin USD OW YUMC 45.66 2.75 52.00 13.9 17,214 158.2 2020 0.40 1.77 -78.8 343.3 na 25.7 5.6 4.9 4.9 20.3 1.1 1.1 Mkt Cap Weighted Aggregates 18,155 163.1 0.6 24.9 5.5 4.7 5.9 20.5 1.2 1.5 Semiconductor Equipment Daqo Hon, Alan USD OW DQ 47.21 5.71 75.00 58.9 627 17.3 2020 10.81 12.86 397.5 18.9 4.4 3.7 0.9 0.7 23.4 22.2 na na Xinyi Solar (0968) Hon, Alan HKD OW 0968.HK 4.65 -1.69 6.30 35.5 4,849 26.6 2020 0.39 0.49 29.5 26.5 12.0 9.5 1.8 1.6 20.8 23.4 3.9 4.9 Mkt Cap Weighted Aggregates 5,476 43.8 11.1 8.8 1.7 1.5 21.1 23.3 3.4 4.4 Semiconductors LONGi Green - A Hon, Alan CNY N 601012.SS 27.85 -1.07 28.75 3.2 14,838 254.7 2019 1.48 1.51 58.7 2.0 18.9 18.5 3.8 3.2 23.1 19.0 0.7 0.8 San’an Optoelectronics - A Hariharan, Gokul CNY N 600703.SS 20.31 -1.60 13.50 -33.5 11,636 423.4 2018 na na na na na na na na na na na na SMIC (0981) Hariharan, Gokul USD UW 0981.HK 14.56 -2.93 10.50 -27.9 10,875 198.9 2020 0.02 0.03 -46.7 36.2 87.0 63.9 1.7 1.7 2.0 2.6 0.0 0.0 Mkt Cap Weighted Aggregates 37,348 876.9 32.8 25.9 2.0 1.8 9.8 8.3 0.3 0.3 Specialized Finance Far East Horizon (3360) Huang, Jemmy S CNY OW 3360.HK 6.07 -0.98 9.20 51.6 3,095 3.1 2020 1.15 1.30 0.6 13.0 4.8 4.3 0.7 0.6 13.8 14.2 5.4 6.1 Mkt Cap Weighted Aggregates 3,095 3.1 4.8 4.3 0.7 0.6 13.8 14.2 5.4 6.1 Specialty Chemicals Beijing Easpring Material - A Fu, Han CNY UW 300073.SZ 23.58 -1.67 17.00 -27.9 1,454 83.3 2020 0.53 0.85 NM 59.3 44.3 27.8 2.7 2.4 6.9 10.3 0.0 0.0 Ningbo Shanshan - A Wen, Rebecca Y CNY N 600884.SS 10.95 -1.08 10.00 -8.7 1,735 45.7 2019 0.37 0.54 -62.9 47.0 29.7 20.2 1.1 1.1 3.8 5.4 0.7 0.3 Putailai New Energy - A Wen, Rebecca Y CNY OW 603659.SS 70.68 0.40 72.00 1.9 4,342 62.6 2020 2.06 2.40 38.0 16.1 34.2 29.5 7.5 6.3 23.9 23.2 0.6 0.9 Shenzhen Capchem - A Wei, Po CNY N 300037.SZ 38.75 -0.90 21.00 -45.8 2,036 60.7 2019 0.89 1.06 3.8 18.8 43.4 36.5 4.6 4.1 10.6 11.3 0.0 0.0 Tianqi Lithium Corp - A Wei, Po CNY UW 002466.SZ 18.89 -2.07 17.00 -10.0 3,045 280.1 2019 -2.45 0.35 NM NM na 54.0 3.0 2.9 NM 5.5 0.0 0.2
69 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) Wanhua Chemical - A Ong, Parsley Rui Hua CNY OW 600309.SS 42.91 0.14 50.00 16.5 16,560 143.8 2020 3.12 3.69 -3.1 18.1 13.7 11.6 2.8 2.3 21.6 21.5 2.9 3.4 Mkt Cap Weighted Aggregates 29,172 676.1 19.9 21.8 3.5 3.0 17.1 17.8 1.8 2.1 Specialty Stores China International Travel - A Hsu, George CNY NR 601888.SS 86.56 0.74 na na 23,857 171.8 2016 na na na na na na na na na na na na Mkt Cap Weighted Aggregates 23,857 171.8 na na na na na na na na Steel Angang Steel - A Wei, Po CNY N 000898.SZ 2.66 -0.37 3.00 12.8 2,717 8.0 2020 0.12 0.18 -34.5 46.5 21.4 14.6 0.5 0.5 2.2 3.2 1.4 2.1 Angang Steel - H Wei, Po CNY N 0347.HK 1.92 -0.52 2.40 25.0 1,792 4.3 2020 0.12 0.18 -34.5 46.5 14.1 9.6 0.3 0.3 2.2 3.2 2.1 3.1 Baoshan Iron & Steel Co Ltd - A Wei, Po CNY N 600019.SS 4.83 0.00 6.60 36.6 15,182 43.2 2019 0.55 0.57 -43.6 3.5 8.8 8.5 0.6 0.6 6.9 7.0 5.8 6.0 Maanshan Iron & Steel - A Wei, Po CNY UW 600808.SS 2.50 -1.19 2.20 -12.0 2,106 12.9 2020 0.15 0.20 2.9 30.4 16.6 12.7 0.7 0.7 4.3 5.4 3.2 4.4 Maanshan Iron & Steel - H Wei, Po CNY UW 0323.HK 2.24 0.00 2.00 -10.7 501 1.8 2020 0.15 0.20 2.9 30.4 13.6 10.4 0.6 0.6 4.3 5.4 3.9 5.4 Mkt Cap Weighted Aggregates 22,298 70.1 11.6 9.8 0.6 0.6 5.6 6.0 4.7 5.2 Systems Software Aisino - A Zhang, Kevin CNY N 600271.SS 19.43 -1.47 21.00 8.1 5,109 63.0 2019 0.67 1.00 -22.7 48.3 28.9 19.5 3.1 2.9 11.0 15.2 1.7 2.6 Mkt Cap Weighted Aggregates 5,109 63.0 28.9 19.5 3.1 2.9 11.0 15.2 1.7 2.6 Technology Hardware, Storage & Peripherals Inspur - A Hariharan, Gokul CNY N 000977.SZ 39.26 -1.87 27.00 -31.2 7,145 332.9 2019 0.67 0.91 30.2 36.3 59.0 43.3 5.1 4.7 9.1 11.3 0.5 0.4 Lenovo Group Limited (0992) Hariharan, Gokul USD OW 0992.HK 4.26 -1.39 7.00 64.3 6,604 31.7 2020 0.05 0.07 5.4 24.9 10.5 8.4 1.6 1.4 21.6 23.8 6.5 6.5 Xiaomi (1810) Hariharan, Gokul CNY UW 1810.HK 10.16 0.40 9.00 -11.4 31,768 301.1 2020 0.36 0.49 -12.6 35.5 25.9 19.1 2.4 2.1 11.4 13.1 0.0 0.0 Mkt Cap Weighted Aggregates 45,517 665.7 28.9 21.4 2.7 2.4 12.5 14.3 1.0 1.0 Telecommunications Equipment -- Discontinued effective 04/30/2003. BYD Electronic International (0285) Zhang, Kevin CNY UW 0285.HK 16.78 4.22 10.00 -40.4 4,878 33.0 2019 0.71 0.55 -27.0 -22.9 21.6 28.1 2.0 1.9 9.7 7.0 0.6 0.7 Zhongji Innolight - A Hariharan, Gokul CNY OW 300308.SZ 62.08 -0.74 56.30 -9.3 4,166 69.1 2018 na na na na na na na na na na na na Mkt Cap Weighted Aggregates 9,045 102.2 11.7 15.1 1.1 1.0 5.3 3.8 0.3 0.4 Textiles Best Pacific (2111) Yao, Qian HKD N 2111.HK 1.39 0.00 1.80 29.5 186 0.0 2020 0.25 0.32 -12.0 24.0 5.5 4.4 0.5 0.5 9.7 11.0 3.7 4.6 Huafu Fashion - A Yao, Qian CNY OW 002042.SZ 5.30 -0.56 7.70 45.3 1,137 6.2 2019 0.33 0.50 59.3 52.5 16.1 10.6 1.1 1.1 7.1 10.4 3.1 4.7 Luolai Lifestyle - A Yao, Qian CNY N 002293.SZ 8.93 -1.00 8.10 -9.3 1,047 4.3 2020 0.62 0.70 -5.5 13.0 14.3 12.7 1.7 1.6 12.2 12.9 3.5 3.9 Luthai Textile - A Yao, Qian CNY N 000726.SZ 8.41 0.00 9.70 15.3 1,097 6.5 2019 0.85 0.93 -2.7 8.9 9.9 9.1 1.0 1.0 10.7 11.1 5.3 5.8 Pacific Textiles (1382) Yao, Qian HKD N 1382.HK 3.78 -3.57 6.20 64.0 705 2.1 2020 0.57 0.60 -3.8 5.0 6.6 6.3 1.6 1.6 25.0 25.4 13.6 13.5 Mkt Cap Weighted Aggregates 4,173 19.0 11.9 9.7 1.3 1.2 12.5 13.8 5.6 6.3
70 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Price as of Apr 23, 2020 Price Target Price Mkt Avg. Daily EPS EPS Y/Y Growth P/E P/BV ROE Div. Yield Company Name Analyst Reporting Rec RIC Ticker CP D/D TP Upside Cap Turnover First Year FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E FY1E FY2E Curr (%) (%) (US$MM) (US$MM) Estimate (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) Water Utilities Beijing Capital Co Ltd - A Tsui, Stephen T CNY UW 600008.SS 3.24 0.31 2.60 -19.8 2,600 13.3 2020 0.18 0.19 4.6 7.1 18.4 17.2 0.8 0.8 4.6 4.9 2.6 2.8 Beijing Enterprises Water (0371) Tsui, Stephen T HKD N 0371.HK 2.96 -0.67 3.80 28.4 3,824 8.3 2019 0.53 0.56 9.7 6.7 5.6 5.3 0.9 0.9 18.0 17.1 6.6 7.3 Grandblue Environment Co Ltd - A Tsui, Stephen T CNY OW 600323.SS 20.68 0.53 23.50 13.6 2,237 26.6 2020 1.33 1.56 11.4 17.8 15.6 13.2 2.1 1.9 14.6 15.2 1.1 1.2 Guangdong Investment Limited (0270) Tsui, Stephen T HKD OW 0270.HK 15.72 -0.25 19.50 24.0 13,261 19.1 2019 0.78 0.80 1.6 2.6 20.2 19.7 2.5 2.4 12.4 12.4 3.7 3.9 Mkt Cap Weighted Aggregates 21,922 67.3 16.9 16.2 2.0 1.9 12.7 12.6 3.8 4.1 Wireless Telecommunication Services China Mobile (0941) Wei, Michelle CNY OW 0941.HK 61.50 0.08 73.00 18.7 162,481 222.3 2020 5.26 5.50 1.0 4.6 10.7 10.2 1.0 1.0 9.6 9.8 5.2 5.5 China Unicom - A Wei, Michelle CNY UW 600050.SS 5.24 -0.95 4.10 -21.8 22,950 127.2 2020 0.15 0.17 -5.3 9.9 34.5 31.3 1.1 1.1 3.3 3.6 1.1 1.2 Mkt Cap Weighted Aggregates 185,431 349.5 13.6 12.8 1.0 1.0 8.8 9.1 4.7 5.0 JPM Country Average 8,562,683 38289.0 17.9 16.7 6.0 5.1 14.6 15.3 3.0 3.2 Source: Bloomberg, J.P. Morgan Estimates
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71 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
Disclosures
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72 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
J.P. Morgan Equity Research Ratings Distribution, as of April 04, 2020 Overweight Neutral Underweight (buy) (hold) (sell) J.P. Morgan Global Equity Research Coverage 46% 40% 14% IB clients* 52% 49% 37% JPMS Equity Research Coverage 44% 42% 14% IB clients* 75% 68% 57% *Percentage of subject companies within each of the "buy," "hold" and "sell" categories for which J.P. Morgan has provided investment banking services within the previous 12 months. Please note that the percentages might not add to 100% because of rounding. For purposes only of FINRA ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above. This information is current as of the end of the most recent calendar quarter.
Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst or your J.P. Morgan representative, or email [email protected]. For material information about the proprietary models used, please see the Summary of Financials in company-specific research reports and the Company Tearsheets, which are available to download on the company pages of our client website, http://www.jpmorganmarkets.com. This report also sets out within it the material underlying assumptions used. Explanation of Emerging Markets Sovereign Research Ratings System and Valuation & Methodology: Ratings System: J.P. Morgan uses the following issuer portfolio weightings for Emerging Markets sovereign credit strategy: Overweight (over the next three months, the recommended risk position is expected to outperform the relevant index, sector, or benchmark credit returns); Marketweight (over the next three months, the recommended risk position is expected to perform in line with the relevant index, sector, or benchmark credit returns); and Underweight (over the next three months, the recommended risk position is expected to underperform the relevant index, sector, or benchmark credit returns). NR is Not Rated. In this case, J.P. Morgan has removed the rating for this security because of either legal, regulatory or policy reasons or because of lack of a sufficient fundamental basis. The previous rating no longer should be relied upon. An NR designation is not a recommendation or a rating. NC is Not Covered. An NC designation is not a rating or a recommendation. Recommendations will be at the issuer level, and an issuer recommendation applies to all of the index- eligible bonds at the same level for the issuer. When we change the issuer-level rating, we are changing the rating for all of the issues covered, unless otherwise specified. Ratings for quasi-sovereign issuers in the EMBIG may differ from the ratings provided in EM corporate coverage.
Valuation & Methodology: For J.P. Morgan's Emerging Markets Sovereign Credit Strategy, we assign a rating to each sovereign issuer (Overweight, Marketweight or Underweight) based on our view of whether the combination of the issuer’s fundamentals, market technicals, and the relative value of its securities will cause it to outperform, perform in line with, or underperform the credit returns of the EMBIGD index over the next three months. Our view of an issuer’s fundamentals includes our opinion of whether the issuer is becoming more or less able to service its debt obligations when they become due and payable, as well as whether its willingness to service debt obligations is increasing or decreasing.
J.P. Morgan Sovereign Research Ratings Distribution, as of April 4, 2020
Overweight Marketweight Underweight Global Sovereign Research Universe 13% 71% 16% IB clients* 71% 46% 67%
*Percentage of subject issuers within each of the "buy, "hold" and "sell" categories for which J.P. Morgan has provided investment banking services within the previous 12 months. Please note that the percentages might not add to 100% because of rounding. The Sovereign Research Rating Distribution is at the issuer level. Issuers with an NR or an NC designation are not included in the table above. This information is current as of the end of the most recent calendar quarter. Analysts' Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues. Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of J.P. Morgan Securities LLC, may not be registered as research analysts under FINRA rules, may not be associated persons of J.P. Morgan Securities LLC, and may not be subject to FINRA Rule 2241 or 2242 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account. Other Disclosures J.P. Morgan is a marketing name for investment banking businesses of JPMorgan Chase & Co. and its subsidiaries and affiliates worldwide.
73 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
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74 Haibin Zhu Asia Pacific Emerging Markets Research (852) 2800-7039 26 April 2020 [email protected]
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"Other Disclosures" last revised April 04, 2020. Copyright 2020 J.P. Morgan Securities (China) Company Limited and JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P
75 Completed 26 Apr 2020 07:26 PM HKT Disseminated 26 Apr 2020 07:28 PM HKT