Investment Daily 23 December 2019 Major Market Indicators 20 Dec 19 Dec 18 Dec Market Overview Mkt. Turn.(mn) 93,400 79,300 94,400 HK Stock Activities might slow down ahead of long holiday; Stock Advances 839 741 769 Accumulate 5G concept stocks during weakness Stock Declines 856 910 887 US Treasury Secretary Mnuchin said that China and the United States will sign the first-phase trade agreement in early January next year; Hong Kong stocks resumed HSI 27,871 27,800 27,884 upward momentum on Friday. The Hang Seng Index closed at 27,871 points, up 71 Change +71 -84 +41 points, which is still capped by the resistance of 28,000; the H-Share Index rose 44 HSI Turn.($bn) 36.59 28.18 37.08 points to 11,030 points, while the market turnover was HK$93.4 billion. Link Reits HSCEI 11,030 10,986 11,025 (823) purchased properties in Sydney, Australia for 683mn Australian dollar, stock Change +44 -39 +60 price rose 2.8%. The recently announced Chinese telecommunications industry HSCEI Turn.($bn) 30.36 23.66 35.37 revenue improved in November, while the shares price of the three major telecommunications operators rose 1.6-3.6% on Friday. US President Trump last Friday said he had a “very good talk” with Chinese President HSI Technical Indicators Xi Jinping and a formal signing of a partial U.S.-China trade deal is being arranged. 10-days MA 27,317 Besides, US consumer spending growth for the third quarter was revised higher to 50-days MA 26,908 3.2% from 2.9%. US stock market rose last Friday. All the three major US stock index 250-days MA 27,500 hit record high again, which rose 0.3-0.5% last Friday. 14-days RSI 64.98 On the other hand, after recent rally, oil price retreated last Friday, fell 1.2% to Primary resistance 28,000 US$60.4 per barrel. Looking ahead this week, in view of the lack of major events as Primary support 27,500 well as only three and a half trading days, holiday mood will dominate the US stock market in the near term. HS CEI Technical Indicators China and US trade deal is likely to be signed in early January. Besides, China 10-days MA 10,754 government announced measure to enhance the financing of private owned enterprises 50-days MA 10,596 as well as allow them to participate in major industries, which will boost market 250-days MA 10,726 sentiment. However, ahead of long holiday, market activities might slow down, which 14-days RSI 64.98 will limit market upward momentum. Primary resistance 11,500 For individual stocks, Alibaba hit new high in the US ADR market with strong market Primary support 11,000 turnover, which is likely to be the market focus in the near term. On the other hand, 5G concept stocks suffered from profit taking pressure in the past few trading days. However, as 5G prospect remained good, investors could accumulate during HSI Futures weakness. 20 Dec 19 Dec 18 Dec Nov 27,940 27,804 27,917 Technical Analysis Volume 147,631 120,309 139,035 The Hang Seng Index rose 71 points on Friday with trading volume $93.42 billion. Open interests 132,251 133,724 136,181 Although it closed with white candlesticks, there was great resistance at 28,000 points. Dec 28,019 27,885 27,998 The VHSI continues to stay at recent low, but the RSI and MACD continued to show signs of weakening, and the STC index also stay at overbought region, which may Volume 12,135 2,692 2,190 limit the market performance. The first support of the Hang Seng Index is 27,500 Open interests 22,067 12,316 9,778 points, the second support is 27,000 points, on the other hand, the first resistance is HSCEI Futures 28,000 points, and the second resistance is 28,200 points. 20 Dec 19 Dec 18 Dec HSI Chart Nov 11,063 10,973 11,022 Volume 60,505 59,393 77,288 Open interests 236,887 240,414 239,660 Dec 11,094 11,006 11,053 Volume 24,995 10,494 3,817 Open interests 27,217 43,897 34,128 Sources ：Google Investment Daily Daily Focus China Telecom Industry: Latest update The Ministry of Industry and Information Technology announced that the China Telecom(728) Info telecommunication business revenue in the first eleven months of 2019 had totaled RMB 1,203.9 billion, a year-on-year increase of 0.5%. For November, Closed price 3.13 telecom revenue wasRmb106.6 billion, an increase of 3.2% year-on-year. Expected P/E (X) 10.1 For the first eleven months of 2019, the three telecommunications companies realized fixed network revenue of Rmb383.8 billion, a year-on-year increase of Dividend yield (%) 3.9 9.4%, which was an increase of 0.1 percentage point from first ten months; the 52 week high 4.41 first eleven months mobile network revenue was Rmb820.5 billion, a decrease 52 week low 2.91 of 3.2 %, but was already0.3 percentage points better than in the first ten months. 14RSI 55 On the other hand, China Mobile (0941) announced that there was a net increase of 2.96 million mobile customers in November, the growth rate accelerated; of which 4G customers had a net increase of 3.97 million monthly. In contrast, China Telecom (0728) slowed down in November, with a monthly increase of 1.86 million mobile subscribers, of which 4G subscribers increased by 1.93 million. On the other hand, China Unicom (0762) had a net reduction of 860,000 mobile billing subscribers in November, but 4G subscribers still saw a net increase of 1.83 million. In fact, the three mainland telecom operators share price fell to recent year low in early December, as investors concerned the impact from the implementation of mobile number portable. However, China telecom industry revenue improved in Oct and Nov, especially for the mobile service. It might reflect that mobile service price war has been cool down. Hence, we are not too bearish of mobile bumber portable impact on the telecom operator revenue and profit in 2020. For 5G business, since it is still at initial stage, the revenue impact in 2020 will not be too substantial. On the other hand, since all three telecom operators will adopt prudent attitude toward handset subsidies as well as 5G capex, we believe that it will not have much burden on their profit and balance sheet. Overall speaking, we believe that 2020 is a flat year for China telecom operators. However, telecom operators such as China Mobile (0941) and China Telecom (0728) valuation below 11x FY19 prospective P/E, valuation is not demanding. Of which, our preference remain on China Telecom, given its higher profit growth as well as anticipated synergy from the co-ordination on 5G network with China Unicom. Analyst: Samuel Chua, CFA http://www.kgieworld.com 23 December 2019 2 Investment Daily Link REIT(0823): Expand portfolio mix to overseas market The company announced that it acquired a target property, A grade commercial office building stratum tower located at 100 Market Street, Sydney, Link REIT(0823)Info Australia, from certain funds managed by Blackstone at approximately Closed price 81.1 AUD683 million (approximately HK$3.67 billion) Expected P/E (X) 28 The targeted property has a total net lettable area of approximately 28,385.3 square metres and is s 100% occupied by three tenants, being: (i) an S&P/ASX Dividend yield (%) 3.6 100 listed property investor; (ii) a Commonwealth government body; and (iii) a 52 week high 98.38 sovereign wealth fund. The weighted average lease expiry (by rental income) of 8.45 years with leases expiring between 2027 and 2030 and the net passing 52 week low 74.23 income of approximately AUD26.7 million per year. 14RSI 54 Base on the passing income of approximately AUD26.7 million, the rate of return is about 4% and is higher than the capitalization rate of office properties in Hong Kong. In addition, although the company's gearing ratio will rise from 12.1% to 13.5%, it is still at a relatively low level. As the newly acquired project only accounts for less than 2% of the company's portfolio value, the positive impact on the results performance may be limited. But the acquisition is expected to diversify the company's property portfolio mix, and to capture the opportunities outside China and Hong Kong. The company expects that the Hong Kong properties will account for 70% to 75% of the total property value, no more than 20% for mainland properties and no more than 10% for overseas properties. While the customer’s type, retail will still be the focus, and office properties will increase to 15% to 20%. In fact, the company will continue to look for asset enhancement opportunities and aim to achieve double-digit return on investment. Moreover, it will also set up set up Mainland China headquarters at Link Square to provide centralized management of expanding portfolio in Mainland China. The company owns 126 properties in Hong Kong and five properties in Mainland China. As the company’s properties in Hong Kong are mostly connected to public housing estates, it has sizeable catchments and good connectivity. As at 30 September 2019, occupancy rate for the portfolio remained stable at 96.9% and the overall portfolio reversion rate stood at 18.1%, however it was the lowest since FY2008.