Early Bird

Early Bird 29-June-2015

2015-06-29 13:55

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[Today's Guide]
> Both interest rate and RRR cut rarely, stock market to stabilize
> Privately-owned bank approved by regulators, piloting scope might expanded
> New driverless product of Google sees road test, intellectualization of automobile irresistible
>Shareholding in CNCR-IT and other companies increase, Hengkang Medical proposes high share conversion
[XFA Focus]
○Both interest rate and RRR cut rarely, stock market to stabilize
The central bank announced that from June 28, the interest rates for one-year lending and deposits are cut by 25 basis points (bps) and the requirement reserve ratio (RRR) for commercial banks serving rural areas, agriculture and small businesses are cut by 50 bps. Lu Lei, head of research bureau of the central bank, indicated that the application of both quantitative tool and price tool shows sufficient consideration of macro economy operation and financial stability.
Comment: This is the first reduction of both interest rate and RRR in more than six years. Interest rate cut can directly reduce enterprises’ interest expense. The targeted RRR cut can release a base money of over 120 billion yuan and the figure can be expanded to 600~700 billion yuan under multiplier effect, according to estimation. At present, the basic pattern formed by reform dividend, sufficient liquidity and resident’s increasing equity asset is not changed. The reduction of both interest rate and RRR launched after sharp drop of the stock market will help to stabilize market sentiment. The previous bull market driven by leverage will be hard to happen again. As for investment themes, the second batch of central enterprises piloting reform, capacity cooperation along “One Belt and One Road”, performance growth forecast in semiyearly reports, staff shareholding plan, etc. are concerned by institutions.
[XFA Selection]
○Chinese Premier Li Keqiang left Beijing to visit Europe on June 28, planning to sign a series of cooperation agreements with France in areas including nuclear power, aviation, etc.
○Chinese vice Premier Liu Yandong indicated on June 26 that Chinese government will invest 130 billion U.S. dollars in removing air pollution in Beijing and surrounding areas in next three years.
○Leaders from State Information Center indicated on June 26 that China now has more than 500 cities piloting intelligent city with planned investment exceeding one trillion yuan.
○The total profit of companies with annual revenues exceeding 20 million yuan sees a year-on-year drop of 0.8 percent in the first five months of this year. Industries including aerospace vehicles, communication equipment, etc. see large growth.
○The IPO applications of six companies including Bank of Jiangsu, Zhoushan Port Co., Ltd. will be reviewed on July 1.
[Industry Information]
○Privately-owned bank approved by regulators, piloting scope might expanded
The State Council Information Office held press conference in the afternoon of June 26. Shang Fulin, head of China Banking Regulatory Commission (CBRC), introduced situations about encouraging private capital to enter banking industry, etc. He indicated that CBRC will accept applications of setting privately-owned banks by qualified private capital according to the laws from now on.
Comment: The General Office of the State Council recently transmitted the guidance on promoting the development of privately-owned banks, actively encouraging qualified private enterprises to set privately-owned banks according to the law. The industry predicts that the piloting scope of privately-owned banks will see opportunity of expansion. Data shows that multi listed companies are now planning for the second batch of privately-owned banks. Yonker Environmental Protection Co., Ltd. (300187.SZ) and Hunan Hansen Pharmaceutical Co., Ltd. (002412.SZ) are involved in the preparation of Hunan Sanxiang Privately-Owned Bank, holding 14 percent and 15 percent equities, respectively. Kingfa Sci. & Tech. Co., Ltd. (600143.SH) plans to invest 1.5 billion yuan to acquire 30 percent equities of Huacheng Bank.
○New driverless product of Google sees road test, intellectualization of automobile irresistible
As reported by foreign media, Google recently indicated that it has started road test of its new driverless automobile prototype in California. The product sees a limited speed within 25 miles/hour and applies the same automatic drive software with previous Lexus type. Google’s Lexus RX450h SUV driverless automobile has been operated for years and its mileage exceeds 1 million miles.
Comment: Under the demonstration effect of Google, intellectualization trend of domestic automobiles becomes irresistible. Alibaba Group has joined hands with SAIC Motor Corporation Limited (600104.SH) to develop cooperation in Internet automobile area, while Baidu Inc. (NASDAQ:BIDU) announced launch of driverless automobile in the second half of this year. McKinsey & Company predicts that the output value of driverless automobile will be around 200 billion~1.9 trillion U.S. dollar by 2025. Among listed companies, Zhejiang Jingu Co., Ltd. (002488.SZ) announced in May to invest in Suzhou INVO Automotive Electronics Company Limited, a solution provider of vehicle intelligent driving, to acquire 20 percent equities. The company recently also launched a private placement plan aiming at actual controller and its stock price has dropped below the offering price of the private placement; Zhejiang Asia-pacific Mechanical & Electronic Co., Ltd. (002284.SZ) invests in Shenzhen Forward Innovation Corporation and Tima Networks Inc. in succession to add stakes in driverless driving.
 [Announcement Interpretation]
○Shareholding in CNCR-IT and other companies increase
Three senior management of a subsidiary of Hangzhou CNCR-IT Co., Ltd. (300250.SZ) totally increased the shareholding of the company by approximately 301,000 shares with an average transaction price of 59.56 yuan to 64.69 yuan per share. The latest stock price of the company is 60.08 yuan. The controlling shareholder of CITIC Guoan Wine Co., Ltd. (600084.SH) bought 21,996,000 shares of the company at 11.55 yuan per share on June 25 and 26, increasing the shareholding by 1.96%. It plans to increase the shareholding again in the following half year and the total increase in the shareholding shall not exceed 2 percent in one year (including the current increase).
The employee shareholding plan of Jolywood (Suzhou) Sunwatt Co., Ltd. (300393.SZ) has completed the purchasing of stocks. It bought 525,000 shares at an average price of 81.89 yuan per share. The employee shareholding plan of Huafu Top Dyed Melange Yarn Co., Ltd. (002042.SZ) is under progress. It has bought 7.25 million shares at an average price of 12.06 yuan per share.
○Great Wall Movie and Television to control Zhongying Cultural Development
Great Wall Movie and Television Co., Ltd. (002071.SZ) proposes to acquire 51 percent equities of Zhejiang Zhongying Cultural Development Co., Ltd. with 130 million yuan. It will adjust the acquisition consideration based on the respective and total net profit of Zhongying Cultural Development from 2015 to 2017.
○By-health to develop cross-border e-business with RMB160 mln
By-health Co., Ltd. (300146.SZ) plans to invest 160 million yuan in Shenzhen YKS Technology Co., Ltd. to obtain 10 percent of its shares. YKS Technology will be a strategic partner of the company in developing cross-border e-business. It will conduct deep cooperation with the company in the supply chains and the import of health products, new sales channels, e-business sales models, big data and other fields and build a cross-border e-business platform in the big health industry.
Based in the performance commitment, the net profit of YKS Technology in 2015 and 2016 will be no less than 70 million yuan and 97 million yuan, respectively. If it is approved to be listed in China, the commitment will lapse automatically.
○Visual China to acquire 73 pct equities of eSoon Group
Visual China Group Co., Ltd. (000681.SZ) intends to acquire 73 percent equities of eSoon Group with 188 million yuan in cash. The latter is a provider of solutions and construction of call centers and its solutions are applied in the contact center of enterprises, cloud contact centers, voice applications and other industries.
[Financial Reports Express]
○Hengkang Medical and CORPRO Technology propose high share conversion in interim reports
Hengkang Medical Group Co., Ltd. (002219.SZ) proposes a 15-for-10 conversion of capital surplus into shares according to its interim report. Chengdu CORPRO Technology Co., Ltd. (300101.SZ) proposes a 10-for-10 conversion of capital surplus into shares according to its interim report.
[Companies Hotspot]
○Er-Kang Phar. to establish Internet plus phar. excipients platform
XFA learnt that Hunan Er-Kang Pharmaceutical Co., Ltd. (300267.SZ), Anhui Sunhere Pharmaceutical Excipients Co., Ltd. (300452.SZ), Boai Nky Pharmaceuticals Ltd. (300109.SZ) and other companies intend to participate in the establishment of the ‘service platform for online transaction of pharmaceutical excipients’. The platform is led by Er-Kang Phar. with the participation of the whole industry. It strives to establish a new model with the Internet plus pharmaceutical excipients ecological cycle. The total output of the pharmaceutical excipients industry is 54 billion yuan currently. The threshold of the industry will be raised in the future driven by the platform, which will make the leading enterprises even stronger.
[Weekly Review]
○Central bank releases easing policies, bull market to survive
The stock market continued to plunge last week. The A-share market was dominated by the wave of declining by the daily limit of 10 percent with more than 2,000 stocks plummeting by the daily limit. The State Council removed the loan-to-deposit ratio and the central bank conducted repurchasing, which was misinterpreted by the market that the cut of benchmark interest rate is not expected. The strict inspection on off-market margin financing by the China Securities Regulatory Commission (CSRC) and the increase of stocks supply resulted in the exit of various profit-making stocks and the losses exceeding the margins for various financing stocks. The crazy bullish market has become a crazy bearish market.
Under the pessimistic atmosphere, the central announced the cut of benchmark interest rate on the weekend, resolutely showing the intention of the management to stabilize the market and investors’ sentiments.
Focus on the momentum in a surging market and the quality when it falls. XFA focuses on individual stocks with high quality and performance potential. Wuhu Shunrong Sanqi Interactive Entertainment Network Echnology Co., Ltd. (002555.SZ), which expected increase in the interim report, Hangzhou Hikvision Digital Technology Co., Ltd. (002415.SZ) and Guangdong Dahuanong Animal Health Products Co., Ltd. (300186.SZ), which were bought by institutes, all outperformed with outstanding performance. Sichuan Jinlu Group Co., Ltd. (000510.SZ), Inspur Software Co., Ltd. (600756.SH) Hebei Huijin Electromechanical Co., Ltd. (300368.SZ) Shanghai SMI Holding Co., Ltd. (600649.SH) and other stocks conducted reorganizations became even stronger. They can be served as last choices to prevent plunging.
It is better to focus on the long-term benefits other than the current conditions. Investors are advised not to care about the losses and benefits in short term. There are always opportunities in the market and the key is to seize opportunities when they arise. What will be the future of the SOEs reform? Will financial stocks become the pillars of the market? XFA’s reasonableness will always accompany you in sunny days as well as dark nights.
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