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A-Share Strategy 31-July-2015

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2015-07-31 10:48

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[Today’s Guide]
○Growth of pharmaceutical industry is determined with many new policies in the second half year
○Insurance regulators again ask insurance funds not to net sell
○Hexi corridor’ Infrastructure construction and tourism related to the “Belt and Road Initiatives” grow together
○Jilin steps up SOE reform  
 

[XFA View]
Growth of pharmaceutical industry is determined with many new policies in the second half year
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Although stock index has dramatically repeated rising-and-fall, clever investors begin to search for ‘future star’ while panning in the slump. Based on factors, such as determined industrial growth, many new policies expected in the second half year, and etc., medicine board, especially the medicine subsection industries directly benefit from the reform, have attract the investors’ attention.
 
Firstly, preparation of ‘Medical Industry & quot; the 13th 5-year Development Plan & quot; Development Planning’ has been close to finish, and biological medicine and high-performance medical apparatus and instruments are determined as key fields to be broken through. According to investigation and survey of Shanghai Securities News Information, medicine investment industry keeps highly-optimistic attitude towards explosive demand growth in medicine subsection industries such as medical apparatus and instruments, intelligent medical facility manufacturing and so on. Medicine apparatus and investment industry is closely related to ‘Industrie 4.0’, and does not like pharmaceutical industry, which needs massive R&D expenditure and long cycle, therefore, key companies including Truking Technology (300358.SZ) and Chieftain (300430.SZ) will possibly accelerate to make breakthroughs in this field.
 
Secondly, along with wildly-implemented health cost containment policy by Medicare, related commercial insurances will substantially develop. Currently, China’s commercial insurances only take up a tiny proportion in medical insurance, however, the commercial insurances will possibly be the most powerful supplement besides medical insurance based on the related data in overseas developed countries, reversing the downtrend of industrial growth rate caused by current health cost containment policy by Medicare, which will bring about performance growth of companies related to chronic disease management and PBM, including Searainbow (000503.SZ) and Andon Health (002432.SZ).
 
Additionally, it will possibly release the prohibition of selling prescription drug online in the second half year. According to survey of pharmaceutical marketing industry, medical e-commerce will play a leading role to support this industry along with online sale of prescription drug and its connection with medical insurance. Sales volume of medical e-commerce last year only takes up 0.45 percent of medical market, which is a wide gap, compared to market space in America of 30 percent. Actually, State Food and Drug Administration and the State Council recently issued the ‘Administrative Regulations and Guidance’ to encourage the industry to positively improve enterprises’ operating efficiency through e-commerce platform, which receives wide responses among the pharmaceutical marketing field, and some companies including Cachet Pharmaceutical (002462.SZ), Yiling Pharmaceutical (002603.SZ), Jiangsu Kanion Pharmaceutical Co., Ltd. (600557.SH) and etc. have actively expanded cooperation with e-commerce in order to establish a new ‘Blue Ocean’.
 
It is worth noting that apart from the internal impetus of the industry, the pharmaceutical sector is one of the major forces of the upcoming state-owned assets and enterprises reform. Due to a high degree of marketization and fierce completion of the pharmaceutical industry, state-owned pharmaceutical enterprises have only seen an average profit margin of about 5 percent over the past three years, much lower than the 12 percent made by privately-owned enterprises in the same period. Therefore, there is an urgent need to improve the former’s efficiency. Based on the current preparations, the reform of state-owned pharmaceutical enterprises will be carried out in three aspects. Firstly, for state-owned enterprises with advantages in resource and brand, including China National Medicines Corporation Ltd. (600511.SH), China Resources (Holdings) Co., Ltd., Shanghai Shyndec Pharmaceutical Co., Ltd. (600420.SH), China National Accord Medicines Corporation Ltd. (000028.SZ) and Dong-e-e-jiao Co., Ltd. (000423.SZ), an institutional mechanism reform will be adopted to unleash their vigor in operation. Secondly, quality enterprises owned by local state-owned assets supervision and administration commissions, such as Beijing Tongrentang Co., Ltd. (600085.SH) and Yunnan Baiyao Group Co., Ltd. (000538.SZ), will adopt a mixed ownership reform to reinforce their own advantages in brand and scale. Thirdly, for college-run enterprises with flexible mechanism, such as Shanghai Jiaoda Onlly Co., Ltd. (600530.SH) and Shandong Shanda Wit Science And Technology Co., Ltd. (000915.SZ), they will transform and diversify to tap their potentials.
 
[Institutions’ Movement]
Insurance regulators again ask insurance funds not to net sell
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Recently, insurance regulators have again requested insurance funds not to net sell equity investment products in the near future from an overall perspective. Judging from the similar requests previously made by insurance regulators, it has significant deterrent effects on insurance funds in a short term. Since various ministries and commissions have took joint efforts to bail out the stock market less than a month ago, insurance funds have net bought over 110 billion yuan stocks and equity funds. Nevertheless, the emergency measure can hardly sustain in a medium term. As all large and medium insurance institutes in China are commercial, their investment decisions are mostly based on their independent judgment on the market situation.
 
[Hotspot Investigation]
Hexi corridor’ Infrastructure construction and tourism related to the “Belt and Road Initiatives” grow together
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 “Belt and Road Initiatives” investigation and report group from Shanghai Securities News has visited Hexi corridor since mid-July to experience the latest progress of various node cities along the old Silk Road docking with the “Belt and Road Initiatives” strategy. The front-line investigations are as follows.
 
Shaanxi and Gansu Provinces to facilitate opening up
It is learned that Shaanxi Province plans to carry out reform on regional customs clearance integration at ten provinces, regions and cities along the Silk Road Economic Belt. In addition, it is going to quicken building Shaanxi electronic port, internet Silk Road and projects of Xi’an harbor, Xi’an airport and Xi’an railway logistics and distribution center. At present, the China-Europe international freight train named Chang’an starting from Xi’an City is in normal operation and air routes between Xi’an and regions of Central Asia have been opened. 
 
Gansu Province plans to invest 800 billion yuan to establish an international comprehensive traffic center involving highways, railways and civil aviation in six years. Currently, some related projects including Liudong first-class highway of Zhangye City are under progress. Airport of Dunhuang City has been approved for opening and non-stop flights to Seoul and Bangkok will be opened in early next year.
 
To make international high-quality tourism routes and tourism products 
As core of the old Silk Road, Hexi corridor is abundant with culture and tourism resources; therefore, provinces and cities along the corridor has upgraded the development of tourism industry as a key field to dock with the “Belt and Road Initiatives”. Reportedly, Xi’an City has set about making specialized planning of travel to Xi’an of Silk Road and will take the opportunity of hosting ministerial meeting of journey to the Silk Road to conduct in-depth cooperation in tourism development with countries and regions related to the “Belt and Road Initiatives”. Other cities such as Wuwei, Zhangye, Jiayuguan and Dunhuang successively follow Xi’an City. Zhangye City intends to become a tourist destination and visitors center of the Silk Road and make local high-quality tourism products focusing on outdoor sports. Jiayuguan City cooperates with Shenzhen Huaqiang Holdings Limited to develop Fantawild Venture project. Dunhuang City plans to introduce Pingtan Xihang Industrial Group of Fujian Province and make huge investment in setting up new platforms such as the First Silk Road (Dunhuang) International Cultural Expo.
 
 
[XFA Viewpoint]
Jilin steps up SOE reform
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State-owned enterprise reform has been an important means to revitalizing northeast China in the background of a sliding economy in that region. It’s learned that Jilin Province is stepping up the reform of SOEs and will bring them to maturity gradually. Bayanqolu, secretary of the party committee of the province, points out in his article published in People’s Daily on July 27 that Jilin will deepen SOE reform, energetically develop mixed ownership, and improve the capitalization, marketization and securitization level of state-owned assets. Early at the beginning of this year, SOE reform has kicked start robustly. Among the local state-owned listed companies, controlling shareholders of Jilin Ji En Nickel Industry Co., Ltd. (600432.SH) has brought in strategic investors, and Yanbian Shixian Bailu Papermaking Co., Ltd. (600462.SH) has suspended trading to plan major moves. The market expects that reform of other companies will speed up, too.
 
Jilin Forest Industry Co., Ltd. (600189.SH) suspended trading at the beginning of Feb. this year to replan major moves, but due to targeted company’s failing to meet expected demand, the plan has halted there. Up to now, three months allowing no new pan have passed; viewing the reform orientation of the state-owned forest farms and the company’s sliding main business, expectation for the company to push forward integration still exists.
 
Changchun Jingkai (group) Co., Ltd. (600215.SH) is mainly engaged in real estate business and has quite poor profitability and opaque prospect. In 2010, the company changed its main business through asset replacement with the intention to get out of the meager profit predicament.
 
Jilin Expressway Co., Ltd. (601518.SH) disclosed in March of last year that its controlling shareholder Jigao Group has reported the fact of failing to fulfill the promise of injecting asset into Jilin Expressway in time to Jilin Provincial Communication Department. The Department has released “the Work Plan for Injecting Asset into Jilin Expressway Co., Ltd.”, proposing to inject the service area of Changping expressway and the operating rights of advertising into the company.
 
 
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