[Today’s Guide]
○More effective investments to maintain stable growth
○Capture potential chances in private placement terminated by force
○Evaluation on children’s drugs expected to quicken, market size to enlarge quickly
○Institutions: Liuguo Chemical’s main business picks up
[Authoritative Voice]
More effective investments to maintain stable growth
------
Faced with prominent problems, such as high pressure on economic downtrend, operation difficulties of some enterprises, structural contradictions between insufficient new power to stimulate economic growth and subdued old drives, and etc., it is still a key point to add effective investment for stable growth and such intensity can only be increased. As it is known, related central ministries and commissions are paying close attentions to the portrait connection with local governments, deepening significant reforms like online parallel connection examination, approval and record for projects, and improving examination and approval efficiency for investment projects. At the same time, they are detailing the major engineering project list, innovating related mechanisms, policies and measures connecting to cooperation with banks, enterprises and society, for example, issue of special project construction bond through policy banks, and supplementing local construction project capital fund. Besides connecting to national strategies like ‘One Belt and One Road’, the alternative projects are mainly related to infrastructure and people’s livelihood, such as security housing, water conservancy, urban pipe gallery, fuel gas and etc.
According to data in the first half, infrastructure investment increased 19.1 percent, which is 7.7 percentage points higher than the whole investment growth rate. It contributed 26.7 percent to the whole investment, representing a growth of 5 percentage points compared with the corresponding period of last year. It means that effective investment is playing a positive role in maintaining stable growth.
[XFA View]
Local investments possibly to expand in H2
------
According to fixed-asset investment data from authorities, the actual investment growth in about 70 percent of the 25 provinces, which proposed clear targets on investment growth for this, are lower than expectation. It means that local investments are not satisfying in the first half. Based on the analysis on the latest information mastered by the author, the weak local investments will obviously improve in the second half. The growth rate and total amount are expected to increase greatly.
Firstly, based on the practice in previous years, only a few projects initiate construction in the first quarter due to weather conditions and the home-returning of migrant workers during the Spring Festival. As local governments seldom increase investments before the two sessions, more investments will be made from April. Local governments often suddenly spend large amounts in the last two months before the year end. Therefore, investment in the second half takes up a huge proportion. Taking the nine provinces in central and western China for examples, which have proposed clear investment scale targets in the government work report at the beginning of the year, they just have completed one third of the planned investment in the first half. It means that there is still two thirds of the targeted scale to complete in the second half, and over 8 trillion yuan investment will be released as planned.
Secondly, on the meeting held on July 30, the Political Bureau of the CPC Central Committee reaffirmed that “holding fast to the proactive fiscal policy”. This indicates that the central revenue with 2.6 trillion yuan available in deficit will spare more to investment in the second half of this year, especially on major projects. This move will undoubtedly push forward regional investment.
Thirdly, the current budget for local government bonds is 2.6 trillion yuan, including 2 trillion yuan for local debt replacement, and it is expected that another 1 trillion yuan will be replaced soon. But up to now, the size of local government bonds is only 1.4 trillion yuan; calculated by the net increase of 3.6 trillion yuan, nearly 2 trillion yuan of bonds would be intensively issued in the second half. This move, on one hand, reduces the interest burden of local government, and on the other, further improves the investment ability of local government.
To ensure the principle direction of transformation and innovation in economic development, stabilizing growth must serve as the basis in the short term. So, strengthened central and local financial investment is an event of great possibility and will beef up infrastructure construction considerably. Especially in central and western regions where investment is intensive, the local infrastructure, urban construction and building materials enterprises might benefit first.
[Hotspot Investigation]
Capture potential chances in private placement terminated by force
------
Influenced by multiple factors such as the vibration of stock index, more than 120 companies have announced the termination or the termination of the plan on significant events including private placement. Excluding the companies that have suspended or resumed trading purely to avoid market plunge, there are still some companies that have real private placement plan but were forced to terminate, in which potential investment opportunities exist. Investors can pick these companies out in consideration of their past private placements, operation intention and subsequent actions.
The first is their past private placements. Though some companies disclosed the intention for private placement, they didn’t release any related proposals, while some companies have released complete proposals for private placement. Comparatively speaking, the latter has “more real” demand for private placement. Especially the companies that have confirmed their subscribers and fundraising projects, they are not only likely to restart their plans, but because of their full preparation, their enforcement efficiency would be much higher. Sf Diamond Co., Ltd. (300179.SZ), Hangzhou Cable Co., Ltd. (603618.SH), Dr. Peng Telecom and Media Group Co., Ltd. (600804.SH) and Shimge Pump Industry Group Co., Ltd. (002532.SZ) have all published their proposals for private placement with fixed price and clear subscribers; the mere reason for their suspension is that the current stock price is lower than the offering price of private placement. In light of the urgency of their fundraising programs, they are highly likely to restart their private placement plans.
Secondly, operation intention. At present, private placement has become an important way for many listed companies to have industrial transformation. For them, termination of private placement is temporary and it will be certainly restarted in due time. Taking Sichuan Huiyuan Optical Communications Co., Ltd. (000586.SZ) for example, under the circumstances that its actual controller is under residential surveillance and its back-door listing plan fails, the termination of private placement worsens the company’s operation prospect, but it is possible that the company is preparing for new capital operation plan. Similar case happens to TongLing Zonfa Trinity Technology Co., Ltd. (600520.SH). The actual controller of the company has changed before the planning of private placement, highly increasing the possibility of high-quality asset injection into the company in the future.
Thirdly, subsequent actions. Reportedly, many companies which are forced to terminate private placement are preparing subsequent measures so as to improve corporate value. For example, just after announcing termination of private placement plan, Wedge Industrial Co., Ltd. (000534.SZ) put forward new investment plan that it will invest near 100 million yuan in participating in Korean semi-conductor enterprises and setting up a joint-venture firm to lay foundation for its business transformation. Hunan Fangsheng Pharmaceutical Co., Ltd. (603998.SH) also took investment strategy to establish a genetic company right after terminating its private placement plan. This suggests that the theory of “when it is dark in the east, it is bright in the west” has become a common strategy for this kind of companies to deal with the unfavorable market situations.
[Industry Observation]
Evaluation on children’s drugs expected to quicken, market size to enlarge quickly
------
XFA has interviewed several domestic drug evaluation experts on the strictest new drug evaluation and inspection plan, which was released by China Food and Drug Administration (CFDA) in late July. Reportedly, this plan is in favor of firms engaged in children’s drugs besides the leading pharmaceutical enterprises and research and development companies. The children’s drugs will be listed in catalogue of badly-needed drugs and may queue up separately in the future, indicating that evaluation on children’s drugs is expected to quicken. Children's intensive treatment drugs are included in clinical catalogue of badly-needed drugs and probably will have green pass, which will stimulate enterprises’ passion in research and development. According to the forecast by CFDA, the sales amount of Chinese children’s drugs in 2015 will keep double-digit growth on annual average and is expected to reach 66.9 billion yuan by the end of this year. Chinese children’s drugs market sees rapid growth and possesses huge potential in substituting the imported ones.
Hainan Honz Pharmaceutical Co., Ltd. (300086.SZ), as a leader in pediatric drugs in China, pays much attention to the research, development and input of new products and technologies. The company has set up a pharmaceutical synthesis laboratory and other technology platforms. It also has established long-term technical partnership with prestigious Chinese colleges and scientific research institutions. In addition, Honz Pharmaceutical also sets up a joint venture with Hunan Hongya Genetic Technology Company Limited to expand its business in precision medicine and the development and operation of individualized medical test project for infants.
Yabao Pharmaceutical Group Co. Ltd. (600351.SH) proposes to enrich its production lines of pediatric drugs through extensive acquisition. Last year, the company ranked at 11th place among the top 20 medical research and development companies in China. Its Guiyuan tablets and new diabetes drugs will become the highlight in the future.
[Information Radar]
Institutions: Liuguo Chemical’s main business picks up
------
Institutions recently have conducted intensive surveys on Anhui Liuguo Chemical Co., Ltd. (600470.SH) and focused on the operation of its main business, phosphatic fertilizer. Since the beginning of this year, the capacity of phosphatic fertilizer has barely increased in the international market, while the demand has expanded slightly. The supply and demand pattern of phosphatic fertilizer is expected to improve. As policies for phosphatic fertilizer export continue to loosen in 2015, its export tariff is cut to 100 yuan per ton. Data shows that the total export of diammonium phosphate amounted to 2.82 million tons in the first half, a year-on-year increase of 122 percent. Currently, the ex-factory price of diammonium phosphate, the company’s main product, is about 2,700 yuan per ton. It is estimated that Liuguo Chemical will gain a net profit of around 52 million yuan in the first half. It turned into profit year on year and will maintain the momentum throughout the year.
Besides, Liuguo Chemical announced in early June that Tonghua Group, its controlling shareholder, would plan a mixed ownership reform. Institutions believe that Liuguo Chemical, as an important capital platform of the group, will play a vital role in the mixed ownership reform.
Double Arrow Rubber’s nursing home likely to profit by year-end
------
According to a survey conducted by XFA on Zhejiang Double Arrow Rubber Co., Ltd. (002381.SZ), Heji Nursing Home, which officially opened to business at end-May, is likely to be profitable by the end of this year. According to the survey, Heji Nursing Home has 200 beds with more than 40 aged people and 20 nursing workers. It is expected to receive about 150 aged people by the year end. The company plans to expand its nursing home in the Yangtze River Delta region after an initial success of Heji Nursing Home. Currently, the company is negotiating with persons concerned in the region. XFA will continue to report the progress of the company’s nursing business.
○More effective investments to maintain stable growth
○Capture potential chances in private placement terminated by force
○Evaluation on children’s drugs expected to quicken, market size to enlarge quickly
○Institutions: Liuguo Chemical’s main business picks up
[Authoritative Voice]
More effective investments to maintain stable growth
------
Faced with prominent problems, such as high pressure on economic downtrend, operation difficulties of some enterprises, structural contradictions between insufficient new power to stimulate economic growth and subdued old drives, and etc., it is still a key point to add effective investment for stable growth and such intensity can only be increased. As it is known, related central ministries and commissions are paying close attentions to the portrait connection with local governments, deepening significant reforms like online parallel connection examination, approval and record for projects, and improving examination and approval efficiency for investment projects. At the same time, they are detailing the major engineering project list, innovating related mechanisms, policies and measures connecting to cooperation with banks, enterprises and society, for example, issue of special project construction bond through policy banks, and supplementing local construction project capital fund. Besides connecting to national strategies like ‘One Belt and One Road’, the alternative projects are mainly related to infrastructure and people’s livelihood, such as security housing, water conservancy, urban pipe gallery, fuel gas and etc.
According to data in the first half, infrastructure investment increased 19.1 percent, which is 7.7 percentage points higher than the whole investment growth rate. It contributed 26.7 percent to the whole investment, representing a growth of 5 percentage points compared with the corresponding period of last year. It means that effective investment is playing a positive role in maintaining stable growth.
[XFA View]
Local investments possibly to expand in H2
------
According to fixed-asset investment data from authorities, the actual investment growth in about 70 percent of the 25 provinces, which proposed clear targets on investment growth for this, are lower than expectation. It means that local investments are not satisfying in the first half. Based on the analysis on the latest information mastered by the author, the weak local investments will obviously improve in the second half. The growth rate and total amount are expected to increase greatly.
Firstly, based on the practice in previous years, only a few projects initiate construction in the first quarter due to weather conditions and the home-returning of migrant workers during the Spring Festival. As local governments seldom increase investments before the two sessions, more investments will be made from April. Local governments often suddenly spend large amounts in the last two months before the year end. Therefore, investment in the second half takes up a huge proportion. Taking the nine provinces in central and western China for examples, which have proposed clear investment scale targets in the government work report at the beginning of the year, they just have completed one third of the planned investment in the first half. It means that there is still two thirds of the targeted scale to complete in the second half, and over 8 trillion yuan investment will be released as planned.
Secondly, on the meeting held on July 30, the Political Bureau of the CPC Central Committee reaffirmed that “holding fast to the proactive fiscal policy”. This indicates that the central revenue with 2.6 trillion yuan available in deficit will spare more to investment in the second half of this year, especially on major projects. This move will undoubtedly push forward regional investment.
Thirdly, the current budget for local government bonds is 2.6 trillion yuan, including 2 trillion yuan for local debt replacement, and it is expected that another 1 trillion yuan will be replaced soon. But up to now, the size of local government bonds is only 1.4 trillion yuan; calculated by the net increase of 3.6 trillion yuan, nearly 2 trillion yuan of bonds would be intensively issued in the second half. This move, on one hand, reduces the interest burden of local government, and on the other, further improves the investment ability of local government.
To ensure the principle direction of transformation and innovation in economic development, stabilizing growth must serve as the basis in the short term. So, strengthened central and local financial investment is an event of great possibility and will beef up infrastructure construction considerably. Especially in central and western regions where investment is intensive, the local infrastructure, urban construction and building materials enterprises might benefit first.
[Hotspot Investigation]
Capture potential chances in private placement terminated by force
------
Influenced by multiple factors such as the vibration of stock index, more than 120 companies have announced the termination or the termination of the plan on significant events including private placement. Excluding the companies that have suspended or resumed trading purely to avoid market plunge, there are still some companies that have real private placement plan but were forced to terminate, in which potential investment opportunities exist. Investors can pick these companies out in consideration of their past private placements, operation intention and subsequent actions.
The first is their past private placements. Though some companies disclosed the intention for private placement, they didn’t release any related proposals, while some companies have released complete proposals for private placement. Comparatively speaking, the latter has “more real” demand for private placement. Especially the companies that have confirmed their subscribers and fundraising projects, they are not only likely to restart their plans, but because of their full preparation, their enforcement efficiency would be much higher. Sf Diamond Co., Ltd. (300179.SZ), Hangzhou Cable Co., Ltd. (603618.SH), Dr. Peng Telecom and Media Group Co., Ltd. (600804.SH) and Shimge Pump Industry Group Co., Ltd. (002532.SZ) have all published their proposals for private placement with fixed price and clear subscribers; the mere reason for their suspension is that the current stock price is lower than the offering price of private placement. In light of the urgency of their fundraising programs, they are highly likely to restart their private placement plans.
Secondly, operation intention. At present, private placement has become an important way for many listed companies to have industrial transformation. For them, termination of private placement is temporary and it will be certainly restarted in due time. Taking Sichuan Huiyuan Optical Communications Co., Ltd. (000586.SZ) for example, under the circumstances that its actual controller is under residential surveillance and its back-door listing plan fails, the termination of private placement worsens the company’s operation prospect, but it is possible that the company is preparing for new capital operation plan. Similar case happens to TongLing Zonfa Trinity Technology Co., Ltd. (600520.SH). The actual controller of the company has changed before the planning of private placement, highly increasing the possibility of high-quality asset injection into the company in the future.
Thirdly, subsequent actions. Reportedly, many companies which are forced to terminate private placement are preparing subsequent measures so as to improve corporate value. For example, just after announcing termination of private placement plan, Wedge Industrial Co., Ltd. (000534.SZ) put forward new investment plan that it will invest near 100 million yuan in participating in Korean semi-conductor enterprises and setting up a joint-venture firm to lay foundation for its business transformation. Hunan Fangsheng Pharmaceutical Co., Ltd. (603998.SH) also took investment strategy to establish a genetic company right after terminating its private placement plan. This suggests that the theory of “when it is dark in the east, it is bright in the west” has become a common strategy for this kind of companies to deal with the unfavorable market situations.
[Industry Observation]
Evaluation on children’s drugs expected to quicken, market size to enlarge quickly
------
XFA has interviewed several domestic drug evaluation experts on the strictest new drug evaluation and inspection plan, which was released by China Food and Drug Administration (CFDA) in late July. Reportedly, this plan is in favor of firms engaged in children’s drugs besides the leading pharmaceutical enterprises and research and development companies. The children’s drugs will be listed in catalogue of badly-needed drugs and may queue up separately in the future, indicating that evaluation on children’s drugs is expected to quicken. Children's intensive treatment drugs are included in clinical catalogue of badly-needed drugs and probably will have green pass, which will stimulate enterprises’ passion in research and development. According to the forecast by CFDA, the sales amount of Chinese children’s drugs in 2015 will keep double-digit growth on annual average and is expected to reach 66.9 billion yuan by the end of this year. Chinese children’s drugs market sees rapid growth and possesses huge potential in substituting the imported ones.
Hainan Honz Pharmaceutical Co., Ltd. (300086.SZ), as a leader in pediatric drugs in China, pays much attention to the research, development and input of new products and technologies. The company has set up a pharmaceutical synthesis laboratory and other technology platforms. It also has established long-term technical partnership with prestigious Chinese colleges and scientific research institutions. In addition, Honz Pharmaceutical also sets up a joint venture with Hunan Hongya Genetic Technology Company Limited to expand its business in precision medicine and the development and operation of individualized medical test project for infants.
Yabao Pharmaceutical Group Co. Ltd. (600351.SH) proposes to enrich its production lines of pediatric drugs through extensive acquisition. Last year, the company ranked at 11th place among the top 20 medical research and development companies in China. Its Guiyuan tablets and new diabetes drugs will become the highlight in the future.
[Information Radar]
Institutions: Liuguo Chemical’s main business picks up
------
Institutions recently have conducted intensive surveys on Anhui Liuguo Chemical Co., Ltd. (600470.SH) and focused on the operation of its main business, phosphatic fertilizer. Since the beginning of this year, the capacity of phosphatic fertilizer has barely increased in the international market, while the demand has expanded slightly. The supply and demand pattern of phosphatic fertilizer is expected to improve. As policies for phosphatic fertilizer export continue to loosen in 2015, its export tariff is cut to 100 yuan per ton. Data shows that the total export of diammonium phosphate amounted to 2.82 million tons in the first half, a year-on-year increase of 122 percent. Currently, the ex-factory price of diammonium phosphate, the company’s main product, is about 2,700 yuan per ton. It is estimated that Liuguo Chemical will gain a net profit of around 52 million yuan in the first half. It turned into profit year on year and will maintain the momentum throughout the year.
Besides, Liuguo Chemical announced in early June that Tonghua Group, its controlling shareholder, would plan a mixed ownership reform. Institutions believe that Liuguo Chemical, as an important capital platform of the group, will play a vital role in the mixed ownership reform.
Double Arrow Rubber’s nursing home likely to profit by year-end
------
According to a survey conducted by XFA on Zhejiang Double Arrow Rubber Co., Ltd. (002381.SZ), Heji Nursing Home, which officially opened to business at end-May, is likely to be profitable by the end of this year. According to the survey, Heji Nursing Home has 200 beds with more than 40 aged people and 20 nursing workers. It is expected to receive about 150 aged people by the year end. The company plans to expand its nursing home in the Yangtze River Delta region after an initial success of Heji Nursing Home. Currently, the company is negotiating with persons concerned in the region. XFA will continue to report the progress of the company’s nursing business.
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