[Today’s Guide]
> CTA officially established, construction of communication infrastructure to boost demand for network improvement
> Quantum communication successfully applied, power reform to help aluminum enterprises reduce cost
> Vtron Technologies to control Hoing Education, Oceanwide Holdings to purchase equities of Minan Property and Casualty Insurance
> NORINCO Group to acquire equities of North Huajin Chemical Industries, crude oil and nonferrous metals rebound largely
[XFA Focus]
○ CTA officially established, construction of communication infrastructure to boost demand for network improvement
------
The China Tower Alliance (CTA) initiated by the China Association of Communications Enterprises and China Tower Co., Ltd. was officially established on Feb. 3 in Beijing. The CTA strives to promote the integration and sharing of resources in the telecommunication industry and improve the efficiency and benefit of telecommunication network infrastructures. Tong Jilu, general manager of China Tower, indicated that the company will actively and steadily explore the mixed ownership system reform and seek listing when appropriate. It is said that China Tower has shifted its focus to operation and development.
Comment: The establishment of base stations by China Tower will boost the demand for the network testing improvement. In the technical aspect, the sharing of base stations with TD-LTE, FDD-LTE, CDMA and GSM will definitely bring about network interference. More network modulation and improvement are necessary to guarantee the network quality. It is reported that the increasing density of 4G network resulted in more interference. The input of three major operators, namely China Mobile Limited (CHL.NYSE; 00941.HK), China United Network Communications Limited (600050.SH) and China Telecom Corporation Limited (CHA.NYSE; 00728.HK), in network improvement in 2015 is expected to be more than 30 billion yuan, increasing 50 percent from 2014. Among A-share listed companies, Boomsense Technology Co., Ltd. (300312.SZ) and Sunwave Communications Co., Ltd. (002115.SZ) rank high domestically in terms of the equipment and services for network improvement. Dingli Communications Corp., Ltd. (300050.SZ) and Allwin Telecommunication Co., Ltd. (002231.SZ) enjoy advantages in field network testing and services.
[XFA Selection]
○ The SSE SH Equities Index saw a net buying of 5 billion yuan on Feb. 3, increasing more than 100 percent from Feb. 2 and ranking third in terms of the limit use amount since the introduction of the Shanghai-Hong Kong Stock Connect.
○ The Shanghai Stock Exchange indicated that the introduction of the SSE 50 ETF options is to maintain a stable operation and will not seek turnover and activeness unilaterally.
○ Pilot plans on the acquisition of rural land for public projects, the sale of rural land for commercial uses and the rural residential land system reform have been prepared and will be advanced soon.
○ 29 provinces nationwide will achieve the basic ETC networking by end-Sept. The Ministry of Transport requires better using of massive data in developing the “Smart Transportation”.
○ Liu Zhenya, Chairman of State Grid Corporation of China (SGCC), proposed on Feb. 3 in Beijing that it would basically achieve the target of building a global energy Internet by 2050.
○ Taiwan securities market launched the “Ascension Plan”, including such measures as relaxing increase and decrease ranges and loosening limits on margin trading and short selling.
[Industry Information]
○ Quantum communication successfully applied to boost information safety in banking industry
------
The Industrial and Commercial Bank of China Limited (01398.HK; 601398.SH) announced Feb. 3 on its website that the implementation of the quantum communication technology has achieved the encryption transmission of electronic documents and information of the Beijing branch in the same city, which is the first successful application of the technology in domestic banking industry.
Comment: The quantum communication is currently the only communication technology can unconditionally guarantee safety and enjoys a bright prospect in national defense, financial and other industries. Among A-share companies, Digital China Information Service Company Ltd. (000555.SZ) has won the bid for the system integration project of the “Beijing-Shanghai Line” of quantum encryption communication. Zhejiang Orient Holdings Co., Ltd. (600120.SH) cooperates with the University of Science and Technology of China (USTC) in exploring the commercial construction and operation of quantum communication network. The optical fiber and other devices of Jiangsu Zhongtian Technology Co., Ltd. (600522.SH) have been applied in the “distribution of 300-km extra-long distance quantum communication secret keys” project of the USTC.
○ Effects of power reform emerge, aluminum enterprises to see significant cost reduction
------
XFA learnt from the teleconference of Yunnan Aluminium Co., Ltd. (000807.SZ) held on Feb. 3 that the power price is expected to decrease by 0.05 yuan per kilowatt-hour this year after the negotiation with power grid companies. If the aluminum prices remain unchanged, the power price decrease will bring another profit of at least 700 million yuan.
Comment: Since the State Council approved relevant opinions on deepening power reform, the power reform has been advancing gradually. SGCC has explicitly indicated that it would speed up the power system reform in the work conference of this year. It is also reported that the new power reform plans are expected to be issued after March. Power is the biggest cost composition in the electrolytic aluminium industry. Besides Yunnan Aluminium, Jiaozuo Wanfang Aluminum Manufacturing Co., Ltd. (000612.SZ), Shandong Nanshan Aluminium Co., Ltd. (600219.SH) and other enterprises will also benefit from the power reform.
[Announcement Interpretation]
○ Vtron Technologies to fully control Hoing Education
------
Vtron Technologies Ltd. (002308.SZ) proposes to acquire 100 percent equities of Hoing Education with an appreciation rate of 1,998 percent. The transaction is priced at 520 million yuan in total, which will be paid with 230 million yuan of its over-raised capitals and 290 million yuan of its own capitals. Wang Hongbing, the counterparty, committed that the net profit of Hoing Education for 2015 to 2017 will be no less than 33 million yuan, 43 million yuan and 53 million yuan, respectively. Meanwhile, Wang also committed that he would purchase a total of 12 million shares of Vtron Technologies through the secondary market within six months after receiving the full amount for the transfer of the equities. The amount will be unlocked in three years after the completion of the purchase with one third in each year.
Comment: Hoing Education currently has 1,192 chain kindergartens. Wang committed that Hoing Education will have no less than 2,500 chain kindergartens by Dec. 31, 2015. As a result of its sluggish principal business, the net profit of Vtron Technologies dropped 65 percent according to its annual report. The acquisition will give play to its advantage in information technology and achieve the rejuvenation of the integrated services platform of Hoing Education.
○ Oceanwide Holdings to purchase equities of Minan Property and Casualty Insurance and raise RMB12 bln through private placement
------
Oceanwide Holdings Co., Ltd. (000046.SZ) plans to purchase certain equities of Minan Property and Casualty Insurance Co., Ltd. from HNA Capital Holding Co., Ltd. with 1,785 million yuan. At the meantime, the company announces that it would raise 12 billion yuan by issuing shares through private placement at no less than 8.88 yuan per share. 5 billion yuan of the raised money will be used to increase investment in Minsheng Securities Co., Ltd. China Oceanwide Holdings Group, the substantial shareholder of the company, will participate in the subscription and promise a lockup period of 36 months. Minan Property and Casualty Insurance is a comprehensive property insurance company with premium income from Jan. to Nov., 2014 ranking the 27th among 65 domestic and abroad property insurance companies nationwide.
Comment: Oceanwide Holdings, who purchased Minsheng Securities and CASH Financial Services Group Limited (00510.HK) earlier, now expands to insurance area. It is one step closer to the complete financial license now. Besides purchased securities, trust and insurance companies, there is possibility that the company will purchase more financial enterprises in the future.
○ Zhonghuan Semiconductor to raise RMB3.5 bln to invest in main business and propose high share conversion and dividend
------
Tianjin Zhonghuan Semiconductor Co., Ltd. (002129.SZ) plans to issue 180 million shares at no less than 19.52 yuan per share through private placement to raise 3,525 million yuan. The raised money will be used in the construction of ground efficient photovoltaic power station project and large-diameter electrophoresis glass passivized chips project as well as the technical modification and industrialization project of new-type large-diameter silicon single crystal for power electronic devices and to supplement working capital.
The company also launched the limited stock incentive plan on that same day and announced high share conversion and dividend in its annual report proposing a 12-for-10 conversion of capital surplus into shares combined with 0.1 yuan dividend for every 10 shares. During its trading suspension, the solar energy sector sees obvious surge.
○ Substantial shareholder transfers equities of North Huajin Chemical Industries, NORINCO Group shows signs of asset reorganization
------
Huajin Group, controlling shareholder of North Huajin Chemical Industries Co., Ltd. (000059.SZ), plans to transfer 246 million shares of North Huajin Chemical Industries to China Zhenhua Oil Co., Ltd. at 6.10 yuan per share, which is far lower than the company’s latest closing price of 11.07 yuan per share. After the equity transfer, the shareholding ratio of Zhenhua Oil, a wholly-owned subsidiary of China North Industries Group Corporation (NORINCO Group), will reach 15.38 percent, while the shareholding of Huajin Group in North Huajin Chemical Industries will decrease from 50.86 percent to 35.48 percent.
Comment: North Huajin Chemical Industries sees loss consecutively in 2013 and 2014. Reorganization of central enterprises with poor performance is extremely urgent. This equity transfer might be first signs of the reorganization and integration of assets under NORINCO Group. Other listed companies under NORINCO Group are North Electro-Optic Co., Ltd. (600184.SH), Changchun Yidong Clutch Co., Ltd. (600148.SH), Lingyun Industrial Corporation Limited (600480.SH), Inner Mongolia North Hauler Joint Stock Co., Ltd. (600262.SH) and Norinco International Cooperation Ltd. (000065.SZ).
○ CPI to reorganize with SNPTC, Jilin Power Share and CPI Yuanda Environmental—Protection to favor again
------
Jilin Power Share Co., Ltd. (000875.SZ), CPI Yuanda Environmental—Protection (Group) Co., Ltd. (600292.SH) and Shanghai Electric Power Co., Ltd. (600021.SH) all announced that the State-owned Assets Supervision and Administration Commission of the State Council has informed China Power Investment Corporation (CPI), the controlling shareholder and actual controller of these companies, to launch the reorganization with State Nuclear Power Technology Corporation (SNPTC). Detailed scheme is undetermined yet.
Comment: The integration of CPI and SNPTC provokes much discussion at the beginning of 2015. Various investors all want to take a share of the profits. Shanghai Electric Power recently inquired this issue in written form to CPI due to the abnormal fluctuation of its stock price. CPI also acquired the shares of Shanxi Zhangze Electric Power Co., Ltd. (000767.SZ).
[Bulk Commodity]
○ Crude oil and nonferrous metals rebound largely, positive factors emerge
------
At the evening of Feb. 3 (Beijing time), most of the international bulk commodities prices surged. The price of London Metal Exchange (LME) copper soared by 3.1 percent, expected to create the maximum day gain over the years; the price of crude oil also surged by 2.4 percent in the U.S., resuming 50 U.S. dollars per barrel.
Comment: The macro risk has decreased recently, the possibility for Greece to exit from the Eurozone reduces and U.S. dollar lacks fuel to continue the surge in the short term. The market expects China to expand the purchasing and storage scale of copper to promote the picking up of futures market. PVM, oil broker giant, indicates in report that the previous slump of oil price played the role of stimulating demand and decreasing supply. Statistics show that in recent five slumps of international oil price, the stock prices of oil-field service companies all hit the bottom one or three months before the oil price.
[Trading Trends]
○ Central bank picks up capital input with increased amount of reverse repurchase
------
On Feb. 3, the central bank resumed the 7-day reverse repurchase, which was suspended last Thursday, and recorded a total reverse repurchase of 90 billion yuan on that day, creating the maximum day input since it started this round of reverse repurchase on Jan. 22.
Comment: Industry insiders indicate that it might become a normal that the position of forex (foreign exchange) purchase sees zero growth. Considering that the Spring Festival is comings soon and the IPO will disturb capital market, it is highly possible that the central bank will strengthen efforts in inputting various capitals. Easing tools like reverse repurchase, PSL, etc. will all be used and reduction of RRR (reserve requirement ratio) is also possible.
[Data Speaks]
○ High historical probability of index surge in Feb., agriculture and household appliances see outstanding hike
------
The data statistics since 2000 show that the SSE Composite Index surged in the Feb. of 12 years, meaning a surge probability as high as 80 percent. The average surge reaches 3.16 percent. As for styles, profitless stocks, low-profit stocks and low-priced stocks usually see good performance in Feb. As for industries, agriculture, forestry, animal husbandry and fishery industries, household appliances industry, etc. see larger surge with an average hike of 7.75 percent and 6.63 percent, respectively.
> CTA officially established, construction of communication infrastructure to boost demand for network improvement
> Quantum communication successfully applied, power reform to help aluminum enterprises reduce cost
> Vtron Technologies to control Hoing Education, Oceanwide Holdings to purchase equities of Minan Property and Casualty Insurance
> NORINCO Group to acquire equities of North Huajin Chemical Industries, crude oil and nonferrous metals rebound largely
[XFA Focus]
○ CTA officially established, construction of communication infrastructure to boost demand for network improvement
------
The China Tower Alliance (CTA) initiated by the China Association of Communications Enterprises and China Tower Co., Ltd. was officially established on Feb. 3 in Beijing. The CTA strives to promote the integration and sharing of resources in the telecommunication industry and improve the efficiency and benefit of telecommunication network infrastructures. Tong Jilu, general manager of China Tower, indicated that the company will actively and steadily explore the mixed ownership system reform and seek listing when appropriate. It is said that China Tower has shifted its focus to operation and development.
Comment: The establishment of base stations by China Tower will boost the demand for the network testing improvement. In the technical aspect, the sharing of base stations with TD-LTE, FDD-LTE, CDMA and GSM will definitely bring about network interference. More network modulation and improvement are necessary to guarantee the network quality. It is reported that the increasing density of 4G network resulted in more interference. The input of three major operators, namely China Mobile Limited (CHL.NYSE; 00941.HK), China United Network Communications Limited (600050.SH) and China Telecom Corporation Limited (CHA.NYSE; 00728.HK), in network improvement in 2015 is expected to be more than 30 billion yuan, increasing 50 percent from 2014. Among A-share listed companies, Boomsense Technology Co., Ltd. (300312.SZ) and Sunwave Communications Co., Ltd. (002115.SZ) rank high domestically in terms of the equipment and services for network improvement. Dingli Communications Corp., Ltd. (300050.SZ) and Allwin Telecommunication Co., Ltd. (002231.SZ) enjoy advantages in field network testing and services.
[XFA Selection]
○ The SSE SH Equities Index saw a net buying of 5 billion yuan on Feb. 3, increasing more than 100 percent from Feb. 2 and ranking third in terms of the limit use amount since the introduction of the Shanghai-Hong Kong Stock Connect.
○ The Shanghai Stock Exchange indicated that the introduction of the SSE 50 ETF options is to maintain a stable operation and will not seek turnover and activeness unilaterally.
○ Pilot plans on the acquisition of rural land for public projects, the sale of rural land for commercial uses and the rural residential land system reform have been prepared and will be advanced soon.
○ 29 provinces nationwide will achieve the basic ETC networking by end-Sept. The Ministry of Transport requires better using of massive data in developing the “Smart Transportation”.
○ Liu Zhenya, Chairman of State Grid Corporation of China (SGCC), proposed on Feb. 3 in Beijing that it would basically achieve the target of building a global energy Internet by 2050.
○ Taiwan securities market launched the “Ascension Plan”, including such measures as relaxing increase and decrease ranges and loosening limits on margin trading and short selling.
[Industry Information]
○ Quantum communication successfully applied to boost information safety in banking industry
------
The Industrial and Commercial Bank of China Limited (01398.HK; 601398.SH) announced Feb. 3 on its website that the implementation of the quantum communication technology has achieved the encryption transmission of electronic documents and information of the Beijing branch in the same city, which is the first successful application of the technology in domestic banking industry.
Comment: The quantum communication is currently the only communication technology can unconditionally guarantee safety and enjoys a bright prospect in national defense, financial and other industries. Among A-share companies, Digital China Information Service Company Ltd. (000555.SZ) has won the bid for the system integration project of the “Beijing-Shanghai Line” of quantum encryption communication. Zhejiang Orient Holdings Co., Ltd. (600120.SH) cooperates with the University of Science and Technology of China (USTC) in exploring the commercial construction and operation of quantum communication network. The optical fiber and other devices of Jiangsu Zhongtian Technology Co., Ltd. (600522.SH) have been applied in the “distribution of 300-km extra-long distance quantum communication secret keys” project of the USTC.
○ Effects of power reform emerge, aluminum enterprises to see significant cost reduction
------
XFA learnt from the teleconference of Yunnan Aluminium Co., Ltd. (000807.SZ) held on Feb. 3 that the power price is expected to decrease by 0.05 yuan per kilowatt-hour this year after the negotiation with power grid companies. If the aluminum prices remain unchanged, the power price decrease will bring another profit of at least 700 million yuan.
Comment: Since the State Council approved relevant opinions on deepening power reform, the power reform has been advancing gradually. SGCC has explicitly indicated that it would speed up the power system reform in the work conference of this year. It is also reported that the new power reform plans are expected to be issued after March. Power is the biggest cost composition in the electrolytic aluminium industry. Besides Yunnan Aluminium, Jiaozuo Wanfang Aluminum Manufacturing Co., Ltd. (000612.SZ), Shandong Nanshan Aluminium Co., Ltd. (600219.SH) and other enterprises will also benefit from the power reform.
[Announcement Interpretation]
○ Vtron Technologies to fully control Hoing Education
------
Vtron Technologies Ltd. (002308.SZ) proposes to acquire 100 percent equities of Hoing Education with an appreciation rate of 1,998 percent. The transaction is priced at 520 million yuan in total, which will be paid with 230 million yuan of its over-raised capitals and 290 million yuan of its own capitals. Wang Hongbing, the counterparty, committed that the net profit of Hoing Education for 2015 to 2017 will be no less than 33 million yuan, 43 million yuan and 53 million yuan, respectively. Meanwhile, Wang also committed that he would purchase a total of 12 million shares of Vtron Technologies through the secondary market within six months after receiving the full amount for the transfer of the equities. The amount will be unlocked in three years after the completion of the purchase with one third in each year.
Comment: Hoing Education currently has 1,192 chain kindergartens. Wang committed that Hoing Education will have no less than 2,500 chain kindergartens by Dec. 31, 2015. As a result of its sluggish principal business, the net profit of Vtron Technologies dropped 65 percent according to its annual report. The acquisition will give play to its advantage in information technology and achieve the rejuvenation of the integrated services platform of Hoing Education.
○ Oceanwide Holdings to purchase equities of Minan Property and Casualty Insurance and raise RMB12 bln through private placement
------
Oceanwide Holdings Co., Ltd. (000046.SZ) plans to purchase certain equities of Minan Property and Casualty Insurance Co., Ltd. from HNA Capital Holding Co., Ltd. with 1,785 million yuan. At the meantime, the company announces that it would raise 12 billion yuan by issuing shares through private placement at no less than 8.88 yuan per share. 5 billion yuan of the raised money will be used to increase investment in Minsheng Securities Co., Ltd. China Oceanwide Holdings Group, the substantial shareholder of the company, will participate in the subscription and promise a lockup period of 36 months. Minan Property and Casualty Insurance is a comprehensive property insurance company with premium income from Jan. to Nov., 2014 ranking the 27th among 65 domestic and abroad property insurance companies nationwide.
Comment: Oceanwide Holdings, who purchased Minsheng Securities and CASH Financial Services Group Limited (00510.HK) earlier, now expands to insurance area. It is one step closer to the complete financial license now. Besides purchased securities, trust and insurance companies, there is possibility that the company will purchase more financial enterprises in the future.
○ Zhonghuan Semiconductor to raise RMB3.5 bln to invest in main business and propose high share conversion and dividend
------
Tianjin Zhonghuan Semiconductor Co., Ltd. (002129.SZ) plans to issue 180 million shares at no less than 19.52 yuan per share through private placement to raise 3,525 million yuan. The raised money will be used in the construction of ground efficient photovoltaic power station project and large-diameter electrophoresis glass passivized chips project as well as the technical modification and industrialization project of new-type large-diameter silicon single crystal for power electronic devices and to supplement working capital.
The company also launched the limited stock incentive plan on that same day and announced high share conversion and dividend in its annual report proposing a 12-for-10 conversion of capital surplus into shares combined with 0.1 yuan dividend for every 10 shares. During its trading suspension, the solar energy sector sees obvious surge.
○ Substantial shareholder transfers equities of North Huajin Chemical Industries, NORINCO Group shows signs of asset reorganization
------
Huajin Group, controlling shareholder of North Huajin Chemical Industries Co., Ltd. (000059.SZ), plans to transfer 246 million shares of North Huajin Chemical Industries to China Zhenhua Oil Co., Ltd. at 6.10 yuan per share, which is far lower than the company’s latest closing price of 11.07 yuan per share. After the equity transfer, the shareholding ratio of Zhenhua Oil, a wholly-owned subsidiary of China North Industries Group Corporation (NORINCO Group), will reach 15.38 percent, while the shareholding of Huajin Group in North Huajin Chemical Industries will decrease from 50.86 percent to 35.48 percent.
Comment: North Huajin Chemical Industries sees loss consecutively in 2013 and 2014. Reorganization of central enterprises with poor performance is extremely urgent. This equity transfer might be first signs of the reorganization and integration of assets under NORINCO Group. Other listed companies under NORINCO Group are North Electro-Optic Co., Ltd. (600184.SH), Changchun Yidong Clutch Co., Ltd. (600148.SH), Lingyun Industrial Corporation Limited (600480.SH), Inner Mongolia North Hauler Joint Stock Co., Ltd. (600262.SH) and Norinco International Cooperation Ltd. (000065.SZ).
○ CPI to reorganize with SNPTC, Jilin Power Share and CPI Yuanda Environmental—Protection to favor again
------
Jilin Power Share Co., Ltd. (000875.SZ), CPI Yuanda Environmental—Protection (Group) Co., Ltd. (600292.SH) and Shanghai Electric Power Co., Ltd. (600021.SH) all announced that the State-owned Assets Supervision and Administration Commission of the State Council has informed China Power Investment Corporation (CPI), the controlling shareholder and actual controller of these companies, to launch the reorganization with State Nuclear Power Technology Corporation (SNPTC). Detailed scheme is undetermined yet.
Comment: The integration of CPI and SNPTC provokes much discussion at the beginning of 2015. Various investors all want to take a share of the profits. Shanghai Electric Power recently inquired this issue in written form to CPI due to the abnormal fluctuation of its stock price. CPI also acquired the shares of Shanxi Zhangze Electric Power Co., Ltd. (000767.SZ).
[Bulk Commodity]
○ Crude oil and nonferrous metals rebound largely, positive factors emerge
------
At the evening of Feb. 3 (Beijing time), most of the international bulk commodities prices surged. The price of London Metal Exchange (LME) copper soared by 3.1 percent, expected to create the maximum day gain over the years; the price of crude oil also surged by 2.4 percent in the U.S., resuming 50 U.S. dollars per barrel.
Comment: The macro risk has decreased recently, the possibility for Greece to exit from the Eurozone reduces and U.S. dollar lacks fuel to continue the surge in the short term. The market expects China to expand the purchasing and storage scale of copper to promote the picking up of futures market. PVM, oil broker giant, indicates in report that the previous slump of oil price played the role of stimulating demand and decreasing supply. Statistics show that in recent five slumps of international oil price, the stock prices of oil-field service companies all hit the bottom one or three months before the oil price.
[Trading Trends]
○ Central bank picks up capital input with increased amount of reverse repurchase
------
On Feb. 3, the central bank resumed the 7-day reverse repurchase, which was suspended last Thursday, and recorded a total reverse repurchase of 90 billion yuan on that day, creating the maximum day input since it started this round of reverse repurchase on Jan. 22.
Comment: Industry insiders indicate that it might become a normal that the position of forex (foreign exchange) purchase sees zero growth. Considering that the Spring Festival is comings soon and the IPO will disturb capital market, it is highly possible that the central bank will strengthen efforts in inputting various capitals. Easing tools like reverse repurchase, PSL, etc. will all be used and reduction of RRR (reserve requirement ratio) is also possible.
[Data Speaks]
○ High historical probability of index surge in Feb., agriculture and household appliances see outstanding hike
------
The data statistics since 2000 show that the SSE Composite Index surged in the Feb. of 12 years, meaning a surge probability as high as 80 percent. The average surge reaches 3.16 percent. As for styles, profitless stocks, low-profit stocks and low-priced stocks usually see good performance in Feb. As for industries, agriculture, forestry, animal husbandry and fishery industries, household appliances industry, etc. see larger surge with an average hike of 7.75 percent and 6.63 percent, respectively.
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