Early Bird

Early Bird 26-Feb-2015

SHENZHEN
2015-02-26 13:06

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[Today’s Guide]
> Measures on taxes and fees reducing issued, fiscal policies to boost economic recovery
> Bullish policies on revitalization of Northeastern China to introduce soon, ten ministries and commissions support elderly care industry
> Supply-demand structure of refrigerant market to improve, Jiangxi Changyun to control Fangtong Changyun
> Shanghai Phar. reorganizes Zhonggu Taxus Chinensis Biology, some ST stocks might pioneer in getting rid of “Special Treatment”
 
 [XFA Focus]
○ Measures on taxes and fees reducing issued, fiscal policies to boost economic recovery
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The executive meeting of the State Council convened on Feb. 25 proposed further measures on the decreasing of taxes and fees. The unemployment insurance rate will be reduced to 2 percent from 3 percent previously, which is estimated to save over 40 billion yuan for enterprises and employees annually. It also pledged to speed up construction of major water projects and facilitate stable economic growth and structural adjustment with public investments. Over 90 percent of funds from the central budget on water projects will be allocated by the end of June.
Comment: The major problem of China’s current economic growth is no excellent investment opportunities in real economies. Such monetary policies as interest and RRR cuts have limited stimulus. The taxes reducing and the acceleration of new projects signal proactive fiscal policies, which are of significance in maintaining economic growth and ensuring employment and will greatly boost investors’ confidence. The executive meeting focuses on the arrangement of water projects construction. Anhui Water Resources Development Co., Ltd. (600502.SH), Guangdong No.2 Hydropower Engineering Company, Ltd. (002060.SZ), Power Construction Corporation of China, Ltd. (601669.SH) and other listed water conservation companies are expected to record better results this year.
 
○ Regional policies may highlight two sessions, bullish policies on revitalization of Northeastern China expected
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The financial, real estate and other big-cap sectors weakened on the first trading day of the new year. The Internet sector, which was strong before the Spring Festival, also plummeted after sold by massive investors. Based on the two sessions in previous years and local two sessions of this year, a series of regional policies may highlight the two sessions of this year.
◆ The 2.0 version of the rejuvenation of Northeastern China to introduce soon: XFA learnt from the National Development and Reform Commission that the “Certain Opinions on the Revitalization of Northeastern China and Other Old Industrial Bases” will be deliberated and improved at the two sessions and will be released and implemented. Compared with the rejuvenation of Northeastern China more than a decade ago, the document focuses on the transformation of government functions from management to services and the institutional issues in deep state-owned enterprises reform. Among A-share companies, Northeast Electric Development Company Limited (00042.HK; 000585.SZ) is a major supplier of power transmission and transformation equipment in China. Heilongjiang Transport Development Co., Ltd. (601188.SH) and Jilin Expressway Co., Ltd. (601518.SH) are the only two highway stocks in Northeastern China.
◆ First anniversary of the coordinated development of Beijing, Tianjin Municipality and Hebei Province: Hebei Daily reported on Feb. 25 that the guidelines on the coordinated development of Beijing, Tianjin Municipality and Hebei Province will be released. Chinese President Xi Jinping proposed the coordinated development of the three regions on Feb. 26, 2014. As the first anniversary of the proposal approaches, institutes expect that it will enter into the promotion and implementation from the top design. The traffic integration in the three regions will be promoted at the highest speed, which will improve the land valuation. Companies and port companies with massive land reserves in Tianjin Municipality and Hebei Province will benefit.
 
 [XFA Selection]
○ All documents of the free trade agreement (FTA) between South Korea and China were initialed on Feb. 25. Institutes estimate that port and shipping companies in Liaoning and Shandong Provinces will benefit.
○ 33 administrative districts at the county level, including Daxing District in Beijing and Songjiang District in Shanghai, proposed to allow the pilot trading of collectively-owned rural land for commercial use.
○ Bloomberg reported on Feb. 25 that China is preparing measures to support the property market, including reducing the down payment for a second house and adjusting the taxes and fees on second-hand houses.
○ Shanghai released the key points in deepening the reform of the medical and health system in 2015 and will promote classified treatment and the separation of medical treatment and medicines.
○ Four departments issued documents to facilitate the establishment of independent clock brands in China, proposing to form about five international brands.
○ The net inflow of margins during the subscription of new IPOs in Feb. reached 122 billion yuan. The relatively small amount is attributed to the Spring Festival factors.
 
 [Industry Information]
○ Ten ministries and commissions encourage private capital to invest in elderly care industry
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The “Suggestions on the Implementation of Encouraging Private Capitals to Participate in the Development of the Elderly Care Industry” has been jointly issued by ten ministries and commissions, including the Ministry of Civil Affairs, the National Development and Reform Commission and the Ministry of Education. It made relevant rules and preferential policies on the promotion of the integrated development of medical treatment and care, the improvement of investment and financing policies, the implementation of preferential taxes and fees policies, the strengthening of talents guarantees and the ensuring of land demands.
Comment: It is estimated that the consumption potential of the elderly in China will increase from about 4 trillion yuan to about 106 trillion yuan during 2014 to 2050, making China a country with the biggest potential in the global elderly industry. Medical devices, private hospitals and elderly care institutes as well as other listed companies are expected to benefit in long term. Among A-share companies, Allwin Telecommunication Co., Ltd. (002231.SZ) has established cloud services centers for the elderly care in Nanjing City, Tianjin Municipality, Gansu Province and Hainan Province. The Tongxiang Heji Pension Services Center of Zhejiang Double Arrow Rubber Co., Ltd. (002381.SZ) and the ancillary medical service institutes are ready to open.
 
○ Ministry of Environmental Protection reduces refrigerant quota, industrial supply-demand structure to improve
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The Ministry of Environmental Protection published the using quota of HCFC in 2015 on Feb. 25, decreasing by 10 percent year on year in terms of total amount. According to the Montreal Protocol on Substances that Deplete the Ozone Layer, China shall reduce the production of refrigerant R22 by 10 percent this year.
Comment: Since the use in fine fluorine chemical raw material and the export of R22 are not limited, the industrial supply-demand structure will see improvement under the constraint of limited refrigerant quota. Leading enterprises like Shanghai 3F New Materials Company Limited (600636.SH), Zhejiang Juhua Co., Ltd. (600160.SH), etc. which are equipped with complete industrial chain and export qualification will see benefit.
 
 [Announcement Interpretation]
○ Jiangxi Changyun to control Fangtong Changyun
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Jiangxi Changyun Co., Ltd. (600561.SH) plans to purchase 51 percent equities of Yudu County Fangtong Changyun Co., Ltd. with 108 million yuan. The counterparty committed that the net profit after tax of the target company will be no less than 18.72 million yuan, 20.65 million yuan, 22.23 million yuan, 22.23 million yuan and 22.23 million yuan from 2015 to 2019.
Yudu County with a good geographic position has more than 1 million people and 0.3 million of which work outside throughout the year. With no direct competition from railway transportation, road passenger transportation remains the main means for the translation of local residents.
○ Shanghai Phar. reorganizes Zhonggu Taxus Chinensis Biology to develop raw antineoplastic medicine
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Shanghai Huayu Chinese Herbs Co., Ltd., a wholly-owned subsidiary of Shanghai Pharmaceuticals Holding Co., Ltd. (601607.SH;02607.HK), and Shanghai Jinhe Bio-technology Co., Ltd., a subsidiary of Shanghai Phar., reorganize Dali Zhonggu Taxus Chinensis Biology Co., Ltd. with 160 million yuan and 110 million yuan in cash and respectively obtain 40 percent and 27.5 percent equities of Zhonggu Taxus Chinensis Biology, thus Shanghai Phar. controls Zhonggu Taxus Chinensis Biology. This project is expected to contribute an annual net profit of 23.33 million yuan to Shanghai Phar. in next five years.
Zhonggu Taxus Chinensis Biology is principally engaged in the plant and sales of rare plant Taxus Chinensis which can extract 10DABIII, the mid-body of antineoplastic medicine. Its core assets include the 5.52 million Taxus Chinensis saplings and trees located in the Dali Prefecture of Yunnan Province and relevant forestland usufruct. After this transaction, Shanghai Phar. will build its advantages in raw medicine from the source, integrate the industrial chain of antineoplastic medicine, and also develop Chinese medicine GAP plantation base.
 
○ President of Metro Land transfers equities at cut-rate price
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China Yintai Investment Co., Ltd., the second substantial shareholder of Metro Land Corporation Ltd. (600683.SH), transfers 75 million shares of the company held by it, accounting for 10.12 percent of the total capital share, to Cheng Shaoliang, deputy Chairman and President of the company, in the way of negotiating transfer. The transaction is priced at 278 million yuan and the transaction price is 3.7 yuan per share, representing only 46 percent of the latest closing price of Metro Land, 8.08 yuan. After the transaction, the shareholding of China Yintai Investment decreases to 14.7 percent but it still remains as the second substantial shareholder, while Cheng Shaoliang becomes the third substantial shareholder of the company.
Comment: Besides holding the senior post of Metro Land, Cheng Shaoliang is also the non-independent director of Yintai Resources Co., Ltd. (000975.SZ) and holds the post of executive director in China Yintai Investment for years.
 
 
 [Financial Reports Express]
○ Henan Billions Chemicals and Yantai Tayho Advanced Materials see increased performance in annual report
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The net profit of Henan Billions Chemicals Co., Ltd. (002601.SZ) in 2014 sees a year-on-year growth of 168 percent and the earnings per share is 0.33 yuan. The increase of both production and sales of its leading product titanium dioxide and the price drop of raw materials are the main reason why the gross profit rate of main business increases.
The net profit of Yantai Tayho Advanced Materials Co., Ltd. (002254.SZ) in 2014 sees a year-on-year growth of 78 percent and the earnings per share is 0.3 yuan. Spandex, meta-aramid and para-aramid, three main business of the company, develop well. The company successfully obtains the secondary confidential qualification of weaponry research and production company and undertakes the “Demonstration Project of 2014 Industrial Transformation and Upgrading Engineering” of the Ministry of Industry and Information Technology.
 
[Data Speaks]
○ Some ST stocks might pioneer in getting rid of “Special Treatment”
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According to the statistics of XFA, totally 244 companies get rid of “Special Treatment” since 2010 and it mainly occurs in March to June. The average surging of these stocks in the 20 trading days before getting rid of “Special Treatment” exceeds 20 percentage points of indexes of the same period, indicating that it is quite possible to obtain excess earnings before they get rid of “Special Treatment”. Some ST companies have announced that their performance in 2014 turned losses into gains. And Ningbo Donly Co., Ltd. (002164.SZ) appoints to disclose its annual performance on Feb. 28, Shandong Haihua Company Limited (000822.SZ) appoints to disclose its annual performance on March 7, while Baoding Tianwei Baobian Electric Co., Ltd. (600550.SH), Jiangxi Changjiu Biochemical Industry Co., Ltd. (600228.SH), Beijing Jingcheng Machinery Electric Company Limited (600860.SH; 00187.HK)and Lanzhou Sanmao Industrial Co., Ltd. (000779.SZ) appoint to disclose their annual performance in the middle of March.
 
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