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A-Share Strategy 2015-04-13

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2015-04-13 17:07

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 [Today's Guide]
○ “Quality bullish market” desired by all participants
 
○ Prosperity of semiconductor industry hikes continuously, industrial chain companies see good performance
 
○ Limited pig supply drives live pigs price high
 
○ Century Real Technology to see significant increase in railway orders
 
 
 [XFA View]
 “Quality bullish market” desired by all participants
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The Shanghai Composite Index (SCI) closed above 4,000 points last week. The SCI is doubled within nine months and risks come along with the rapid growth. Rumors, including that the regulator might remind investors about the risks, follow. Based on the continuous follow-up of policies, the author believes that considering the need of reform and structural adjustment, 4,000 points will be anything but “policy-restricted ceiling”. Just like investors, the regulator also cherishes current bullish market a lot.
Compared with the bullish market in 2007, this round of market is triggered under the big context of ongoing economy downtrend, increasing deflation pressure and decreasing enterprise profit. It is more pushed by capital. Characteristic is that as new social capital continuously flows into the stock market, some capital are levered through various tools and products including the financing business in the capital market and the civil levered financing. It further boosts and accelerates the surge. Investors shall be cautious that over leverage is always a “double-edged sword”. Today’s “rapid surge” might be the reason of tomorrow’s “sharp drop”.
2015 is the key year for the deepening reform of the capital market. The revision of the Securities Law and the implementation of the registration-based system for stock issuance are prioritized among priorities. It is undeniable that the launch of significant reform measures in the capital market needs to be supported by stable market atmosphere. Sharp rise and fall not only impede the implementation of reform measures but also affect the realization of “reform benefit”, which is one of the factors leading to the surge of the market. It is believed that this is also not expected by the regulator and all investors.
Long-term, rational and health development of the market is desired by all participants. Some facts like over leverage, etc. might draw high alert of the regulator and investors. If passive factors spread continuously, considering healthy development of the whole market, rectification is possible. (Qing Yu)
 
 
[Institutions' Movement]
Renowned privately-offered funds remind risks of local market bubble
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After the A-share market closed above 4,000 points, XFA made a survey among some renowned large privately-offered funds in Shenzhen about future trend. They share the following common ideas: first of all, under the support from regulator and continuous social capital inflow, now it is not the time to cast a bearish attitude towards the whole market; secondly, some stocks are over speculated. Due to over expectation on “Internet Plus”, the market value of lots of companies with meager profit rockets to 20 billion yuan, 30 billion yuan and even 50 billion yuan, making experienced investors of the Internet industry feel incredible; thirdly, severe bubble of local market leads to the capital flow to Hong Kong stock market. In an internal seminar convened recently, Wang Ruyuan, a renowned fund manager, frankly indicates that her favored A-share varieties are casted into the shade in front of their corresponding Hong Kong stocks. It is expected that the “transfer” of institutional capital to Hong Kong stock market might spread in the future.
 
Investment scope of insurance capital might further expand
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It is learnt through authoritative channel that after relaxing restrictions on overseas investment scope, insurance supervision department is planning to launch more detailed relaxing policies. The investment scope of insurance capital might further expand, including that expanding the investment scope of insurance capital in domestic obligatory rights and equities, lifting properly the maximum investment proportion of real estate, allowing investment in derivatives by insurance capital at proper time and accelerating the securitization of insurance capital.
The expanded investment scope of insurance capital stabilizes and improves the investment return of insurance capital. The industry expects that benefited from the continuously booming stock market and the investment access to the Chinext Board of insurance capital, the first-quarter investment return of insurance institutions including listed insurance enterprises might surpass the investment return during the bullish market in 2007.
 
 
[XFA Viewpoint]
Prosperity of semiconductor industry hikes continuously, industrial chain companies see good performance
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As the financial reports of the first quarter are intensively disclosed, the market pays more attention to industries with certain performance growth. XFA learns through sorting out relevant information that thanks to the increasing demand of semiconductor market, multi semiconductor industry companies expect large year-on-year growth in the first quarter of this year. Data shows that in the first two months of this year, China’s integrated circuit manufacturing industry achieved a sales output value of 46.3 billion yuan, indicating a year-on-year growth of 14.2 percent. Key integrated circuit manufacturers see abundant orders and the average capacity utilization rate of main production lines exceeds 90 percent. It is estimated by the Semiconductor Equipment and Materials International (SEMI) that the sales volume of global semiconductor manufacturing equipment might grow by 15.2 percent in 2015.  As the world largest integrated circuit market, China has planned an investment of more than 100 billion U.S. dollars at home and abroad. Domestic semiconductor enterprises and upstream consumables will embrace explosion of rapid growth.
Beijing Sevenstar Electronics Co., Ltd. (002371.SZ), a leading enterprise in integrated circuit processing equipment in China, has successfully developed high-end equipment like 12-inch vertical oxidation furnace, LPCVD, single-chip cleaning machine, etc. Some technologies have caught up with world advanced level. During the domestication process of domestic semiconductor industry, the company might benefit the most.
Jiangsu Nata Opto-electronic Material Co., Ltd. (300346.SZ) is a domestic enterprise in upstream material of integrated circuit. Its new product, Trimethylindium, can only be produced by four enterprises globally. The company also actively develops core upstream air material of semiconductor like arsine, phosphine, etc. and enters a new 30-billion-yuan market. Along with the materialization of new product capacity, the company’s performance and gross profit might see further increase.
Nantong Fujitsu Microelectronics Co., Ltd. (002156.SZ), principally engaged in the packaging and testing business of integrated circuit, has started mass production of 28nm FC+SiP. As the income of chip manufacturers including TI, MTK and Spreadtrum Communications, Inc. increases continuously, the revenue growth speed of Fujitsu Microelectronics in 2015 might be lifted to 40 percent and its performance this year might be doubled.
 
 
 [Industry Observation]
Breeding stock of reproductive sows continue to decline, live pig price recovered in slack season
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As a result of the declining breeding stock of reproductive sows and the increasingly reducing live pig supplies, the price of live pigs recovered in the slack season. The pig price increased slightly to 12.5 yuan per kilogram last week across the country. In addition, the effects of the use of pigs recovered from aphtha by Jinluo Group and the pork of pigs died of diseases also contributed to the supply decline in later periods. Insiders believe that the declining live pig price is likely to continue in the second quarter and in the second half.
Statistics from the Ministry of Agriculture show that the breeding stock of reproductive sows has been declining for 18 consecutive months with the largest drop in February. According to the statistics released by Sichuan, Hunan and other major provinces in pigs raising, the number of live pigs and the breeding stock of reproductive sows will continue to decrease in March. The live pigs and the breeding stock of reproductive sows in Sichuan Province dropped by 5.79 percent and 17.15 percent in the first quarter year on year and the breeding stock and slaughtering number of sows and fattening pigs both declined. The survey conducted by the agricultural department of Hunan Province showed that many individual pigs farmers exit as a result of the sluggish pig prices and the breeding stock of live pigs at scaled farmers also decreased compared with the corresponding period of last year.
 
Apple Watch sees enthusiastic booking, big data on health catches attention
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Apple Watch opened for booking on April 10 and was widely welcomed. The delivery of many types has been postponed to June. The big data on health of the product is widely expected and the Healthkit open for downloading provides customers with a complete health data system. Such information as the heart rate, blood pressure and other information will be analyzed by the built-in sensor of the IOS and an independent external system. As a result, wearable equipment manufacturers in China are actively developing various mobile medical applications to establish bog data platforms. Many plan to cooperate with hospitals to get close to patients.
Among A-share companies, Andon Health Co., Ltd. (002432.SZ) is a leading medical and health electronic products supplier in the world. The sales of its first mobile medical product IHEALTH have been increasing in overseas markets. It ranks first in terms of the data collected. The company also plans to conduct trial cooperation with hospitals in Middle American and European regions. Guangdong Biolight Meditech Co., Ltd. (300246.SZ) is also rapidly advancing into the mobile medical surveillance products. It will actively conduct temperature testing for women and the elderly and advance towards the blood pressure, blood oxygen and other vital signs monitoring in order to launch relevant mobile medical surveillance products in the following two years.
 
 
 [Information Radar]
Railway investment accelerates, Century Real Technology to see significant increase in orders
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With the acceleration in railway investment, Beijing Century Real Technology Co., Ltd. (300150.SZ) is likely to see significant increase in orders for relevant operation this year. The performance of the company is likely to maintain a high growth this year. Century Real Technology recorded a year-on-year growth of over 90 percent in the results of 2014.
Century Real Technology has been diversifying its products and application with the railway industry as the core and has expanded its business into the railway telecommunications and the maintenance of railway equipment maintenance. Its railway monitoring system recorded a year-on-year increase of 320 percent in the operation turnover last year, which accounts for nearly 20 percent of its principal activities. It recorded more than 450 million yuan in new orders last year. In addition, Century Real Technology established a joint venture to develop the lithium battery for railway telecommunication last year, which is likely to become a key development orientation of the company.
 
Pci-suntek Technology to further conduct face identification business
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The progress of the face identification business of Pci-suntek Technology Co., Ltd. (600728.SH) has caught the attention of institutes recently. The company announced in March that it would establish the video and image intelligent technology laboratory (phase II) with the Sun Yat-sen University. The laboratory focuses on the study and industrialization of face identification and other technologies. Institutes believe that Pci-suntek Technology will conduct further expansion in the face identification industry through the cooperation with scientific research institutes.
As an identification recognition , the face identification enjoys more bright prospects in online application compared with the fingerprint and sclera identification. In the domestic scientific research, the Chongqing Institute of Green and Intelligent Technology, Chinese Academy of Sciences, has made significant breakthroughs in face identification. It firstly initiated the face identification payment system in China last year and will introduce a financial product based on the face identification technology this month.
 
 
 [Editor’s Thought]
Pay attention to officials’ field inspections on N.E. China
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The SSE Index surged above 4,000 points last week with active investments in various themes. Meanwhile, the H shares and B shares also hiked, showing the enthusiasm of OTC and floor capitals in seeking low valuation under the support of regulatory authorities. It is an effective investment strategy to follow latest policies and grasp potential market hotspots in future under such market conditions.
Senior officials have been inspecting local economic conditions recently. For example, Liu He, deputy director of the National Development and Reform Commission (NDRC) inspected Shanghai. Chinese Vice-Premier Wang Yang visited Liaoning Province. The author believes that investors should pay special attention to the symposium on the economic conditions in the three provinces in Northeastern China chaired by Premier Li Keqiang on April 10. The GDP growth of the three provinces ranked bottom last year and have been severely affected by the economic transformation, which has caught the attention of the central government. It is reported that the new ten-year plan on the revitalization of Northeastern China will be introduced with the support of the central government.
As a matter of fact, the revitalization of Northeastern China has been covered in the government work report of this year. General Secretary Xi Jinping emphasized the revitalization of Northeastern China during the group deliberation during the two sessions. Premier Li Keqiang indicated that Northeastern China plays an important role in the overall national strategic development. It should launch several significant infrastructure projects, advancing the going global of the equipment manufacturing industry, actively promote the reform of state-owned enterprises and state capitals as well as support the first pilots of central enterprises headquartered in Northeastern China.
Statistics show that the advantages of high-end equipment manufacturing in Northeastern China lie in the robots manufacturing, rail transportation and ship equipment. There are 48 listed companies with state capitals and many suspended trading for the preparation of significant events. The total market value of 15 enterprises, including Changchun Yidong Clutch Co., Ltd (600148.SH), is less than 5 billion yuan.
 
 
 
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