[Today’s Guide]
○ Banking and infrastructure industries are priorities in volatile stock market
○ Hainan free trade zone construction plan established
○ New energy vehicles highlight Shanghai automobile exhibition
○ Institutions concern progress of reform pilot in NFC
[XFA View]
Invest in weighted stocks with proactive positions
------
There is an increasingly bearish sentiment over the stock market after the SSE Composite Index reached 4,000 points and rumors have it that “the market will reshuffle soon”. It reflects the ambivalence of investors being afraid of missing the rally or retracement under the market conditions of doubled stock index and partial bubbles. Based on the positions adjustment of large institutes and the changes of OTC capitals entering into the market, the author believes that the 4,000 points is neither the market ceiling nor the policy limit. But it is more likely to fluctuate. Investors are advised to take the strategy of “investment in weighted stocks with proactive positions”.
Based on the reasons of short and long positions after the SSE Composite Index reached 4,000 points, the difficulties in the macro economic growth, the ruin of the ChiNext Board dream and regulatory risks warnings of short positions and the medium to long-term risk-free interest rate cut and the continuous entering of OTC capitals as well as social efficiency improvement brought by mobile Internet the of long positions are consistent with the current market conditions. But the current level is higher with more bearish voices. As a matter of fact, it shows the progressive features of the medium to high growth in real economy. On the one hand, it shall make progresses, mistakes and innovations. On the other hand, it shall stabilize the traditional economy and provide a stable political and economic environment for economic transformation.
Considering the long term of economic transformation, the above features will continue to exist currently as well as in a fairly long period. It is reflected as a spiral upward trend in the capital market. Investors will not reduce their enthusiasm significantly as the reform and innovation continue. At the same time, emerging industries and traditional industries under transformation will perform and hike one after another.
In terms of the current market conditions, the author believes that it may transform into improved performance with low prices from the high-price growth period. Firstly, a considerable amount of capitals are waiting to buy on retracement. Secondly, banking, securities companies, property, certain household appliances and other big-cap sectors with outstanding performance have recorded slight growth since the beginning of the year and are under active transformation. It not only reduced the space for the decline of the market, but also shows their relative advantages in valuation, which is similar with the ChiNext Board after December, 2014. More importantly, compared with capitals from property, coal and other overcapacities in the fourth quarter of last year, new investors busy in opening accounts favor low-price blue chips in their investments. (Wen Dao)
[Data Reference]
New investors favor low-price stocks with limited assets
------
After the deregulation on the more accounts for an individual, securities companies see more investors opening accounts. XFA learnt from the business departments of securities companies ranking high in terms of assets scale in Shanghai that most of investors opening accounts are post-1985s and 1990s generations. Despite the large amount of new investors, only 30 percent to 40 percent are effective investors making investments with an average asset size of less than 100,000 yuan. As a result of the limited assets, such investors cannot invest in high-price individual stocks. They are not qualified to trade on the ChiNext Board and will focus on the investment in low-price hot stocks.
Statistics show that general accounts transaction settlement recorded a net inflow of 482.1 billion yuan in March and the financing balance on Shanghai and Shenzhen stock exchanges saw a net inflow of 336 billion yuan. Compared with December when the transaction settlement recorded a net inflow of 151.5 billion yuan and the financing balance saw a net inflow of 200.3 billion yuan, the major driver of the market has changed from the financing capitals to the reallocation of deposits.
[Institutions’ Movement]
Banking and infrastructure industries are priorities in volatile stock market
------
The assets managers of Taikang Life, China Life Franklin Asset Mgt Co Ltd and other insurance companies surveyed by XFA indicated that the recently released economic statistics for the first three months show the economic slowdown. Investment will be the best driver for the government to maintain economic growth and the infrastructure sector will see more benefits of policies. In addition, the monetary policies will see higher easing pressure and it is likely to continue to cut the required reserve ratio, which will benefit the banking sector with relatively low valuation.
[Authoritative Voice]
Hainan free trade zone construction plan established
------
It is reported that the preliminary plan on Hainan free trade zone has been prepared. It proposes to integrate the Haikou bonded area, Yangpu bonded area and the new airport at Sanya City with an area of 28 square kilometers to establish a new free trade zone wot nearly 100 square kilometers. The above free trade zone can connect with two economic zones, namely the Pearl River Delta and the west coast of Taiwan Strait. Hainan Island Construction Co., Ltd. (600515.SH), a local retail leader and Hainan Expressway Co., Ltd. (000886.SZ), a leading infrastructure enterprise and other listed companies are likely to benefit.
[XFA Viewpoint]
Oil price recovers, downstream enterprises to see more revenues from value added
------
The international oil price has been recovering for nearly one month from the 43.79 U.S. dollars per barrel on March 17 to the 54.25 U.S. dollars per barrel on April 15, hiking over 23 percent and a new round of interim recovery has been established. For downstream enterprises with crude as materials, they are more likely to keep a high inventory when the oil price hikes to obtain the revenue from the value added on inventories.
Wang Xinhua, Chief Financial Officer of China Petroleum & Chemical Corporation (Sinopec, SNP.NYSE; SNP.LSE; 00386.HK; 600028.SH), told XFA that 80 percent of Sinopec’s crude are procured on overseas markets with a purchasing payment period of about 40 days. The oil price drop will result in refining losses from the inventory procured at higher price. Currently, the cost of the inventory oil has dropped below 50 U.S. dollars. With the recovery of oil price, the refining business will record profits from March. Other downstream enterprises also have similar xonditions.
The MDI operation of Wanhua Chemical Group Co., Ltd. (600309.SH) has passed the worst performance and its results returned to normal level from March. The price difference of MDI is about the average level. The global MDI demand increased 6 percent last year and remains a relatively high level. In addition, the price difference on propane oxidative dehydrogenation (PDH) widened recently and the PDH of the company is expected to put into operation in June.
The executives of Hengyi Petrochemical Co., Ltd. (000703.SZ) indicated during an inspection of institutes that the price of PTA is determined by the market. The downstream enterprises are not sensitive about price hike. But they are sensitive about prices drop. PTA will benefit most from the increasing recovery of oil price. The production cycle of the company is 10 days and the normal PX inventory is for one week. The operation of the PTA and polyester fiber of the company performed well in the first quarter with a sales-output ratio of nearly 100 percent.
[Industry Observation]
Development of new energy car accelerates, multi new cars to appear on Shanghai automobile exhibition
------
The 16th Shanghai International Automobile Industry Exhibition will be held from April 22 to 29 and the Intelligent Internet Automobile Summit Forum will be convened at the same period to discuss the innovation and integration of automobile industry under the background of mobile internet. It is learnt that multi automobile enterprises will show up with new products. 103 new energy cars are expected to appear, biggest highlight of the exhibition.
Under the promotion of a series of policies including the exemption of purchase tax in 2014, the production and sales of new energy cars are speeding up. The output of new energy cars grows by 300 percent in March, maintaining a momentum of high growth. As the charging facility network improves, the development of new energy car sees acceleration. Enterprises producing lithium battery, charging facilities, etc. will see substantial increase of market orders.
In this exhibition, BYD Company Limited (002594.SZ; 01211.HK) will launch Song and Yuan, two plug-in SUVs, for the first time; BMW will launch X5 hybrid power car; Anhui Jianghuai Automobile Co., Ltd. (600418.SH) will also launch iEV5, its fifth-generation electro-car. As the leading enterprise of domestic new energy car, BYD occupies a market share of nearly 30 percent and its plug-in hybrid power car occupies a market share as high as 50 percent. It enjoys advantage in the whole industrial chain of battery and whole-car manufacturing.
[Information Radar]
Location-based entertainment becomes new growth point of Huayi Brothers Media
------
Institutions recently investigated Huayi Brothers Media Corporation (300027.SZ) to know the progress of its location-based entertainment business. According to investigation, the location-based entertainment business of Huayi Brothers Media develops rapidly and 20 projects might be completed this year. Measured according to the data of current tourism industry, the average number of tourists visiting the 20 scenic spots of Huayi Brothers Media will reach three million annually. Future market size might reach 18 billion yuan and the company might gain around 3.2 billion yuan. The revenue from brand licensing of Huayi Brothers Media and location-based entertainment business recorded 230 million yuan last year, growing by more than 400 percent from year on year and accounting for nearly 10 percent of the total income.
To be specific, the income of location-based entertainment mainly comes from brand licensing, operation commission and derivatives. Besides the band royalty of 100 million yuan, the income from brand licensing also includes 10 percent freely-obtained shares of the project and 10 percent commission from all income of the scenic spots in the future; for operation income, Huayi Brothers Media will participate in the operation of some projects in the scenic spots and charge 8~9 percent commission of the comprehensive income; derivatives will be explored along with the completion of scenic spots in the future.
nstitutions concern progress of reform pilot in NFC
------
China Nonferrous Metal Industry’s Foreign Engineering and Construction Co., Ltd. (NFC) (000758.SZ) recently receives intensive investigation from multi institutions. Besides improving operation status, institutions mainly focus on the latest progress of the company’s SOE reform. According to institutional investigation, the senior management convened a forum of five central enterprises, NFC included, at the beginning of the month, reporting the progress of “One Belt and One Road” and SOEs reform. Institutions predict that the company might be covered in the second batch of pilot enterprises for central enterprise reform. The SOE reform of the company sees sound progress now.
Institutions predict that in terms of operation performance and enterprise size, the integration of NFC and Aluminum Corporation of China (Chinalco) is highly possible. The current business of Chinalco is quite similar to the business of NFC, and China Aluminum International Engineering Corporation Limited (Chalieco), under Chinalco, is also principally engaged in the contracting business of engineering EPC. NFC is one of the few central enterprises with good operation and its size is not so large.
○ Banking and infrastructure industries are priorities in volatile stock market
○ Hainan free trade zone construction plan established
○ New energy vehicles highlight Shanghai automobile exhibition
○ Institutions concern progress of reform pilot in NFC
[XFA View]
Invest in weighted stocks with proactive positions
------
There is an increasingly bearish sentiment over the stock market after the SSE Composite Index reached 4,000 points and rumors have it that “the market will reshuffle soon”. It reflects the ambivalence of investors being afraid of missing the rally or retracement under the market conditions of doubled stock index and partial bubbles. Based on the positions adjustment of large institutes and the changes of OTC capitals entering into the market, the author believes that the 4,000 points is neither the market ceiling nor the policy limit. But it is more likely to fluctuate. Investors are advised to take the strategy of “investment in weighted stocks with proactive positions”.
Based on the reasons of short and long positions after the SSE Composite Index reached 4,000 points, the difficulties in the macro economic growth, the ruin of the ChiNext Board dream and regulatory risks warnings of short positions and the medium to long-term risk-free interest rate cut and the continuous entering of OTC capitals as well as social efficiency improvement brought by mobile Internet the of long positions are consistent with the current market conditions. But the current level is higher with more bearish voices. As a matter of fact, it shows the progressive features of the medium to high growth in real economy. On the one hand, it shall make progresses, mistakes and innovations. On the other hand, it shall stabilize the traditional economy and provide a stable political and economic environment for economic transformation.
Considering the long term of economic transformation, the above features will continue to exist currently as well as in a fairly long period. It is reflected as a spiral upward trend in the capital market. Investors will not reduce their enthusiasm significantly as the reform and innovation continue. At the same time, emerging industries and traditional industries under transformation will perform and hike one after another.
In terms of the current market conditions, the author believes that it may transform into improved performance with low prices from the high-price growth period. Firstly, a considerable amount of capitals are waiting to buy on retracement. Secondly, banking, securities companies, property, certain household appliances and other big-cap sectors with outstanding performance have recorded slight growth since the beginning of the year and are under active transformation. It not only reduced the space for the decline of the market, but also shows their relative advantages in valuation, which is similar with the ChiNext Board after December, 2014. More importantly, compared with capitals from property, coal and other overcapacities in the fourth quarter of last year, new investors busy in opening accounts favor low-price blue chips in their investments. (Wen Dao)
[Data Reference]
New investors favor low-price stocks with limited assets
------
After the deregulation on the more accounts for an individual, securities companies see more investors opening accounts. XFA learnt from the business departments of securities companies ranking high in terms of assets scale in Shanghai that most of investors opening accounts are post-1985s and 1990s generations. Despite the large amount of new investors, only 30 percent to 40 percent are effective investors making investments with an average asset size of less than 100,000 yuan. As a result of the limited assets, such investors cannot invest in high-price individual stocks. They are not qualified to trade on the ChiNext Board and will focus on the investment in low-price hot stocks.
Statistics show that general accounts transaction settlement recorded a net inflow of 482.1 billion yuan in March and the financing balance on Shanghai and Shenzhen stock exchanges saw a net inflow of 336 billion yuan. Compared with December when the transaction settlement recorded a net inflow of 151.5 billion yuan and the financing balance saw a net inflow of 200.3 billion yuan, the major driver of the market has changed from the financing capitals to the reallocation of deposits.
[Institutions’ Movement]
Banking and infrastructure industries are priorities in volatile stock market
------
The assets managers of Taikang Life, China Life Franklin Asset Mgt Co Ltd and other insurance companies surveyed by XFA indicated that the recently released economic statistics for the first three months show the economic slowdown. Investment will be the best driver for the government to maintain economic growth and the infrastructure sector will see more benefits of policies. In addition, the monetary policies will see higher easing pressure and it is likely to continue to cut the required reserve ratio, which will benefit the banking sector with relatively low valuation.
[Authoritative Voice]
Hainan free trade zone construction plan established
------
It is reported that the preliminary plan on Hainan free trade zone has been prepared. It proposes to integrate the Haikou bonded area, Yangpu bonded area and the new airport at Sanya City with an area of 28 square kilometers to establish a new free trade zone wot nearly 100 square kilometers. The above free trade zone can connect with two economic zones, namely the Pearl River Delta and the west coast of Taiwan Strait. Hainan Island Construction Co., Ltd. (600515.SH), a local retail leader and Hainan Expressway Co., Ltd. (000886.SZ), a leading infrastructure enterprise and other listed companies are likely to benefit.
[XFA Viewpoint]
Oil price recovers, downstream enterprises to see more revenues from value added
------
The international oil price has been recovering for nearly one month from the 43.79 U.S. dollars per barrel on March 17 to the 54.25 U.S. dollars per barrel on April 15, hiking over 23 percent and a new round of interim recovery has been established. For downstream enterprises with crude as materials, they are more likely to keep a high inventory when the oil price hikes to obtain the revenue from the value added on inventories.
Wang Xinhua, Chief Financial Officer of China Petroleum & Chemical Corporation (Sinopec, SNP.NYSE; SNP.LSE; 00386.HK; 600028.SH), told XFA that 80 percent of Sinopec’s crude are procured on overseas markets with a purchasing payment period of about 40 days. The oil price drop will result in refining losses from the inventory procured at higher price. Currently, the cost of the inventory oil has dropped below 50 U.S. dollars. With the recovery of oil price, the refining business will record profits from March. Other downstream enterprises also have similar xonditions.
The MDI operation of Wanhua Chemical Group Co., Ltd. (600309.SH) has passed the worst performance and its results returned to normal level from March. The price difference of MDI is about the average level. The global MDI demand increased 6 percent last year and remains a relatively high level. In addition, the price difference on propane oxidative dehydrogenation (PDH) widened recently and the PDH of the company is expected to put into operation in June.
The executives of Hengyi Petrochemical Co., Ltd. (000703.SZ) indicated during an inspection of institutes that the price of PTA is determined by the market. The downstream enterprises are not sensitive about price hike. But they are sensitive about prices drop. PTA will benefit most from the increasing recovery of oil price. The production cycle of the company is 10 days and the normal PX inventory is for one week. The operation of the PTA and polyester fiber of the company performed well in the first quarter with a sales-output ratio of nearly 100 percent.
[Industry Observation]
Development of new energy car accelerates, multi new cars to appear on Shanghai automobile exhibition
------
The 16th Shanghai International Automobile Industry Exhibition will be held from April 22 to 29 and the Intelligent Internet Automobile Summit Forum will be convened at the same period to discuss the innovation and integration of automobile industry under the background of mobile internet. It is learnt that multi automobile enterprises will show up with new products. 103 new energy cars are expected to appear, biggest highlight of the exhibition.
Under the promotion of a series of policies including the exemption of purchase tax in 2014, the production and sales of new energy cars are speeding up. The output of new energy cars grows by 300 percent in March, maintaining a momentum of high growth. As the charging facility network improves, the development of new energy car sees acceleration. Enterprises producing lithium battery, charging facilities, etc. will see substantial increase of market orders.
In this exhibition, BYD Company Limited (002594.SZ; 01211.HK) will launch Song and Yuan, two plug-in SUVs, for the first time; BMW will launch X5 hybrid power car; Anhui Jianghuai Automobile Co., Ltd. (600418.SH) will also launch iEV5, its fifth-generation electro-car. As the leading enterprise of domestic new energy car, BYD occupies a market share of nearly 30 percent and its plug-in hybrid power car occupies a market share as high as 50 percent. It enjoys advantage in the whole industrial chain of battery and whole-car manufacturing.
[Information Radar]
Location-based entertainment becomes new growth point of Huayi Brothers Media
------
Institutions recently investigated Huayi Brothers Media Corporation (300027.SZ) to know the progress of its location-based entertainment business. According to investigation, the location-based entertainment business of Huayi Brothers Media develops rapidly and 20 projects might be completed this year. Measured according to the data of current tourism industry, the average number of tourists visiting the 20 scenic spots of Huayi Brothers Media will reach three million annually. Future market size might reach 18 billion yuan and the company might gain around 3.2 billion yuan. The revenue from brand licensing of Huayi Brothers Media and location-based entertainment business recorded 230 million yuan last year, growing by more than 400 percent from year on year and accounting for nearly 10 percent of the total income.
To be specific, the income of location-based entertainment mainly comes from brand licensing, operation commission and derivatives. Besides the band royalty of 100 million yuan, the income from brand licensing also includes 10 percent freely-obtained shares of the project and 10 percent commission from all income of the scenic spots in the future; for operation income, Huayi Brothers Media will participate in the operation of some projects in the scenic spots and charge 8~9 percent commission of the comprehensive income; derivatives will be explored along with the completion of scenic spots in the future.
nstitutions concern progress of reform pilot in NFC
------
China Nonferrous Metal Industry’s Foreign Engineering and Construction Co., Ltd. (NFC) (000758.SZ) recently receives intensive investigation from multi institutions. Besides improving operation status, institutions mainly focus on the latest progress of the company’s SOE reform. According to institutional investigation, the senior management convened a forum of five central enterprises, NFC included, at the beginning of the month, reporting the progress of “One Belt and One Road” and SOEs reform. Institutions predict that the company might be covered in the second batch of pilot enterprises for central enterprise reform. The SOE reform of the company sees sound progress now.
Institutions predict that in terms of operation performance and enterprise size, the integration of NFC and Aluminum Corporation of China (Chinalco) is highly possible. The current business of Chinalco is quite similar to the business of NFC, and China Aluminum International Engineering Corporation Limited (Chalieco), under Chinalco, is also principally engaged in the contracting business of engineering EPC. NFC is one of the few central enterprises with good operation and its size is not so large.
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