[Today’s Guide]
○ Treasure-hunting game with key policies themes to continue
○ Large insurance companies not to reduce shareholding significantly
○ Large performance growth and transformation lead to promising development of communication industry
○ Furen Medicines Group to see overall listing soon
[Authoritative Voice]
Revision of Securities Law promotes financial innovation
------
It is reported that as part of the reform of the registration system for the stocks issuance, the revised draft of the Securities Law has set regulations on the waiver from registration, which will further promote financial innovation. The issuance to qualified investors, crowdfunding issuance, small amount issuance, the implementation of equity incentive plans or employee stock ownership plans will be exempted from registration in accordance with the regulations. It means that the crownfunding for public funds, which has been deliberated for a long time, will have legal basis after the completion of the revision of the Securities Law.
Futures Law legislation underway
------
The revised draft of the Securities Law has deleted the regulations on securities derivatives in the existing version. The stock index futures, stock options and other securities derivatives will be adjusted. At the same time, the legislation of the Futures Law is advancing at the same time. It will make detailed regulations on securities derivatives in relevant clauses of the Futures Law.
[XFA View]
Treasure-hunting game with key policies themes to continue
------
The regulatory authorities have introduced various measures to cool down the stock market recently and the market may experience adjustment and consolidation. However, the author after communicating with managers of many well-known private funds believes that the overall valuation of the blue-chip sector is far from being crazy. Either value investors or momentum investors can still seek structural opportunities from the stock market. The treasure-hunting game with the theme of key policies will not end.
Although the SSE Composite Index has doubled from the bottom, the P/E ratio of the ChiNext is more than 100 times and the performance of the CSR Corporation Limited (01766.SH; 601766.SH) and China CNR Corporation Limited (06199.HK; 601299.SH) is astonishing, it is still early to say that the market is crazy and exit from the market. Latest statistics show that the dynamic P/E ratio of the CSI 300 Index and the SSE 50 Index is 17 times and 13 times, respectively. The dynamic P/E ratio of the banking, automobile and white electric appliances sectors is 7 times, 15 times and 16 times, respectively. As the total market value of the CSI 300 Index accounts for nearly 70 percent, it means that the overall valuation of the A-share blue chips is far from being crazy and it is not the time for value investors to harvest.
The outstanding performance of the CSR Corporation and China CNR Corporation has set successful models for others to follow and reproduce in the A-share market characterized by individual investors following trends. The market expects that the CSR Corporation and China CNR Corporation will delist and re-list at the end of May or early June. It will not set the limit for increase or decrease on the first trading day and will attract hot money to promote the central enterprises reform, the One Belt and One Road and other themes with key policies. Momentum investors will continue the treasure-hunting game.
The intraday turnover of the Shanghai Stock Exchange was 1 trillion yuan in April and the turnover on the Shanghai and Shenzhen bourses was about 1.5 trillion yuan. The margin trading balance was as high as 1.7 trillion yuan. As one of the largest beneficiaries of the bullish market, the securities company sector is expected to continue to benefit from the bullish market in April and boost the whole financial sector.
In contrast, certain growth stocks with higher valuation, pseudo growth stocks in particular, may experience difficulties. The higher valuation is just superficial and more importantly, two factors have been supporting the valuation improvement of growth stocks since 2013 are declining. Firstly, the stock issuance is speeding up and new stocks can be issued twice a month and the registration system for the stock issuance will be introduced soon. Secondly, the prosperity of the National Equities Exchange and Quotations (NEEQ) has attracted various small companies with high growth and the quality targets of growth stocks for expansion have significantly reduced. Investors are advised to pay more attention. (Hong Yan)
[Institutions’ Movement]
Large insurance companies not to reduce shareholding significantly
------
According to the latest survey of XFA on nearly ten insurance companies in Beijing and Shanghai, although medium and small insurance companies with high position repurchased stock indexes and stock funds, the People’s Insurance Company (Group) of China Limited (01339.HK) and other large insurance companies have no movements in reducing shareholding. Firstly, the current position is slightly below the neutral level and they are not motivated to reduce the shareholding. Secondly, they have massive banking stocks with not high valuation. They worry that they may miss the rally if they reduce shareholding.
[XFA Viewpoint]
Large performance growth and transformation lead to promising development of communication industry
------
With huge investment in 4G and broadband access, the communication industry keeps high prosperity. The Q1 report disclosed by ZTE Corporation (000063.SZ; 00763.HK) on April 24 shows that the net profit of the company from Jan. to March reaches nearly 883 million yuan, exceeding the level during the settlement peak in last fourth quarter and setting a five-year new high. Under the context of Chinese government’s promotion in “increasing investment in constructing information infrastructure”, “improving Internet broadband”, etc., the top three operators in China are also adding stakes. The performance growth of communication device industry sees strong guarantee. Moreover, on the basis of steady growth of traditional business, multiple companies in communication industry actively transform towards Internet and platform operator so as to achieve better development prospect.
Guangdong Eastone Century Technology Co., Ltd. (300310.SZ) has expanded its integration business of communication operation and maintenance to the whole country. 4G investment peak will bring strong guarantee to its traditional business. Relying on professional advantage in communication service area, the company actively promotes “technical service + intelligent medical service” strategy. It resorts to the channel resource of renowned media and pushes forward the development of medical service and mobile marketing business. Along with the implementation of new projects, Eastone Century might explore a larger blue sea closer to users.
Relying on the production and sales of wireless RF connection system and fiber-optic connection products, Jiangsu Wutong Communications Co., Ltd. (300292.SZ) completes its “communication manufacturing + Internet” strategic layout by acquiring Shanghai BroadMobi Communication Technology Co., Ltd., Beijing Guodu Internet Technology Co., Ltd. and AdinMedia (Shanghai) Co., Ltd., etc. Considering that the company’s traditional business benefits from the high prosperity of 4G and the explosive power of new business, Wutong Communications might see continuous performance growth in future years.
Fujian Newland Computer Co., Ltd. (000997.SZ), a leading domestic POS machine enterprise, actively transforms towards “cloud-pipe-terminal” and data operation business mode. By relying on the development of QR code and new products including MPOS (a new-type payment product), the company has seen great development in information identification and e-payment. The cloud payment platform of Newland Computer has been officially started. By exploring the new value of current users, the company might resume high growth.
[Information Radar]
Furen Medicines Group to see overall listing soon
------
Furen Pharmaceutical Group Industry Co., Ltd. (600781.SH) announced last March that Furen Medicines Group, its substantial shareholder, plans to achieve overall listing and will fulfill the promise within five years when conditions are met. XFA learns that this process is under promotion. Quality assets under Furen Medicines Group include Kaifeng Pharmaceutical (Group) Co., Ltd., a large-scale comprehensive pharmaceutical enterprise producing antibiotics, semisynthetic antibiotics, active pharmaceutical ingredients and various preparations. Kaifeng Pharmaceutical (Group) conducted shareholding reform as early as in 2003 and gained investment from multiple PE investment funds including Sequoia Capital, Zheshang Fund, etc.
E-Hualu to see accelerated implementation of intelligent traffic BT project in Hebei Province
------
As the construction of intelligent traffic accelerates in different places, the highly concerned intelligent traffic BT project in Hebei Province undertaken by Beijing E-Hualu Info Technology Co., Ltd. (300212.SZ) might see accelerated implementation. China Hualu Group Co., Ltd., controlling shareholder of E-Hualu, signed strategic cooperation contract with the government of Hebei Province. The listed company obtained Hebei intelligent traffic BT project and expected an investment of 2.4 billion yuan. Being cash-strapped, the project delays implementation. It is learnt that this project has been covered in 2015 annual financial budget of Hebei Province. Once implemented, the company’s performance flexibility will be greatly improved and the market’s confidence in the execution of intelligent city construction framework agreement will be boosted.
Moreover, the strong information security guarantee ability of E-Hualu has caught attentions of relevant government authorities. It might get the chance to participate in national internet platform concerning network information security. The company’s performance maintains high growth: its net profit in the first quarter expects a year-on-year growth of 40~60 percent and is highly possible to see an annual high growth.
[Editor's Thought]
Be ambitious and opportunity-seeking
------
In last week, the news of quickened issuance of new stocks comes just after the warning of risks by regulator and the reduction of Reserve Requirement Ratio (RRR). Fierce argument on whether the bullish market has ended or not and whether the bubbles will burst since then emerges. Rumors even go that the regulator will lift stamp duty to contain the bullish market. Analyzing investor psychology, it can be known that most of the worries come from the fear on high stock indexes. Moreover, tending to maintain the investment return is another factor resulted in that investors exit the market in advance.
XFA once pointed out that a “quality bullish market” is desired by all participants. The impact of the gentle control from regulator is artificially magnified. It means that under the precondition that there is no systematic risk, it is better for “ambitious” investors to look for “quality” listed companies, focus on their fundamentals and share the banquet of bullish market through the development and expansion of enterprises rather than to argue the “bullishness” or “bearishness” of indexes and the success or failure of economic transformation.
Now it’s the intensive disclosure of annual reports and Q1 reports of listed companies, besides changes in conventional performance and shareholders, the operation plan and development strategy of next year are also important information worthy of investors’ study. Special attentions shall be paid to companies frequently mentioning “transformation”, “extensional acquisition”, “e-commerce platform” etc. in their outlook for next year. For small-market-value enterprises with high P/E ratio, they can achieve great-leap-forward development through one or two successful acquisition or transformation and effectively decrease their valuation.
○ Treasure-hunting game with key policies themes to continue
○ Large insurance companies not to reduce shareholding significantly
○ Large performance growth and transformation lead to promising development of communication industry
○ Furen Medicines Group to see overall listing soon
[Authoritative Voice]
Revision of Securities Law promotes financial innovation
------
It is reported that as part of the reform of the registration system for the stocks issuance, the revised draft of the Securities Law has set regulations on the waiver from registration, which will further promote financial innovation. The issuance to qualified investors, crowdfunding issuance, small amount issuance, the implementation of equity incentive plans or employee stock ownership plans will be exempted from registration in accordance with the regulations. It means that the crownfunding for public funds, which has been deliberated for a long time, will have legal basis after the completion of the revision of the Securities Law.
Futures Law legislation underway
------
The revised draft of the Securities Law has deleted the regulations on securities derivatives in the existing version. The stock index futures, stock options and other securities derivatives will be adjusted. At the same time, the legislation of the Futures Law is advancing at the same time. It will make detailed regulations on securities derivatives in relevant clauses of the Futures Law.
[XFA View]
Treasure-hunting game with key policies themes to continue
------
The regulatory authorities have introduced various measures to cool down the stock market recently and the market may experience adjustment and consolidation. However, the author after communicating with managers of many well-known private funds believes that the overall valuation of the blue-chip sector is far from being crazy. Either value investors or momentum investors can still seek structural opportunities from the stock market. The treasure-hunting game with the theme of key policies will not end.
Although the SSE Composite Index has doubled from the bottom, the P/E ratio of the ChiNext is more than 100 times and the performance of the CSR Corporation Limited (01766.SH; 601766.SH) and China CNR Corporation Limited (06199.HK; 601299.SH) is astonishing, it is still early to say that the market is crazy and exit from the market. Latest statistics show that the dynamic P/E ratio of the CSI 300 Index and the SSE 50 Index is 17 times and 13 times, respectively. The dynamic P/E ratio of the banking, automobile and white electric appliances sectors is 7 times, 15 times and 16 times, respectively. As the total market value of the CSI 300 Index accounts for nearly 70 percent, it means that the overall valuation of the A-share blue chips is far from being crazy and it is not the time for value investors to harvest.
The outstanding performance of the CSR Corporation and China CNR Corporation has set successful models for others to follow and reproduce in the A-share market characterized by individual investors following trends. The market expects that the CSR Corporation and China CNR Corporation will delist and re-list at the end of May or early June. It will not set the limit for increase or decrease on the first trading day and will attract hot money to promote the central enterprises reform, the One Belt and One Road and other themes with key policies. Momentum investors will continue the treasure-hunting game.
The intraday turnover of the Shanghai Stock Exchange was 1 trillion yuan in April and the turnover on the Shanghai and Shenzhen bourses was about 1.5 trillion yuan. The margin trading balance was as high as 1.7 trillion yuan. As one of the largest beneficiaries of the bullish market, the securities company sector is expected to continue to benefit from the bullish market in April and boost the whole financial sector.
In contrast, certain growth stocks with higher valuation, pseudo growth stocks in particular, may experience difficulties. The higher valuation is just superficial and more importantly, two factors have been supporting the valuation improvement of growth stocks since 2013 are declining. Firstly, the stock issuance is speeding up and new stocks can be issued twice a month and the registration system for the stock issuance will be introduced soon. Secondly, the prosperity of the National Equities Exchange and Quotations (NEEQ) has attracted various small companies with high growth and the quality targets of growth stocks for expansion have significantly reduced. Investors are advised to pay more attention. (Hong Yan)
[Institutions’ Movement]
Large insurance companies not to reduce shareholding significantly
------
According to the latest survey of XFA on nearly ten insurance companies in Beijing and Shanghai, although medium and small insurance companies with high position repurchased stock indexes and stock funds, the People’s Insurance Company (Group) of China Limited (01339.HK) and other large insurance companies have no movements in reducing shareholding. Firstly, the current position is slightly below the neutral level and they are not motivated to reduce the shareholding. Secondly, they have massive banking stocks with not high valuation. They worry that they may miss the rally if they reduce shareholding.
[XFA Viewpoint]
Large performance growth and transformation lead to promising development of communication industry
------
With huge investment in 4G and broadband access, the communication industry keeps high prosperity. The Q1 report disclosed by ZTE Corporation (000063.SZ; 00763.HK) on April 24 shows that the net profit of the company from Jan. to March reaches nearly 883 million yuan, exceeding the level during the settlement peak in last fourth quarter and setting a five-year new high. Under the context of Chinese government’s promotion in “increasing investment in constructing information infrastructure”, “improving Internet broadband”, etc., the top three operators in China are also adding stakes. The performance growth of communication device industry sees strong guarantee. Moreover, on the basis of steady growth of traditional business, multiple companies in communication industry actively transform towards Internet and platform operator so as to achieve better development prospect.
Guangdong Eastone Century Technology Co., Ltd. (300310.SZ) has expanded its integration business of communication operation and maintenance to the whole country. 4G investment peak will bring strong guarantee to its traditional business. Relying on professional advantage in communication service area, the company actively promotes “technical service + intelligent medical service” strategy. It resorts to the channel resource of renowned media and pushes forward the development of medical service and mobile marketing business. Along with the implementation of new projects, Eastone Century might explore a larger blue sea closer to users.
Relying on the production and sales of wireless RF connection system and fiber-optic connection products, Jiangsu Wutong Communications Co., Ltd. (300292.SZ) completes its “communication manufacturing + Internet” strategic layout by acquiring Shanghai BroadMobi Communication Technology Co., Ltd., Beijing Guodu Internet Technology Co., Ltd. and AdinMedia (Shanghai) Co., Ltd., etc. Considering that the company’s traditional business benefits from the high prosperity of 4G and the explosive power of new business, Wutong Communications might see continuous performance growth in future years.
Fujian Newland Computer Co., Ltd. (000997.SZ), a leading domestic POS machine enterprise, actively transforms towards “cloud-pipe-terminal” and data operation business mode. By relying on the development of QR code and new products including MPOS (a new-type payment product), the company has seen great development in information identification and e-payment. The cloud payment platform of Newland Computer has been officially started. By exploring the new value of current users, the company might resume high growth.
[Information Radar]
Furen Medicines Group to see overall listing soon
------
Furen Pharmaceutical Group Industry Co., Ltd. (600781.SH) announced last March that Furen Medicines Group, its substantial shareholder, plans to achieve overall listing and will fulfill the promise within five years when conditions are met. XFA learns that this process is under promotion. Quality assets under Furen Medicines Group include Kaifeng Pharmaceutical (Group) Co., Ltd., a large-scale comprehensive pharmaceutical enterprise producing antibiotics, semisynthetic antibiotics, active pharmaceutical ingredients and various preparations. Kaifeng Pharmaceutical (Group) conducted shareholding reform as early as in 2003 and gained investment from multiple PE investment funds including Sequoia Capital, Zheshang Fund, etc.
E-Hualu to see accelerated implementation of intelligent traffic BT project in Hebei Province
------
As the construction of intelligent traffic accelerates in different places, the highly concerned intelligent traffic BT project in Hebei Province undertaken by Beijing E-Hualu Info Technology Co., Ltd. (300212.SZ) might see accelerated implementation. China Hualu Group Co., Ltd., controlling shareholder of E-Hualu, signed strategic cooperation contract with the government of Hebei Province. The listed company obtained Hebei intelligent traffic BT project and expected an investment of 2.4 billion yuan. Being cash-strapped, the project delays implementation. It is learnt that this project has been covered in 2015 annual financial budget of Hebei Province. Once implemented, the company’s performance flexibility will be greatly improved and the market’s confidence in the execution of intelligent city construction framework agreement will be boosted.
Moreover, the strong information security guarantee ability of E-Hualu has caught attentions of relevant government authorities. It might get the chance to participate in national internet platform concerning network information security. The company’s performance maintains high growth: its net profit in the first quarter expects a year-on-year growth of 40~60 percent and is highly possible to see an annual high growth.
[Editor's Thought]
Be ambitious and opportunity-seeking
------
In last week, the news of quickened issuance of new stocks comes just after the warning of risks by regulator and the reduction of Reserve Requirement Ratio (RRR). Fierce argument on whether the bullish market has ended or not and whether the bubbles will burst since then emerges. Rumors even go that the regulator will lift stamp duty to contain the bullish market. Analyzing investor psychology, it can be known that most of the worries come from the fear on high stock indexes. Moreover, tending to maintain the investment return is another factor resulted in that investors exit the market in advance.
XFA once pointed out that a “quality bullish market” is desired by all participants. The impact of the gentle control from regulator is artificially magnified. It means that under the precondition that there is no systematic risk, it is better for “ambitious” investors to look for “quality” listed companies, focus on their fundamentals and share the banquet of bullish market through the development and expansion of enterprises rather than to argue the “bullishness” or “bearishness” of indexes and the success or failure of economic transformation.
Now it’s the intensive disclosure of annual reports and Q1 reports of listed companies, besides changes in conventional performance and shareholders, the operation plan and development strategy of next year are also important information worthy of investors’ study. Special attentions shall be paid to companies frequently mentioning “transformation”, “extensional acquisition”, “e-commerce platform” etc. in their outlook for next year. For small-market-value enterprises with high P/E ratio, they can achieve great-leap-forward development through one or two successful acquisition or transformation and effectively decrease their valuation.
Latest comments