Disclosure of annual report kicks off, three industries stand out

At a time when stock indexes have just plummeted, the disclosure of annual report  has been quietly kicked off. According to statistics from Wind, as of Jan. 16, 1,275 listed companies on Shanghai and Shenzhen stock exchanges forecasted their 2015 annual results, in which 1,084 companies confirmed the amount of variation of net profits. 212 companies, or 16.6 percent, estimated net profits to double. Industry source analyzed that from the perspective of industrial sectors, full-year growth of pharmaceutical biotechnology, computer and media are worthy of expectation.

Pharmaceutical biotechnology: cross-sector healthcare and pharmaceutical companies with innovation genes promising

Statistics indicated that 84 companies in the pharmaceutical biotechnology sector have released annual results announcements, and 62 of them, or 73.81 percent, have forecasted full-year earnings growth. In terms of the amount of forecasted growth, 40 companies estimated over 30 percent net profits growth, and 24 companies anticipated over 40 percent growth. Ten companies, including Shenzhen Neptunus Bioengineering Co., Ltd. (000078.SZ), Zhejiang Hisoar Pharmaceutical Co., Ltd. (002099.SZ) and Zhongyuan Union Cell & Gene Engineering Corp., Ltd. (600645.SH), estimated more than 100 percent net profits growth year on year.

Liu Yang, an analyst with Dongxing Securities, believes that both trading volume and price of blood products have risen. Biotechnology sector, and precision medical treatment sector which conform to the trend, have prominent growth momentum. Specifically, blood product and precision medical treatment are two directions favored by investors. Blood products have been historically in short of supply, and the industry is expected to usher into the honeymoon period in which both trading volume and price will surge after price limit of blood products is lifted.

Precision medical treatment was a segment most consistent with the trend in pharmaceutical sector last year, many companies, such as Beijing Beilu Pharmaceutical Co., Ltd. (300016.SZ) and Anhui Anke Biotechnology (Group) Co., Ltd. (300009.SZ), have expanded into this area through acquisitions. Precision medical treatment could not only meet demands of the development of an aging society in the future, but also include gene detection and cellular immunotherapy, which are highly application-oriented tools. Therefore, the prosperity of the industry is expected to continue to heat up.

Liu expressed his continuous optimism about the prospects of sectors such as medical services (Jinling Pharmaceutical Company Limited (000919.SZ), Shinva Medical Instrument Co., Ltd. (600587.SH), Aier Eye Hospital Group Co., Ltd. (300015.SZ), Mayinglong Pharmaceutical Group Co., Ltd. (600993.SH), Meinian Onehealth Healthcare Holdings Co., Ltd. (002044.SZ)), medical apparatus and instruments (China Resources Wandong Medical Equipment Co., Ltd. (600055.SH)), gene detection and precision treatment (Beijing Beilu Pharmaceutical Co., Ltd. (300016.SZ)), biological medicine (Shanghai RAAS Blood Products Co., Ltd. (002252.SZ), Hualan Biological Engineering, Inc. (002007.SZ)), which represent the direction of China’s pharmaceutical and medical apparatus and instruments industry transformation. Investors are suggested to keep an eye on pharmaceutical business stocks (Yunnan Hongxiang Yixintang Pharmaceutical Co., Ltd.
(002727.SZ) , Laobaixing Pharmacy Chain Joint Stock Company (603883.SH) , Neptunus, Yifeng Pharmacy Chain Co., Ltd. (603939.SH)) that conform to industry development trend, and stocks (Shanghai Shyndec Pharmaceutical Co., Ltd. (600420.SH), China National Accord Medicines Corporation Ltd. (000028.SZ)) with SOEs reform expectations.

Sun Jian, an analyst with Zhongtai Securities, indicated that certainty of earnings growth and safety margin of valuation are allocation indicators that should be paid more attention to in the medium-short term. In respect of industrial sectors, Sun still optimistic about investment opportunities in companies with innovation gene under the new normal of low industry growth rate, as well as cross-sector healthcare and pharmaceutical related companies. Investors are recommended to keep an eye on the following subjects: Shenzhen Salubris Pharmaceuticals Co., Ltd. (002294.SZ), Shanghai Tofflon Science and Technology Co., Ltd. (300171.SZ), Humanwell Healthcare (group) Co., Ltd. (600079.SH), Da An Gene Co., Ltd. of Sun Yat-Sen University (002030.SZ), Hainan Honz Pharmaceutical Co., Ltd. (300086.SZ).

Computer: over 70 pct of companies expect pfofit growth

Of 66 computer companies which disclosed annual results announcements as of last Friday, 47 expected profits, representing 71.21 percent. Of such companies, 30 estimated over 30 percent net profits growth year on year, 15 forecasted over 50 percent growth. Four companies, Shanghai 2345 Network Holding Group Co., Ltd. (002253.SZ), Wisesoft Co., Ltd. (002253.SZ), Sinodata Co., Ltd. (002657.SZ), BeiJing Join-cheer Software Co., Ltd. (002279.SZ) even estimated double growth.

Qi Yanli, a securities analyst with Bohai Securities, pointed out that the market will continue to fluctuate in 2016. In the future, the introduction of registration-based IPO system will gradually lower the valuation midpoint. Therefore, the investment pattern of speculation on stock with small cap and poor performance can be hardly seen in the future. Investors are advised to allocate investment from the perspective of combination of performance and growth, and pay more attention to stocks that are scarce in the market and that have high earing growth potentials.

In terms of trading, Qi suggested that investors could continuously focus on sectors with solid performance and that have been contentiously promoted by the government, i.e. big data, cloud computing and information securities. Besides, Liu is also optimistic about artificial intelligence, which could bring about revolutionary reform on production and daily life. With support from big data and cloud computing technology, the development of artificial intelligence (AI) is expected to speed up. Also, Qi anticipated that prospects of weak AI such as biological recognition and intelligent search and strong AI such as automatic drive are rosy.

In conclusion, Qi maintains “optimistic” investment rating for the industry, and she is confident in the investment opportunities hide in big data, AI, information security, mobile payment and car networking areas. As for holdings, Beijing Philisense Technology Co., Ltd. (300287.SZ), Iflytek Co., Ltd. (002230.SZ), Business-intelligence Of Oriental Nations Corporation Ltd. (300166.SZ), Navinfo Co., ltd. (002405.SZ) and Beijing Thunisoft Co., Ltd. (300271.SZ) are recommended.

Media industry: to sustain high growth in the future

The media industry, showing outstanding performance in the third quarter of 2015, is still among the top-notch ones in terms of annual performance. 20 out of the 29 performance forecasts announced as of last Friday, accounting for 68.97 percent, expect performance growth. Wuhu Shunrong Sanqi Interactive Entertainment Network Technology Co., Ltd. (002555.SZ) sets foot in general entertainment through acquisition and expects a year-on-year growth of 1,182.27-1,213.67 percent in terms of net profit. Thanks to extensional acquisition or endogenous growth, Shanghai Oriental Pearl Media Co., Ltd. (600637.SH), Talkweb Information System Co., Ltd. (002261.SZ) and Great Wall International ACG Co., Ltd. (000835.SZ) expect growth of over 200 percent from a year earlier.

Hou Jialin, an analyst with Ai Jian Securities Co., Ltd., pointed out that it is explicitly stated in the suggestions to the “thirteenth five-year” plan that the culture industry should grow into a pillar industry of national economy by 2020. China’s GDP recorded 63.6 trillion yuan in 2014. Calculation based on nominal GDP shows that the added value of China’s culture industry should reach at least 5 trillion yuan from 2015 to 2020. In other words, the industry should average its annual nominal growth rate to above 13 percent, or an annual growth of 0.22 percentage points in terms of GDP contribution, in next six years.

According to Hou’s analysis, it is a challenge and also opportunity for industrial development. Both structural adjustment and the consumption-led industry itself will gradually widen its development space in the future. Culture industry, an important industry connecting people’s livelihood and consumption, is of great significance in meeting people’s demand on spiritual and cultural life and implementing the general consumption strategy during this new development stage.

Jin Wei, an analyst with China Great Wall Securities Co., Ltd., pointed out that some segmented parts of the media industry will keep running at a high growth rate in 2016. Relevant companies, including Beijing Jingxi Culture & Tourism Co., Ltd. (000802.SZ), Shanghai New Culture Media Group Co., Ltd. (300336.SZ), Fuchun Communications Co., Ltd. (300299.SZ), Business-intelligence Of Oriental Nations Corporation Ltd. (300166.SZ), Chengdu B-ray Media Co., Ltd. (600880.SH) and Beijing Kunlun Tech Co., Ltd. (300418.SZ), are worthy of investment.
Hou believes that the culture industry will remain one of the industries expecting high growth and prosperity in the capital market. As to listed companies, opportunities lie in the transformation and upgrading of traditional media enterprises, the securitization of education and sports industries as well as the building of whole industrial chain of film, TV and entertainment.

Operation: February might be a good opportunity for building positions

Zhang Gang, an analyst with Southwest Securities Co., Ltd. (600369.SH), claims that according to the appointment timetable for disclosure of annual reports in 2015, the hotspots in the market from January to April of 2016 can be roughly known. He believes that February might be a good time for building positions and April might see the divergence of the market.

Zhang believes that since there are not many listed companies appointing disclosure of annual reports in January, these companies will have little impact on the overall market performance. Companies including Youngy Co., Ltd. (002192.SZ), Tianjin Xinmao Science & Technology Co., Ltd. (000836.SZ), Heilongjiang Kingland Technology Co., Ltd. (000711.SZ) and Hubei Biocause Pharmaceutical Co., Ltd. (000627.SZ) might suffer negative impact due to their performance loss in the first three quarters of 2015.

Considering that the Spring Festival falls on February, most of the trading days in February will see stagnant trading. Bearish market performance is foreseeable since companies recording loss account for a large proportion. Investment opportunity might emerge in the leisure service sector.

Besides, Zhang expects rosy performance of stock indexes in late March. Industries including food & beverage, insurance, household appliances, bank, medicine and automobile might affect the stock indexes. Large-cap stocks, with great proportion of distribution power and ideal performance, such as finance, petroleum and petrochemical, medicine and food & beverage, might bring bullish effect.