MARKET watch

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MARKET watch

  1. 1. MARKETwatch HONG KONG RESEARCH 12 FEBRUARY 2010 Hang Seng Index Performance Index Performance Abs Chg % Change Hong Kong Close 1-Day 1-Day 1-Mth 3-Mth Hang Seng Index 20,290.69 368.47 1.85 -9.12 -9.41 HSCI 2,856.78 48.57 1.73 -8.74 -7.61 HSCCI (Red Chips) 4,017.09 74.39 1.89 -5.78 -2.14 HSCEI (H-Shares) 11,582.31 236.67 2.09 -10.68 -13.08 Mkt T/O ($ Mn) 52,935.73 -6,680.17 -11.21 -28.64 -26.75 Overseas DJIA 10,144.19 105.81 1.05 -4.87 -1.43 NASDAQ 2,177.41 29.54 1.38 -5.84 0.49 Shanghai SE Composite 2,985.50 3.00 0.10 -8.81 -5.91 Mar Crude Oil (US$) 75.28 0.76 1.02 -8.77 -5.05 Apr Gold (US$) 1094.70 18.4 1.71 -4.92 -1.79 USD / Euro 1.3685 0.0007 0.05 -5.67 -7.97 Yen / USD 89.759 -0.0081 -0.01 -1.36 -0.68 HSCEI HSI 20-Day MA 11,745.29 20,555.57 50-Day MA 12,425.90 21,342.76 9-Day RSI 40.73 38.72 Source: Bloomberg Market Outlook Eric Yuen – ericyuen@guoco.com (852) 2218 2865 Hang Seng Index and HSCEI closed at 20,290 and 11,582, up 1.9% and 2.1% respectively. Market turnover further decreased to $52.9 billion. Heavily weighted HSBC (5) and China Mobile (941) added 1.6%-1.8%. Hong Kong property stocks advanced 1.1%-3.5% but MTR Corporation (66) declined 1.1% on profit taking. Among the constituents of the HSCEI, steel and coal producers surged 2.9%-4.7%, insurance companies climbed 2.3%-3.4% and oil stocks soared 2.0%-2.2%. Six China banks rose an average of 2.0%. Cement stocks were virtually unchanged. Ten largest China property stocks, except for Evergrande (3333), gained an average of 3.1% as China’s latest inflation rate eased concerns of an imminent rate hike. We are bullish about stock market performance after the Chinese New Year and believe the prices of China property stocks may have bottomed out. Corporate News China Everbright Ltd (165, $17.96) 6M Target $23.0 BUY Eric Yuen – ericyuen@guoco.com (852) 2218 2865 Event: Valuation of China Everbright Ltd is attractive. China Everbright Ltd (CEL) is a cross-border diversified financial holdings enterprise and principally engaged in direct investment, asset management, asset investment, investment banking and brokerage businesses. Its core assets include a 33.33% stake in China Everbright Securities (CES, 601788) and 5.26% stake in China Everbright Bank. CES was listed on the Shanghai Stock Exchange in August 2009 through the issue of 520mn new shares at IPO price of RMB 21.08 per share. CES closed at RMB 26.85 yesterday, 27% higher than the IPO price. According to Bloomberg, CES is now trading at 2009 PER of 34.5x and 2010 PER of 28.7x. Valuation of CES looks expensive as compared with CITIC Securities (600030) which is trading at 2009 PER of 20.4x and 2010 PER of 18.1x. China Everbright Bank is planning for a listing on the Shanghai Stock Exchange this year. Media reported that earnings of China Everbright Bank grew 4% yoy to RMB 7.6bn in 2009. We believe the floatation will be a share price catalyst and will help unlock the hidden value of CES. In January 2010, the PRC government approved in principle the launch of stock market index futures, short selling and margin trading. The new policies will be executed this year which will substantially improve earnings prospects for securities firms in our view. -1-
  2. 2. Hong Kong Research CEL reported earnings of $719mn for the six months ended 30 June 2009, down 38% yoy. Net contribution from CES amounted to $552mn representing 77% of the interim profit. As CEL will recognize a deemed disposal gain of at least $3.0bn from the floatation of CES, we forecast CEL’s full year earnings will reach $4,616mn (EPS $2.90) translating into a 2009 PER of 6.2x. Assuming the evaluation of CES at market price, China Everbright Bank at 1.5x book value and other financial assets at book cost, we estimate the break-up value of CEL at $48.8bn or $30.7 per share of which 71% or $21.8 came from its interest in CES and 17% from its stake in China Everbright Bank. In other words, CEL is presently trading at a 41% discount to the break-up value that we think is excessive. When the share price of CES peaked at RMB 29.01 on 12 January 2010, CEL is merely trading at a 30% discount to the break-up value. We expect the discount to narrow once the Shanghai stock market trends upward in the second half of the year. We rate CES a BUY with 6-month target price at $23.0 based on a 25% discount to the break-up value. Our target price offers an upside potential of 28% and is 12% below analysts’ consensus target price of $26.0. China Shenhua (1088, $33.2) 12M Target $43.60 BUY Yunfeng Fan – yunfeng.fan@guoco.com (86 755) 8209 2443 Event: China Shenhua announced major operational data of January 2010. China Shenhua announced major operational data of January 2010. Coal production increased by 10.2% yoy to 19.4mn tons. Sales volume increased by 24.9% yoy to 24.1mn tons. Net power generation increased by 114.1% yoy to 12.18bn KWh. The significant yoy growth in sales volume and net generation was mainly due to low base effect and recovery of economic activities. After the surge of spot coal prices from September 2009 to January 2010, the Shanxi 5,500k coal price has turned direction and decreased by about 5% month-to-date. Looking forward, spot coal prices are expected to decline further with the warmer weather and lower demand in the near future. However, this will have little impact on Shenhua due to its relatively high contract ratio (75%-80% in 2010) compared with peers. On the other side, we still believe the magnitude of spot coal price correction will be relatively small given a tight supply situation. The company has not disclosed the results of 2010 contract coal negotiation. Media reported that 2010 contract coal price of Shenhua increased by 5.6% yoy that we think is reliable. Shenhua estimates that coal production volume in 2010 will be 15mn tons higher than that of 2009. We forecast the average coal sales price in 2010 will increase by 7% yoy assuming a contract sales ratio of 80%. The increase of resource tax is on the road. We believe the tax rate will be 3-5% of coal price. Shenhua is confident that it can pass the tax onto the consumers. Shenhua plans to double its production over the next five years. This target is achievable through asset inject from parent in our view. We maintain our 2009 and 2010 earnings forecasts at RMB 32.5bn (EPS: RMB 1.63) and RMB 38.2bn (EPS: RMB 1.92), representing a net profit growth of 21.6% and 17.8% yoy respectively. Traded at 2009 PER of 17.9x and 2010 PER of 15.2x, Shenhua’s valuation is attractive in our view. Maintain BUY with unchanged12-month target price at $43.60 based on 20x 2010 earnings. Exceptional Turnover & Price Movements Johnson Electric (179) Share price up 8.5%, turnover = 2.6x 3-month average New World China (917) Share price up 7.5%, turnover = 2.4x 3-month average RSI Indicator Overbought (9-day RSI > 80) 195 Oversold (9-day RSI <20) 30, 381, 486, 623, 1132 -2-
  3. 3. Hong Kong Research Warrant of the day SG Tencent Call (18633, $0.171) Underlying asset Tencent Exercise price 148.0 Gearing 8.5 Premium 13.9% Implied volatility 48.5% Expiry date 21 July 2010 DB Tencent Put (19493, $0.109) Underlying asset Tencent Exercise price 135.0 Gearing 13.3 Premium 14.4% Implied volatility 50.3% Expiry date 31 May 2010 Upcoming Events Feb 18 2332 Hutchison Telecom Final Feb 19 333 Top Form Int’l Final Feb 22 1361 361 Degrees Final Feb 22 2778 Champion REIT Final Feb 22 3368 Parkson Group Final Feb 22 119 Poly HK Final Feb 24 41 Great Eagle Final -3-
  4. 4. Hong Kong Research HSI & HSCEI Constituents Performance Price Change (%) Outperform Property (HK), Utility (HK) Index vs 3M Underperform Gold, Oilfield Service 5D 1M 3M high Hang Seng Index 0 -9 -10 -12 Mixed Industrial, Shipping, Global Player Hand Seng China Ent Index 0 -12 -14 -16 Price Change (%) Price Change (%) Stock Stock vs 3M vs 3M Code Company Name 5D 1M 3M Code Company Name 5D 1M 3M high high 101 Hang Lung Prop 6 -8 -7 -12 836 China Resources Power 1 1 -2 -3 762 China Unicom 4 -12 -19 -19 1919 China COSCO 1 -14 -11 -16 1211 BYD 4 -10 -13 -20 2318 Ping An 1 -12 -14 -18 66 MTR Corporation 3 -1 -3 -3 168 Tsingtao Brew 0 -14 1 -17 390 China Railway 3 -6 -9 -9 4 Wharf 0 -14 -11 -17 902 Huaneng Power 3 1 -7 -7 11 Hang Seng Bank 0 -4 -7 -7 293 Cathay Pacific 3 0 5 -6 576 Zhejiang Express 0 -9 -1 -14 991 Datang Power 3 -1 -6 -6 1898 China Coal 0 -27 -12 -27 17 New World Dev 3 -9 -18 -18 914 Anhui Conch 0 -5 -12 -13 941 China Mobile 2 2 1 -4 939 CCB 0 -9 -16 -19 3 HK & China Gas 2 -14 -8 -14 1171 Yanzhou Coal 0 -17 13 -20 177 Jiangsu Express 2 5 3 -4 330 Esprit 0 1 11 -1 688 China Overseas 2 -11 -14 -20 1133 Harbin Power 0 -16 -13 -16 2328 PICC P&C 2 -12 20 -12 728 China Telecom 0 -5 -7 -7 6 HK Electric 2 1 4 0 12 Henderson Land 0 -18 -13 -19 1800 China Comm Cons 2 -8 -9 -10 694 Beijing Airport 0 -23 -25 -28 83 Sino Land 2 -13 -10 -16 2628 China Life 0 -11 -13 -17 552 China Comservice 1 -1 -2 -9 1199 COSCO Pacific 0 -8 3 -13 2727 Shanghai Electric 1 -10 -9 -10 3968 CMB 0 -8 -11 -14 753 Air China 1 15 41 -3 323 Maanshan Iron 0 -22 -7 -23 1186 China Rail Cons 1 -2 -3 -4 998 CITIC Bank -1 -13 -14 -22 267 CITIC Pacific 1 -18 -16 -23 347 Angang Steel -1 -21 -9 -23 23 Bank of East Asia 1 -10 -18 -21 700 Tencent -1 -15 -3 -17 3323 CNBM 1 -14 -19 -22 2883 China Oilfield -1 -1 15 -1 494 Li & Fung 1 0 1 -3 3993 CMOC -1 -10 -6 -11 883 CNOOC 1 -8 -3 -8 144 China Merchants -1 -4 0 -10 3328 BoComm 1 -15 -19 -20 2038 FIH -2 -17 22 -26 489 Dongfeng Group 1 -7 -10 -15 1398 ICBC -2 -11 -17 -20 16 SHK Properties 1 -12 -9 -14 1138 China Ship Dev -2 -19 5 -19 2866 CSCL 1 -9 -1 -14 386 Sinopec -2 -11 -13 -13 1088 China Shenhua 1 -18 -14 -19 13 Hutchison -2 -2 0 -5 19 Swire Pacific 1 -12 -3 -12 857 PetroChina -3 -15 -14 -15 3988 Bank of China 1 -10 -20 -22 291 China Resources -3 -10 -1 -14 358 Jiangxi Copper 1 -20 -16 -24 388 HKEx -3 -14 -8 -15 2 CLP Hldgs 1 0 1 0 5 HSBC Hldgs -3 -12 -13 -17 338 Sinopec Shanghai 1 -14 -13 -14 2388 BOC Hong Kong -3 -2 -14 -15 2777 R&F Properties 1 -15 -24 -28 2899 Zijin Mining -4 -20 -23 -29 1 Cheung Kong 1 -8 -3 -8 2600 CHALCO -4 -29 -15 -29 GuocoCapital Ltd. 12/F, The Center 99 Queen’s Road Central Hong Kong Tel: (852) 2218 2865 Fax: (852) 2285 3160 http://www.guococap.com This report is for information only and is not to be construed as investment advice or as an offer to buy or sell securities. While the report is compiled using sources believed to be reliable, no assurance or guarantee is given regarding its accuracy or completeness. Neither GuocoCapital nor any other Guoco Group companies, (nor any employees or other persons connected with any of them) accepts any responsibility or liability arising from any use of this report. To the extent permitted under applicable law, the above-mentioned companies or individuals may have used the research materials before publication. However, it is hereby declared that neither GuocoCapital nor the writer, at the time of writing, has interest in any of the securities mentioned in this report. -4-

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