MARKET watch

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MARKET watch

  1. 1. MARKETwatch HONG KONG RESEARCH 6 MARCH 2009 Hang Seng Index Performance Index Performance Abs Chg % Change Hong Kong Close 1-Day 1-Day 1-Mth 3-Mth Hang Seng Index 12,211.24 -119.91 -0.97 -10.57 -11.81 HSCI 1,718.55 -11.35 -0.66 -9.38 -9.25 HSCCI (Red Chips) 2,863.35 -32.10 -1.11 -9.78 -6.99 HSCEI (H-Shares) 6,900.75 -47.62 -0.69 -10.36 -7.10 Mkt T/O ($ Mn) 43,086.09 -1,874.64 -4.17 -18.45 15.39 Overseas DJIA 6,594.44 -281.40 -4.09 -18.21 -23.63 NASDAQ 1,299.59 -54.15 -4.00 -15.95 -13.90 Shanghai SE Composite 2,221.08 22.97 1.04 1.83 10.03 Mar Crude Oil (US$) 43.61 -1.77 -3.90 5.93 6.86 USD / Euro 1.2549 0.0006 0.05 -14.28 -0.81 Yen / USD 98.255 0.1763 0.18 -7.79 5.80 HSCEI HSI 20-Day MA 7,230.44 13,017.28 50-Day MA 7,417.86 13,542.45 Source: Bloomberg 9-Day RSI 44.29 36.05 Market Outlook Eric Yuen – ericyuen@guoco.com (852) 2218 2865 Hang Seng Index closed down 1.0% at 12,211. HSCEI cut 0.7% to 6,900. Tencent (700) surged 4.2% to $47.40. HKEx (388) dropped 4.6% due to analyst downgrades. Hong Kong property developers underperformed because there exists a sharp contraction in end-user demand for private residential properties in 2008 despite a steady growth in population and new household formation. Leading developers except SHK Properties (16) generally lost 2% to 6%. Regarding China stocks, coal, shipping and steel counters largely decreased 2% to 5%. Power equipment supplier like Shanghai Electric (2727) and Harbin Power (1133) both declined 7%. HSBC (5) rebounded 1.4% to $44.8 but closed at $41.5 in London yesterday. Major stock markets in the U.S. and Europe dropped 3%-5% yesterday, partly due to concerns about the outlook for General Motors and further deterioration in the U.S. job market. We reiterate our view that the Hang Seng Index may test 11,000 in March/April. Corporate News Want Want China (151, $3.17) 6M Target $3.52 BUY Zhihui Jiang – zhihui.jiang@guoco.com (86 755) 82092443 Event: Want Want China announced that its net earnings in 2008 grew 31% yoy. Revenue increased 42% yoy to US$1.55bn. Net earnings grew 31% yoy to US$263mn, 4% higher than our forecast. EPS rose 30% yoy to US2.0 cents. Impacted by high raw material prices in 1H08, overall gross margin fell from 39.9% in 2007 to 38.4% in 2008. We expect overall gross margin to increase in 2009 since prices of raw materials are declining. To intensively cultivate its distribution channels, the company expanded the number of sales staff from 7,771 at end of 2007 to 14,316 at end of 2008. As a result, selling and distribution expenses as a percentage of sales increased by 0.9 percentage point to 13.0% in 2008. However, we expect this ratio to decline in 2009. The company proposed a final dividend of US1.36 cents per share. Including interim dividend, the company will pay out US$259mn to shareholders in 2008, representing a payout ratio of 99%. We maintain our EPS forecast for 2009 and 2010 at $0.20 and $0.24 respectively, and introduce our EPS forecast for 2011 at $0.28. This translates into a 3-year EPS CAGR of 22%. The counter is trading at 16x 2009 PER. We believe it is undervalued given its dominating position in several niche markets and larger exposure to lower-tier cities, which is less affected by economic slowdown. Maintain BUY and revise upward our target price to $3.52, based on 18x 2009 PER. -1-
  2. 2. Hong Kong Research Warrant of the day DB China Life Call (15892, $0.204) Underlying asset China Life Insurance Exercise price 24.00 Gearing 10.7 Premium 19.5% Implied volatility 56.9% Expiry date 27 July 2009 KC China Life Put (15438, $0.212) Underlying asset China Life Insurance Exercise price 20.00 Gearing 10.3 Premium 18.0% Implied volatility 58.2% Expiry date 2 July 2009 RSI Indicator Overbought (9-day RSI > 80) 546, 861, 996 Oversold (9-day RSI <20) 583, 315, 432 Exceptional Turnover & Price Movements China Automation Group (569) Share price up 13.1%, turnover = 5.9x 3-month average Upcoming Events Mar 6 995 Anhui Expressway Final Mar 6 771 Automated System Quarter Mar 6 112 Chi Cheung Final Mar 6 2038 Foxconn Final Mar 6 901 Radford Capital Final Mar 6 106 Shenzhen Hi-Tech Final Mar 6 1818 Zhaojin Mining Final Mar 9 368 Sinotrans Shipping Final Mar 10 636 Fubon Bank (Hong Kong) Final Mar 10 317 Guangzhou Shipyard Final Mar 10 44 HAECO Final Mar 10 51 Harbour Centre Final Mar 10 14 Hysan Dev Final Mar 10 66 MTR Final Mar 11 293 Cathay Pacific Final Mar 11 656 Fosun Int’l Final Mar 11 802 RCG Final Mar 11 246 Realgold Mining Final Mar 11 16 SHK Properties Interim -2-
  3. 3. Hong Kong Research HSI & HSCEI Constituents Performance % Change Outperform Industrial, Cement, Steel, Property (PRC) Index vs 1 Underperform Global player, Coal, Bank (HK), Airline/ Airport 5D 1M 3M yr low HSI -5 -7 -12 14 Mixed Power, Power Equipment, Telecom HSCEI -1 -7 -7 44 % Change % Change Stock vs 1 Stock vs 1 Company Name 5D 1M 3M Company Name 5D 1M 3M Code yr low Code yr low 2038 FIH 9 -11 34 62 1398 ICBC -2 -9 -22 22 576 Zhejiang Express 8 4 29 81 177 Jiangsu Express -2 -7 -2 19 914 Anhui Conch 6 -6 15 176 101 Hang Lung Prop -2 -8 -4 21 551 Yue Yuen 6 -1 12 31 6 HK Electric -2 6 6 25 2600 CHALCO 5 1 7 106 1186 China Rail Cons -2 -7 -11 35 762 China Unicom 5 10 -17 15 2628 China Life -2 -4 1 42 700 Tencent 4 8 8 39 2883 China Oilfield -3 -18 24 99 2727 Shanghai Electric 4 -22 -29 51 19 Swire Pacific -3 1 -8 19 902 Huaneng Power 4 -5 7 78 941 China Mobile -3 -8 -12 32 144 China Merchants 4 -10 1 20 3328 BoComm -3 -12 -5 36 1919 China COSCO 3 -19 2 78 2 CLP Hldgs -3 5 1 29 3968 CMB 3 -9 -6 39 4 Wharf -4 -9 -7 41 3988 Bank of China 3 2 -7 28 12 Henderson Land -4 -7 4 17 494 Li & Fung 3 25 25 68 16 SHK Properties -4 -6 9 22 939 CCB 3 1 -9 60 1171 Yanzhou Coal -4 -21 2 47 358 Jiangxi Copper 2 -3 28 129 552 China Comservice -4 -10 -5 45 489 Dongfeng Group 2 0 52 124 991 Datang Power -4 -16 -17 49 3323 CNBM 2 4 30 517 386 Sinopec -5 -12 -17 11 2777 R&F Properties 2 0 3 188 1133 Harbin Power -5 -26 -17 77 688 China Overseas 1 9 2 83 3 HK & China Gas -6 -9 -8 21 1138 China Ship Dev 1 -25 4 49 857 PetroChina -6 -13 -16 30 2318 Ping An 1 6 15 69 330 Esprit -6 11 4 54 168 Tsingtao Brew 1 2 -12 26 1898 China Coal -6 -24 -3 73 1199 COSCO Pacific 1 -23 4 84 1 Cheung Kong -7 -6 -10 1 347 Angang Steel 0 -20 -2 150 13 Hutchison -7 1 10 15 323 Maanshan Iron 0 -18 1 172 66 MTR Corporation -7 -8 -3 26 2328 PICC P&C 0 -6 -3 106 17 New World Dev -7 -8 19 40 998 CITIC Bank 0 -5 7 51 883 CNOOC -8 -9 8 64 338 Sinopec Shanghai -1 -10 3 62 267 CITIC Pacific -8 -22 31 107 3993 CMOC -1 -10 6 106 11 Hang Seng Bank -8 -11 -21 2 83 Sino Land -1 -10 14 23 388 HKEx -9 -16 -8 14 291 China Resources -1 0 -3 15 293 Cathay Pacific -9 -8 -1 9 1800 China Comm Cons -1 -11 -12 120 694 Beijing Airport -9 -24 -31 7 753 Air China -1 -5 8 39 1088 China Shenhua -10 -21 -3 82 728 China Telecom -1 -6 -12 48 23 Bank of East Asia -13 -16 -12 15 2899 Zijin Mining -2 -2 45 209 2388 BOC Hong Kong -13 -14 -20 1 390 China Railway -2 -8 -13 43 5 HSBC Hldgs -22 -24 -45 3 2866 CSCL -2 -17 10 68 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. GuocoCapital Limited acts as a sub-underwriter for the rights issue of HSBC (5) in March 2009. -3-

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