Investment Daily Note
U.S. stocks hit record high again and Japan’s GDP rose
New York manufacturing index unexpectedly contracted in May and the data boosted market confidence about the Federal Reserve’s QE. U.S. stocks rallied to a new record high and the Dow closed at 15,275, up 60 points while the S&P 500 edged up 0.51%. Hong Kong stocks are likely to open higher and Hong Kong ADRs advanced in the U.S. market, with their closing prices effectively putting the HSI at 23,124, up by 79 points. Japan’s 1Q13 GDP growth beats estimates, up 0.9% qoq, compared with the expected 0.7%, and the economy expanded for a straight second quarter. With the U.S. Dollar strength and fund outflows from gold ETFs, New York gold futures in June closed at US$1,396.2/oz, down by 2%. New York oil futures in June slipped over 2%, but pared its losses and edged up US$0.09/bbl to settle at US$94.3/bbl.
HSI up 133 pts. New energy plays were chased higher
Led by U.S. indices’ all-time highs recently, Hong Kong stocks snapped its two-day losing streak and rebounded. The Hang Seng Index opened higher and surged 233 points in early trade. However, the benchmark index’s uptrend narrowed and closed at 23,044, up 133 points. Market turnover trimmed to HK$54.9bn. Chinese financials modestly gained. The Shanghai Composite closed at 2,224, up 0.35%.
Solar energy plays rose across the board on rumors that China’s photovoltaic subsidies are set while the nation may impose tariffs on polysilicon imports, among which Singyes Solar (750.HK, HK$7.87) and Comtec Solar (712.HK, HK$1.69) soared 15% and 12.7% respectively. Wind power plays were chased higher, among which Goldwind (2208.HK, HK$5.29) broke beyond the resistance, up 8.4%. Smartphone-related plays continued to attract fund inflow, with Sunny Optical (2382.HK, HK$11.56) up 9.5%. Natural gas and petroleum and gas equipment plays were chased higher, but coal mining plays extended the downtrend, with China Coal (1898.HK, HK$5.22) down 5.6%. Chinese property plays remained weak on tightening worries in the industry.
China’s power-grid sees potential. Waison: won the most tenders in FY12
China’s energy networks are rapidly expanding along with the fast-growing economy, and second-/third-tier cities are likely to see strong growth potential. The State Grid and the Southern Grid would spend RMB500bn during the 12th Five-year Plan period to upgrade power grids in rural areas and the plan may boost demand for power meters and other data collection facilities.
Waison Group (3393.HK, HK$4.94) is mainly engaged in the development and sales of power meters, water meters and gas meters. The aggregate volume of the four tender openings invited by the State Grid was over 90mn units, and Waison won a total of RMB1.21bn of the tender contracts and was ranked No. 1 by the contract value. Revenue jumped 25% to RMB2.45bn and net profit rose 30.6% to RMB320mn in FY12. Gross margin edged up 3ppt to 33%. Waison is not only a leading power-meter provider, but also has growth potential in the smart water meter and gas meter market, mainly because China has introduced a progressive water-pricing reform and enforced the ‘one meter for one household” system in rural areas, while the gas-pipe construction and gas utilization rate are rising.
Waison’s overseas revenue surged 115% to around RMB200mn last year, representing nearly 8% of total revenue. The company set up a joint venture with Siemens (China) in mid-April while its second phase of Waison Science and Technology Park has already been in operation since 3Q12, and the new production capacity may be helpful for overseas expansion. The estimated P/E is 9.8X in FY13E with the earning is estimated to jump 14% to RMB368mn in FY13E. Technically, the share price’s movement seems to be positive as it moved along the uptrend with an increase of trade volume yesterday. Recommendation: Buy, targeting HK$5.18, with stop-losses at HK$4.33.
Tongda is catching up amid smartphone plays’ rally
Smartphone-related plays have been well-received this year and for example, AAC Tech (2018.HK, HK$43.4) and Sunny Optical (2382.HK, HK$11.56) hit their fresh highs. Meanwhile, Tongda (698.HK, HK$0.51), a manufacturer of mobile-handset cases and laptop-computer cases, is likely to catch up as its share price is lagging behind and it rallied 9.7% and broke above the 50-day MA yesterday.
Tongda announced that Templeton bought 300mn shares of Tongda last year, but the company did not disclose that the fund house also held a short interest in the same number of shares. After being criticized by independent financial commentator David Webb, Tongda filed a disclosure stating that a put option of 300mn shares was granted to Templeton on the same day that the fund house made the acquisition. However, investors’ confidence was still weakened due to the company’s move.
Tongda’s business scope can benefit from the fast-developing smartphone markets and its well-known clients include: ZTE, Huawei, TCL and Lenovo. Net profit rose 19.9% to around HK$300mn and revenue from the mobile-handset unit increased 9.5% to HK$1.56bn, representing 55% of revenue in the electrical fittings division. On the other hand, the company may further benefit from the development of 4G market with its successful R&D of its metal-coating technology that can be applied on the cases of 4G mobile handsets.
The estimated P/E is at 6.2X in FY13E and the earning is estimated to jump 29.3% to RMB388mn in FY13E. The adverse impact about the short-interest issue was mostly reflected and Tongda yesterday saw an increase of trade volume, a positive sign for uptrend. Recommendation: Buy, targeting HK$0.57, with stop-losses at HK$0.46.
Sun Hung Kai Financial
Neither any information nor any opinion contained in this email constitutes a solicitation or an offer by Sun Hung Kai Financial (SHKF), to buy or sell any securities, futures, options or other financial instruments, or to provide any service or investment advice. The information on which this communication is based has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy, completeness, timeliness or validity. All expressions of opinion are subject to change without notice. In no event will SHKF be liable or have any responsibility for loss of any kind, whether direct, indirect, consequential or incidental, resulting from the act or omission of any third party occurring in reliance upon the contents of this report even if SHKF is aware of such act or omission at the time that it occurs.