Sectors:

Mainland financial, Utilities (Xingyu Chen), Mainland TMT (Fanguohe),Mainland property, Oil and gas service (Chengeng), Air, Automobiles, Infrastructure (ZhangJing), New energy & Environmental Goods (Zhang Kun)

Mainland Financial (Xingyu Chen)

Mainland TMT (Fan guohe)

This month I released 3 equity reports including, YILI Group (600887.CH), Zhongxin Pharmaceuticals (600329.CH) and Wasion Group (3393.HK). Wasion Group is a pioneering supplier of smart meters and power distribution as well as an integrated energy management solution provider in China. It owns outstanding core competitiveness. Since 2012, the company has consistently increased its investment in research & development (R&D), boosting the R&D expense ratio from 2% to 4% to strengthen its technological edge. Besides, the company also has built up brand recognition among its downstream customers. Leveraging on its all-rounded competitiveness in technology, quality, scale and management, the company maintains its competitive advantage in the smart meter tenders of the State Grid and China Southern Power Grid, enabling it to be the top three players of the industry. During the 13th 5-Year Plan, the domestic smart grid will enter into the investment phase of the 2nd-generation AMI, which may create more business opportunities for the company. Meanwhile, the water, gas and heat business will also be the key to the company’s growth momentum. What’s more, there may also be better growth opportunities for its ADO business. Currently, the automation rate of the nation’s power distribution is just at around 20%, which is far below the 50% level achieved by developed countries. The target of the Energy Bureau is to raise the level to 90% by 2020. Wasion Group is now speeding up its development in this business. We believe that the ADO business has entered into a fast-growing stage and will maintain a high growth rate of 50% or above in the medium term. CAGR of the company’s revenue and net profit was 20.6% and 26% respectively from 2010 to 2014. It is expected to deliver a rapid growth at 20% or above during the 13th Five-Year Plan.

Mainland Property & Oil/Gas service (Chen geng)

In December, 2015, I wrote four research reports on SOHO, Zall, SZI and Evergrande, which got success by unique operation model. We recommend “SZI”. Thanks to strong contract sales, solid balance sheet and attractive valuation, the stock price of Shenzhen Investment has surged by 55% in 2015, making it one of the best performing domestic property companies. We believe that Shenzhen's status will continue to rise during the transition period of China's industries. The wealth effect will continue to be reflected in Shenzhen's property market. Shenzhen Investment will be one of the major beneficiary. We recommend an “Accumulate” rating for Shenzhen Investment and a 12-month target price of HKD3.8. This translates to prospective 2015/2016 P/E ratio of 8x and 7x as well as 32% discount to NAV per share.

Automobile & Air (ZhangJing)

This month I released 4 equity reports including CAR(699 HK)，Fuyao(3606 HK)，Air China (753 HK) and  Yutong(600066 CH). We prefer the Yutong. For the first three quarters, revenue from the main business grew by 25% yoy to RMB18.93 billion. Net profit attributable to parent company rose by 35.3% yoy to RMB1.865 billion. Sales of the new energy models grew explosively. Its rising contribution was the main reason for faster growth in earnings than volume. After gaining experience in a long period, the company pioneers in the technology of new energy buses. In 2014, sales volume of the company’s new energy buses was 7,405 units. We expect sales volume to reach 18,000 units in 2015, representing a remarkable growth of 140% yoy. We expect its pioneering technological advantage and economies of scale will ensure that the new energy products of company will get a upper hand in the new round of government subsidies to promote new energy vehicles.

New energy & Environmental protection (ZhangKun)

We update five reports in this month, they are Jingneng Clean Energy (579.HK), Xinjiang Goldwind (2208.HK), Linyang Electronics (601222.SH), United PV (686.HK) and China Everbright International (257.HK). We recommend China Everbright International. The Company’s share price slumped in recent days and it is mainly due to the deferral of some construction projects, which would adversely impact the 2015 results to a certain extent. We consider the slump of share price is larger than expected and thus opportunities of buying emerge. We maintain the target price at HKD 12.5 and recommend a rating of “Buy”.

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