Sectors:

Air, Automobiles (ZhangJing)

Healthcare, Consumer (Eurus Zhou)

TMT, Education (Terry Li)

Retail, Property (Tracy Ku)

Automobile & Air (ZhangJing)

This month I released 4 reports including 3 updated reports and 1 NDRR takeaways: Inovance Technology (300124. CH)，Cathay (293. HK)，Joyson (600699. CH) and Huazhong In-vehicle. Among which , we prefer Cathay. In the first five months of 2018, Cathay Pacific's operating data showed that the passenger load factor of the mainland China and North America routes increased by 2.2 and 2.5 ppts respectively, while the passenger load factor of the Australia/Europe/South Asia route decreased by 2.5-3.4 ppts. Except mainland Chian routes, other routes are basically in line with the distribution of capacity. For the cargo business, the F L/F rate increased by 2 ppts to 67.8%, and demand growth continued to be stronger than capacity. So we expect overall demand of Cathay to recover moderately, while cost reductions continue to work, but rising financial expenditure might erode some of the savings. Based on the latest profit forecast, we will give the company a 12-month target price of HK$14.3, corresponding to an expected P/B of 0.9/0.85 times for 2018/2019, and upgrade to the "accumulate" rating.

Healthcare & Consuming (Eurus Zhou)

This month I released 4 equity reports, including Yunnan Baiyao (000538SZ), CSPC (1093HK), Anta (2020HK) and Jumpcan (600566SH). We tend to highly recommend CSPC (1093HK) and Jumpcan (600566SH). On CSPC, the company reported 18Q1 topline growth of 55% (HKD5.39bn) and lower operating income growth of 41%. This is due to rising selling expenses and increasing R&D investment, which led to operating margin drop by 2ppts. While net profit maintains proportionated growth of 42%, we expect the company to achieve good results in first half. On Jumpcan, we highlight that three products entered into the drug integration list of Hunan Province. Recently, the Ministry of Human Resources and Social Security of Hunan Province issued a notice to clear the 164 drugs as drugs for the transition period of the integration of urban and rural residents` medical insurance system. The related drugs are implemented in accordance with the category B drug management in accordance with PDRL. Jumpcan's three drugs (Iron Proteinsuccinylate Oral Solution, Chuanqiong Qingnao Granules, Huanglong Kechuan Capsule) are included in the drug list of transition period and can apply for reimbursement according to 2018 PDRL, which will facilitate products sales.

TMT & Education (Terry Li)

I released two reports including China Maple Leaf Education (1317.HK) and Wisdom Education (6068.HK). We highly recommend Wisdom Education. Wisdom is operating 7 schools in Dongguan, Huizhou, Jieyang, Weifang, and Panjin and providing private premium education for PRC curriculum programmes, including elementary, middle, high schools. The Group will focus on developing in the Guangdong province, so that it can be benefited from the Guangdong-Hong Kong-Macao Greater Bay Area. Besides, the rise of middle class in China is believed to bring demand for private premium education. Wisdom is able to cope with the upcoming demand, as there are still rooms to expand its schools. And, Wisdom has financed 500 million RMB from Ping An, making it capable of executing M&A in the future.

Retail, Property (Tracy Ku)

This month I released the first coverage reports of two listed companies, namely Hengan (1044.hk) and Lifestyle International (1212.hk). The two companies are the market leaders in mainland paper and Hong Kong department store industries respectively. The negative impact from e-commerce to Hong Kong's department store industry is not as big as that in mainland. Hong Kong has a small geographical scale and convenient transportation networks, consumers are used to shopping in physical stores. Lifestyle operates two Sogo Department Stores in Causeway Bay and Tsim Sha Tsui. During the last Thankful Week event in May, record-breaking sales have also been able to achieve as previous years. We expect Lifestyle's overall revenue to record a double-digit growth this whole financial year and perform better than the overall HK retail market performance. The recent trade disputes between China and USA has caused the stock market and RMB rate fluctuating, this may have negative impacts on HK's retail market. However, infrastructure projects like HK-Zhuhai-Macao Bridge and Express Rail Link will be put into service within the year, we expect can help to bring more Chinese tourists and visitors to HK which will be able to offset some of the negative impacts.

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