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4 Sep, 2018 (Tuesday)

China Aircraft Leasing Group (1848) continues to optimize its aircraft portfolio, including new aircraft deliveries from its order book, purchase and leasebacks and portfolio trading. As at 30 June 2018, its fleet size grew to 115 aircraft. It maintains one of the youngest and most modern fleets in the sector, as well as one of the longest average remaining lease terms. Its fleet has an average age of 3.9 years and average remaining lease terms of approximately 8.2 years. It is pushing forward its asset-light model and progressively developing itself into an aircraft manager. The aircraft recycling facility in Harbin, under its associate company Aircraft Recycling International, commenced operation in June 2018 with an initial handling capacity of 20 aircraft per year. (I do not hold the above stock)
Buy-in Price: $8.00, Target Price: $8.80, Cut Loss Price: $7.50

In the first half of the year, revenue increased by 28.8% y.o.y to RMB 4.573 billion. The gross profit margin increased by 2 percentage points to 67.2%. The adjusted comparable net profit increased by 41.4% to 701 million yuan. The increase in gross profit margin during the period was mainly attributable by the increase in the gross profit margin of ANC business. Average selling price of Swiss products were raised in the Chinese and Australian markets at the beginning of this year, the market response was positive and demand remained strong. As the growth in the first half of the year exceeded expectations, the management announced at the investor meeting to raise the revenue growth forecasts of the ANC and BNC business for the whole year. ANC`s full-year revenue growth expectation increased from 20% to over 30%, and EBITDA forecasts remained at around 30%. The expectation of growth of milk powder of BNC increased from 15 to 20% to slightly above 20%, and probiotics increased from 20 to 30%, to about 30%. BNC`s EBITDA is expected to remain around 20%.
Buy-in Price: $48.50, Target Price: $58.00, Cut Loss Price: $42.00

Report Review of August. 2018


Air, Automobiles (ZhangJing),

Healthcare & TMT (Eurus Zhou)

TMT& Education (Terry Li)

Retail & Property (Tracy Ku)

Automobile & Air (ZhangJing)

This month I released 4 updated reports of BYD (1211 HK) FDG (729 HK) and Huazhong In-vehicle (6830 HK) and Cathay Pacific (293 HK), which got success by their unique Competitive edge.

BYD has actively opened up the supply chain system to promote the outside supply of power batteries and spare parts, thereby inspiring the vitality of enterprises and enhancing their competitiveness. With the breakthrough and accelerated implementation of the transformation project, the company's future development momentum is expected to be strengthened. We hold the judgement that 2018 H1 will be a low point for BYD's automotive business and the new energy vehicles and conventional fuel vehicles will exert their power in H2, which will help the company's profit bottom out. We give BYD BUY rating.

Sound demand rebound and mild cost growth make Cathay's 2018H1 loss shrinking by near 90% yoy. We believe that the Company's H2 result prospects are mixed with recovery of demand continually and the moderate cost growth. The positive factor is the gradually fading fuel hedging losses, and the negative factor is the shrink of share of profit from Air China due to the exchange losses. We temporarily maintain the financial forecast and target price unchanged at HK$14.3 for the Company, reaffirming the accumulate rating.

Healthcare & TMT (Eurus Zhou)

This month I released 4 equity reports, including Yihai Int (1579HK), Anta Sports (2020HK), Fortune REITs (778HK) and CSPC (1093HK). We tend to highly recommend CSPC (1093HK) and Fortune REIT (778HK). On CSPC, total sales increased by 49.8% yoy to HK$10.79bn in the first half, mainly due to the sustained strong growth of innovative drugs (now 45.2% in total revenue), and recovery of Vitamin C business which also drive the profitability of this business up. The profit attributable to shareholders increased by 41.1% yoy to HK$1.85bn. Cash flows from operating activities climbed to HK$2.18bn (HK$1.27bn in 2017). Operation efficiency improves. Average turnover period of accounts receivable increased slightly from 40 days to 37 day, and inventory days dropped from 173 days to 150 days. Solid 18H1 results further prove its growth momentum that coming from expanding salesman team and newly-launched drugs. For Fortune REIT, we highlight as most of tenants are engaged in daily necessity business, the rental income is relatively stable and less impacted by any economic recession. Meanwhile AEIs will be growth momentum to improve profitability and healthy financial condition and appealing yield underpins solid operation.

TMT& Education (Terry Li)

I released two reports on Perfect World (002624.SZ) and China New Higher Education (2001.HK). We highly recommend China New Higher Education (CNHEG). On Aug 10, after the announcement of the Revised Draft of Law for Promotion of Private Education from Ministry of Justice of the PRC, CNHEG has fallen by over 30%. However, we believe the impact from the revised draft for the group is not as large as to compulsory education. In the worst case, the group only needs to pay the tax and land transaction fees. As a result, the revised draft has no large impact on the group. Besides, the group decided to enter into the cooperation agreement with Lanzhou University of Technology to hold Gansu College, instead of establishing its own school in Gansu. It is believed that it can take less time required for cultivating the school and leverage on the brand name and teaching resources of Lanzhou University of Technology, creating larger value in long term.

Retail & Property (Tracy Ku)

This month I released the first coverage reports of two listed companies, namely Mengniu( Nine Dragons( The two companies are the market leaders in mainland dairy and paper industries respectively. Among the two, I recommend Mengniu. China's dairy product consumption is still in a period of steady growth. With the increase in disposable income of households and individuals, relaxing of two-child policy, we are optimistic about the prospects of the dairy industry. With the new management team lead by CEO, Minfang Lu, actively investing resources to carry out product innovation and upgrading, its business recovery momentum is obvious, and the business in the third and fourth tier cities maintains rapid growth.In addition to the domestic market, Mengniu is also actively engaged in the overseas market layout. It also proposes to achieve a target of RMB100 billion in sales by 2020. It is expected to achieve the target through promoting high-margin innovation products, and external mergers and acquisitions.

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