Investment Daily Note

US stocks ended mixed on Greek political tensions

Greece was shadowed with political uncertainties after its government made a surprising move to advance the presidential elections, leading to a tumble in the stock market by 12%. Other European and the US markets were hurt. Dow closed at 17,801, down 51 points. S&P 500 closed at 2,060, down less than 1 point. NASDAQ closed at 4,766, up 26 points. ADRs fell in the US market, with their closing prices effectively putting HSI down 146 points, closing at 23,340. New York crude oil futures closed at US$ 63.41/bbl, up US$ 0.36. Safe-haven demands increased on significant retracement of A-shares and declines in European and the US markets. Gold prices moved up. New York gold futures settled at US$ 1,232/oz, up US$ 37.

Led losses by Chinese financials, HSI fell below several MAs

The Shanghai Composite was volatile yesterday, reversing gains of 71 points to close down 163 points. The Hang Seng Index surrendered 561 points to close at 23,485 with an intraday low at 23,399. The HSCEI settled at 11,332, down 540 points. The market turnover was HK$ 144.2bn. China Res Land (1109.HK, HK$ 19.90) added 1% against market downtrend on receiving assets injection from parent and proposing rights issue. Chinese financials eased after days of rallies. China Life (2628.HK, HK$ 27.05) and Ping An (2318.HK, HK$ 71.40) slid 4.9% and 6.2%, and the latter was the top loser among HSI constituents. ICBC (1398.HK, HK$ 5.38) and CCB (939.HK, HK$ 6.06) also lost 5.3% and 5.5% respectively. Petroleum and oil stocks extended losses on continued slides of international oil prices. Kunlun Energy (135.HK, HK$ 7.30) and CNOOC (883.HK, HK$ 10.06) closed down 5.3% and 4.4%. The slump of the Shanghai Composite hurt Chinese securities brokers. Haitong Securities (6837.HK, HK$ 19.60) and CITIC Securities (6030.HK, HK$ 29.35) lost 11.9% and 7.6%, and the former was the worst-performing HSCEI constituent.

“One Belt and One Road” initiative favours cement industry; CNBM doubly helped by SOE reforms

The “One Belt and One Road” initiative gave a boost to infrastructure stocks on Monday and machinery stocks on Tuesday. Cement companies may also benefit from “One Belt and One Road”, among which CNBM (3323.HK, HK$ 7.45) is doubly helped by state-owned enterprises reforms (SOE reforms) as well as rates reduction in China. Investors may take chance to enter.

CNBM is the largest cement producer in the world. It expands market share mainly through mergers and acquisitions, and therefore assumes higher liabilities than peers. In view of China’s weak economic data, the People’s Bank of China (PBOC) may reduce interest rates further to prop up the economy and that would be favourable to the company. To improve air quality, the Chinese central government proposed that no additional capacity would be introduced and obsolete capacity would be eliminated in the five major industries including cement and steel industries by the year of 2017. Leading players of the concerned industries would enjoy benefits from such measures. Parent company of CNBM was selected in mid-July as a pilot enterprise for SOE reforms. The unveiling of an official reform policy may give impetus to the stock price of CNBM. In late-October this year, the company acquired shares in Shanshui Cement (691.HK, HK$ 3.19), which held a dominant position in the Shandong and Liaoning cement markets. The acquisition could help enhance the company’s bargaining power in the northern part of China (according to the interim results, regions where North Cement operated posted YoY declines in cement prices) and thereby making positive contributions to the company earnings.

Estimated P/E of the company is ~5.8X. It is trading at discount compared with peers and may perform a price catch up. Technically, the stock price tends to form the head and shoulders bottom, which has been hovering at its downtrend since the PBOC rates cut. Investors may take in with the target price set at HK$ 8.20 and stop loss at HK$ 6.85.


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