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Daily Commentary

18 Oct 2018

Market Outlook

HSI might fluctuate at around 25,300 and 25,800 points today.

The Hang Seng Index opened higher by 141 points Tuesday and then extended its gains. The index grew 267 points at most to reach its intra-day high of 25,712 points. However, the market turned to a negative territory. During the afternoon session, HK stocks posted a fluctuating performance and decreased 178 points at most to touch its intra-day low of 25,266 points. Afterwards, the index turned to a positive territory thanks to the strong opening performance of European stock. The HSI finally closed at 25,462.26 points, up 17.20 points or 0.07%. Market turnover amounted to HKD75.883 billion. The ADR proportional HSI index closed overnight at 25,574 points with 111 points or 0.44% higher than closing price yesterday. The 3Q financial results of US blue-chip companies beat market expectation. According to their financial reports, nearly 90% of the companies in the S&P 500 index that have released quarterly results so far have beat analysts' expectations. Dow was up by 547 points or 2.17% to 25,798 points. HSI may fluctuate at around 25,300 to 25,800 points today.

Today’s A-share Snapshot

Company’s Profile:China Coal Energy (601898.SH) mainly engages in the businesses of coal production and trade, coal chemical, coal mining equipment manufacturing and related services, electricity generated at mine pit.

Brief Comments:

Last week, the Company released its production and operation data for September 2018. The production of commercial coal stayed flat to 6.39 million tons while its sales rose 10.6% YoY to 12.93 million tons. For the first nine months of 2018, the Company's production of commercial coal decreased 3.6% YoY to 55.87 million tons while its sales of commercial coal increased 19.3% YoY to 114 million tons.

The Company issued a positive profit alert, expecting to record a yearly increase ranging from 60.3% to 76.8% in net profit for 9M2018, amid the improvement of the operation efficiency and quality. Thus, the Company’s performance is expected to record a double-digit growth in this fiscal year.

The volatilities of macro economy and oil price might affect Coal and chemical industries significantly, which might increase uncertainties to the Company’s operational performance.

Stock Pick

CHINA VAST benefited from Beijing-Tianjin-Hebei integration

CHINA VAST (06166) is a domestic large-scale industrial town planning, development and operation service provider. Its three major businesses include industrial town development (accounting for 54.6% in 1H18) and property development (accounting for 44.5% in 1H18) and property leasing. The development of industrial towns is to cooperate with local governments to develop industrial towns, and the Company is responsible for planning and design, industrial positioning, land consolidation, infrastructure construction, and investment attraction. The Company also receives support from major shareholders. SF Express has invested 9.99% in CHINA VAST through its subsidiary Tianhai Investment, and CCB International also holds a 2% stake in the Company.

The Company can be benefited by strategic deployment of the coordinated development of Beijing-Tianjin-Hebei region. Since 2005, China has developed industrial town planning, development and operation, CHINA VAST has been benefited from the increase in urbanization rate in China (from 53% in 2012 to 59% in 2017) and China's economic growth. In addition, the Company has 44% of the available resources gathered in the core area of Langfang, Hebei, with an estimated 66.5 million square meters. The land inventory can be favored by Hebei Xiong'an New Area (after Shenzhen Special Economic Zone and Shanghai Pudong New Area, another new district) development, attracting more industries, according to the Ministry of Finance, Beijing-Tianjin-Hebei integration will invest RMB 42trillion for the next six years, accounting for 25% of the national investment quota, we expect land appreciation potential in the region will be huge. In fact, the average transaction price of new commercial housing in Langfang in August was about 8% higher than that in 2017, while Beijing fell during the same period, further demonstratingthe defensiveness of the property price in the district.

In addition, the high-tech industrial park in Langfang, Hebei Province, under CHINA VAST successfully introduced well-known enterprises such as FIH, SF Express, Evergrande Group, China Construction, AVIC, etc., highlighting its brand effect in industrial town development. Investors are advised to buy at HKD3.16 or below with a target price of HKD3.6 and a stop-loss price of HKD3.0.