Research Reports and Commentaries

Daily Commentary

17 Jan 2019

Market Outlook

HSI will test 27,000 pts level today
US index closed higher: US stocks finished higher thanks to strong earnings from Goldman Sachs and Bank of America. Yet, the market, especially tech stocks, lost a bit of steam late in the day after The Wall Street Journal reported that federal prosecutors are pursuing a criminal case against China's Huawei.
Theresa May survives confidence vote: Prime Minister Theresa May survived a no-confidence motion in the House of Commons on Wednesday evening, even after Brexit failure.
HSI ADR slightly up 40pts: The ADR proportional HSI index closed overnight at 26,942pts, up 40pts.

Today’s A-share Snapshot

TCL Corp. (000100.SZ)
Company’s Profile:

The Company’s major business involves in the areas of semiconductor display, intelligent terminal and applications & services.
Brief Comments:

The Company recently signed a strategic cooperation agreement with Xiaomi Group that both sides will carry out integrated joint development of intelligent hardware and high-end core basic components of electronic information. This might bring a positive impact on the Company's performance.

The Company announced the preliminary financial data for FY2018, expecting to realize net profit attributable to shareholders of listed company ranging from RMB3.4 billion to RMB3.6 billion, up 28% to 35% YoY.

The fierce competition in the global consumer electronic market might increase uncertainties to the Company’s core businesses.

Stock Pick

HKEX(00388) benefited by better investment sentiment and strong defensiveness

HKEX is a leading financial market operator in the world, providing service for trading and clearing securities and derivatives in Equities, Commodities, Fixed Income and Currency.

Its results stay defensive despite weak market conditions last year. For 3Q18, the average daily turnover (ADT) of HK stock market fell by 14% QoQ to HKD92 billion. HKEx's revenue and net profit only fell by 1.7% and 1.45% QoQ. Net profit was HKD2.44 billion grew by 20% YoY. Benefited by higher transaction costs of derivatives due to surging market volatility, equity and financial derivatives segment increased by 8% QoQ, indicating its earnings defensiveness.

Also, HKEX has nearly no balance sheet risks when its peers are facing rising asset quality pressure after rate hikes in the US and HK as well as China’s economy slowdown, if we compare with other financial institutions in HK/China. By the end 3Q18, HKEX’s total asset size was at HKD255bn, of which 50% of its assets were cash and cash equivalents. Current assets account for 92% of HKEX’s total assets by 3Q18 so that we see less liquidity risks. Its borrowing size was small at HKD1.9bn only, accounting for 0.8% of its total liabilities.

Before 2015 and the launch of mutual market connect, the ADT in Hong Kong was only about HKD55-70bn from 2011 to 2014. However, The ADT is now at HKD80-90bn with low contribution from southbound inflow, only accounting for 4-5% of the ADT. Given the opening up of China’s capital market and recent recovery of investors’ sentiment, we see upside room for both ADT and HKEX in the long run.

HKEX is expected to release its new 3yr business plan in late 1Q19, which may be a near-term catalyst. The last plan was released in Jan 2016. Its target included mutual market connection, IPO reform and LME(London Metal Exchange) reform. We currently expect HKEX will further expand mutual market connection, such as to A-share IPOs and more ETFs. Bond Connect also is a bright spot as China’s bond market size is bigger than size of stock market. Our target price for HKEX is HKD265.