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CMS (HK) Morning Express

作者: Sam,Liangsheng DENG
时间: 2017年05月12日
重要性: 一般报告
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摘要: Report title:CMS (HK) Morning Express
Analyst:Sam,Liangsheng DENG
Report type:Morning Express
Date:20170512
[Summary]

CMS(HK) Research Highlights

AAC Tech (2018 HK, HK$99.4, BUY, TP HK$105)
Our thoughts on share price correction

Event:
AAC share price dropped 10.4% yesterday, due to a short-sell report from Gotham City research, in our view. We think the key accusations of the report is that AAC overstated and smoothened profits since 2014, due to 1) use of 20+ undisclosed related part suppliers, 2) poor labor standards violating Apple (AAPL US) Supplier Code of Conduct, 3) potential margin downside due to increasing competition, pricing pressure and wage inflation etc.
Our view:
- The report claimed AAC’s margins were inflated by comparing AAC’s NPM with other acoustics/haptics’s suppliers (Alps/Nidec (6594 JP) /Goertek (002241 CH)/Merry/Jinlong). However, we think it’s mainly due to difference in product/revenue mix for each company.

NetEase (NTES US, US$279.05, BUY, TP US$354)
1Q17: stronger-than-expected gaming and e-comm sales

■ NetEase reported better-than-expected 1Q17 results, with sales and non-GAAP earnings beat consensus by 15%/18% respectively
■ We revised up revenue 5%/6% in FY17/18E, mainly reflecting the growing popularity of the company's e-commerce businesses, and higher gaming incomes driven by new mobile games and Overwatch
■ We also revised up non-GAAP net profit 15%/14% in FY17/18E on higher estimated gross margin and faster growth in revenue
Gaming: 1Q17 deferred gaming revenue fueled incremental strength
In 1Q17, total revenue grew 72% YoY or 53% QoQ to RMB13.6bn, 15% above consensus, driven by stronger-than-expected growth in mobile game (as well as higher deferred gaming revenue recognized), PC game and e-commerce business. Mobile games contributed 73% of online gaming revenue in 1Q17 (64% in 4Q16), up 105% YoY or 36% QoQ thanks to Onmyoji and new games such as Demon Seals. PC games grew 31% YoY in 1Q17 ascribing to the robust performance of Overwatch and World of Warcraft. Overall non-GAAP gross margin eased 3.1pp YoY to 56.1% in 1Q17 given the rising revenue share of lower-margin businesses (mobile games and e-commerce revenue). On Minecraft, management is so far satisfied with PC version’s beta testing (28 April 2017), and mobile version is schedule to launch in July 2017; and the game will be operated free of charge with virtual item sales. Besides, Overwatch is free for a month starting May 1, and revenue will mainly come from item sales.

Sinopec Kantons (934 HK, HK$4.01, BUY, TP HK$5.0)
Recovery in natural gas pipeline segment

■ According to our latest discussion with the management, 1Q17 natural gas transmission volume in Yu-Ji pipeline jumped 20% YoY. We expect pipeline segment profit to jump 16.7% YoY to HK$167mn in 2017E after 45.3% YoY plunge
■ Expect domestic crude oil jetty services segment to register solid 5.9% YoY earnings growth to HK$947mn in 2017E thanks to 10.2% YoY increase in throughput volume
■ Stock attractive at 2017E P/E of 8.8x or P/B of 0.9x, both at 59-63% discount to its global peers, despite solid earnings growth.
Domestic oil jetty services business on track
Domestic crude oil imports remained robust with total imports up 12.5% YoY to 139mt in 4M17 given further weakened domestic production during the period. Sinopec Kantons is the key beneficiary of the robust crude oil imports given its more than 50% market share in domestic crude oil jetty services market. We expect segment profit to increase a solid 5.9% YoY to HK$947mn in 2017E after 12.3% YoY growth in 2016 underpinned by 10.2% YoY increase in throughput volume.

China Lodging (HTHT US, US$75.17, NEUTRAL, TP US$66.20)
1Q17 in line; accelerated growth in RevPAR

■ 1Q17 EBITDA of RMB373mn (+35% YoY, -2% QoQ) was in line with our estimate but 11% above consensus. Net revenue of RMB1,593mn was in line
■ We revised our FY17E/18E EBITDA by +17%/+28% on accelerated growth of RevPAR. The acquisition of Crystal Orange was expected to be completed in May 2017
■ Given the strong momentum in RevPAR growth and potential contribution from Crystal Orange, we raised our TP to US$66.20, implying 9.1x FY18E EV/EBITDA, or 1-SD higher than its 5-year avg
RevPAR grew strongly by 9.8% YoY
1Q17 net revenue grew 11% YoY, much higher than mgmt’s previous guidance of 7.2-8.4%. RevPAR growth was driven by both ADR (+5.2% YoY) and occupancy rate (+3.5ppts YoY). By categories, manachised/ franchised hotels recorded 14% YoY revenue growth on 11% YoY growth in RevPAR and 15% YoY expansion in the number of hotels. Leased hotels’ revenue grew marginally by 2% YoY, impacted by the closing of some loss-making hotels. Core net profit surged 95% YoY with 4ppts YoY improvement on core net margin, backed by its operation leverage.

Hong Kong Market Strategy Bi-weekly Vol.8 2017
Stock consolidation on highs. Diverging industry trends

Signs of economic slowdown; ongoing correction in cyclical sectors
China's economic data cooled down as anticipated. The leading indicator of April manufacturing PMI was 51.2%, still above the threshold level but with an obvious decline, which implied the manufacturing boom had already peaked in the short run. China's tightening of financial and property regulations would also further drag down the industry performance. As China's economic data had peaked in the short run, HK stocks would also face correction, mainly on the traditional cyclical sectors represented by the HSCEI, e.g. energy, raw materials, financial and property etc.
Diverging industry trends; new economy continued to outperform
Given the large number of non-H share private enterprises, e.g. Tencent (700 HK) and AAC (2018 HK) etc., the Hang Seng Index with its broader emerging industry coverage had significantly outperformed the HSCEI since April as the latter was dominated by the traditional cyclical industries including financial, energy, raw materials and industrial. Among the HSI constituents, around 32% of individual stocks had hit 52-week new highs since April. HK stocks showed significantly diverging sector performance with IT outperforming the cyclical sectors of energy and raw materials. Meanwhile, auto consumption upgrade continued, and the number of tourists and tourism revenue also reached new record highs during the long holiday of May this year. China's smartphones like Huawei/OPPO maintained relatively rapid growth in Q1 shipments. Overall, the emerging growth stocks and consumption upgrade sectors would continue to adjust in accordance with their own industry cycles and outperform amidst the market consolidation stage.

A-share Research Highlights
(Source: CMS Research Center)

Insurance Industry 1Q17 Results and March Data Review
1Q17 Results Continued to Improve. Firmly Bullish on Life Insurance Sector

Four listed insurance companies have announced 1Q17 results. The overall results of listed insurance companies beat consensus. The YoY growth of insurance premium income rose rapidly while the business structure and investment return of the life insurance sector continued to recover. Looking ahead to 2017, the premium income of life insurance could continue to grow rapidly given the better-than-expected industry data in March. In view of the continual optimization of business structure, there should be no worries of value growth. Therefore, we are firmly bullish on the life insurance sector.
- 1Q17 results beat consensus. During the period of 1Q17, the total net profit attributable to parent achieved by the four listed insurance companies grew 9.6% YoY to RMB33.039bn. In particular, 1Q17 net profit attributable to parent of China Life Insurance (601628), Ping An Insurance (601318), China Pacific Insurance (601601) and New China Life Insurance (601336) reached RMB6.149bn (+17.1%), RMB23.053bn (+11.4%), RMB2.0bn (-9.0%) and RMB1.837bn (-7.9%), respectively. Strong FY17E results could be expected.

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