Dim Sum Express

A-Share Market

    Non-Ferrous: Cobalt supply overhang likely to be reversed in 2017

    Extremely low prices, contracting supply and continued demand growth are reshaping market expectations regarding cobalt products. A conservative estimate is that overall cobalt supply would be reduced by 15,000 tonnes this year, and we expect the cobalt supply overhang to be reversed in 2017. Cobalt demand from 3C lithium batteries is likely to maintain growth of around 10% this year given continued smartphone sales growth, while NCM batteries will be increasingly used as electric vehicles are required to have a longer driving range, making it a key growth driver of cobalt demand.

    Hong Kong Market

    Securities: Monthly data update

    Average daily trading volume in mainland China dropped 66.7% MoM in Apr, equity financing rose 41.1% YoY but was down 14.0% MoM, and outstanding margin loans were down 2.4% MoM. The upcoming SZ-HK stock connect should not have a significant impact on mainland brokers but may have a positive impact on some HK brokers. For example, the SH-HK stock connect represented 11% of brokerage income for Guotai Junan, and brokerage income was 32% of its total 2015 revenue. We would therefore expect the SZ-HK stock connect to have a 3-4% positive effect on its revenue.

    Boer Power (1685 HK, Hold): Difficult to meet FY16 guidance; downgrade to Hold, cut TP to HK$4.60

    Accounts receivable remains a key concern for investors, reaching Rmb4.2bn in FY15, of which more than Rmb400m was collected by end-Apr 2016, according to management. This is a slight improvement on the Rmb337m collected as of Mar 29, 2016, but progress is still unsatisfactory, in our view. Management stated that the majority of AR will be collected in 4QFY16, meaning investors’ concerns may last for a year. We believe it will be difficult for management to meet its FY16 guidance. We downgrade the stock to Hold, and cut our TP from HK$9.60 to HK$4.60.

    Anta (2020 HK, Hold): Improvement in 4Q16 order book growth

    Anta was the only domestic brand to see order book growth improve in 4Q16, to low-teen growth from high single-digit in 3Q16. Channel inventory remains healthy thanks to the bigger retail discounts offered in 1Q16, however we think distributors’ profitability has weakened from 4Q15 to 1Q16. Looking forward, we expect softening economic growth to continue. We also think channel inventory across the sector may have increased over the past two quarters. These factors would limit re-rating potential for Anta. We maintain our Hold rating and TP of HK$19.30.

    Le Saunda (738 HK, Hold): 1QFY17 sales remain sluggish; share price supported by net cash

    FY16 results were in line. Sales have remained sluggish in China and HK so far in 1QFY17 due to softening economic growth. However, growth in net cash balance and capability to raise its dividend payout are positives. Looking into FY17, management will refine its operations (optimize retail network, focus on product quality, trim number of footwear styles) and reduce costs. We estimate core profit will drop by 16% in FY17, assuming an 8% SSS decline. The company’s undemanding valuation should cushion against share price downside. We revise our TP from HK$1.70 to HK$1.76. Maintain Hold.

    Kingsoft (3888 HK, Buy): 1Q16 results miss; full-year guidance trimmed

    Net profit and non-GAAP net profit grew 17% and 28% YoY in 1Q16, the latter missing Bloomberg consensus mainly due to a lower-than-expected OPM driven by the rising traffic acquisition cost in Cheetah Mobile’s advertising business. Cheetah Mobile’s management has guided for just 10%-13% YoY revenue growth from the business in 2Q16. Kingsoft’s management has also trimmed its guidance for the company’s full-year profitability improvement. We see headwinds in the Cheetah Mobile business in overseas markets. Share price might come under pressure today.