Dim Sum Express

Investment Strategy: 2016/1Q17 A-share earnings review; watch non-cyclical sectors withsustainable growth improvement and sectors positioned to bottom out

    A-share ex-financial earnings growth strengthened from 23.4% in 2016 to 48.1% in 1Q17, withcontribution mainly from the property industry chain and cyclical sectors. However, both propertysales and the prices of cyclical goods have started to decline recently. We believe A-share exfinancialearnings growth likely peaked in 1Q17, with upcoming quarterly earnings growth to slow inthe remainder of the year; we expect full-year earnings growth of 19%. Prefer retail, toll roads,insurance, environmental, OLED, the Apple supply chain, airlines, power and new energy vehicles.

    Property: 2016/1Q17 review; sufficient bookable/saleable resources, tightening financingenvironment

    Industry concentration rose more rapidly in 1Q17 amid sector policy tightening with CR10 reaching32%. Total land purchase cost as a proportion of annual sales value rose to 80%, which was higherthan the 2009 level. As of end-2016, companies tracked had advance receipts of Rmb1.5trn on theirbooks (+35%) and inventories worth Rmb3.5trn in total (+15%), which should provide someguarantee for upcoming earnings performance. Companies tracked issued debt worth a total ofRmb200bn during 2016, up 16% YoY; this dropped significantly by 74% YoY in 1Q17 to justRmb17.4bn.