Research Reports and Commentaries

Daily Commentary




16 Oct 2018

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

The Hang Seng Index opened lower by 117 points yesterday and then extended its losses. The index dropped 259 points in the morning. During the afternoon session, dragged by the downward trend of A-share, HK stocks decreased 401 points at most to touch its intra-day low of 25,399 points. The HSI finally closed at 25,445.05 points, down 356.43 points or 1.38%. Market turnover amounted to HKD80.887 billion. US stocks' 3Q earnings were strong and may boost US stocks to rebound in the short term. The ADR proportional HSI index closed overnight at 25,562 points with 116 points or 0.46% higher than closing price yesterday. Dow was down by 89 points or 0.35% to 25,250 points. HSI may fluctuate at around 25,300 to 25,800 points today.

Today’s A-share Snapshot

Company’s Profile:Shenzhen Huaqiang(000062.SZ) specializes in offering high-end service for electronic information industry, including such services covering the whole industry chain as products, transaction, data, technology, innovation and entrepreneurship.

Brief Comments:The Company announced in September that Huaqiang semiconductor, a wholly-owned subsidiary of the company, and memory electronics signed the "Cooperation Framework Agreement on Capital Increase". According to the agreement, Huaqiang semiconductor plans to increase USD5.1 million capital of memory electronics and after the capital increase holds 51% share of Memory Electronics.The Company issued a positive profit alert, expecting to record a yearly increase ranging from 58% to 68% in net profit for 9M2018, amid the scale and profit growth of its electronic component distribution business. Thus, the Company’s performance is expected to record a double-digit growth in this fiscal year. In FY2017, the Company’s overseas turnover accounted for 54.70% in total turnover. Thus, the changes of global economic environment and the volatility of RMB exchange rate might increase uncertainties to the Company’s future results.

Stock Pick

HKT-SS has stable business performance and attractive dividend policy

HKT-SS (06823) is Hong Kong’s premier telecommunications service provider and leading operator in fixed-line, broadband and mobile communication services.

In the first half of 2018, the total revenue of HKT-SS increased by 12% YoY to HKD17.02 billion while its interim net profit attributable to shareholders dropped by 12.67% YoY to HKD1.87 billion. The decrease in net profit was mainly attributable to the significant increase in income tax expenses, i.e. up 163% YoY to HKD423 million. The company's effective tax rate for 1H17 was 7%, while the effective tax rate for 1H18 was 18%, mainly due to the recognition of a deferred income tax asset resulting from a loss-making company turning profitable. We believe that the performance of the company's core business is still stable. For example, its main service, telecommunications service, recorded a revenue increase of 1% YoY to HKD10.02 billion. Besides, the revenue from mobile product sales increased by 99% YoY to HKD3.37 billion. It is expected that the launch of new iPhone in 2H18 would promote its performance of mobile product sales 2H18.

The company raised its price on a 4G data service plan on September 21, and the monthly fee was increased from HKD78 to HKD98. We believe that its competitors would follow HKT-SS and increase the monthly fee charge. It can cease the price war in Hong Kong's mobile telecommunications industry and restore the price to a reasonable level.

As regards the dividend policy, HKT-SS had stable dividend distribution with a high payout ratio (at least 96%) in the past five years. The dividend yield is also attractive, i.e. around 6% in last year. Investors are advised to buy at or below HKD10.5 with a target price of HKD12.5 and a stop-loss price of HKD9.8.