Research Reports and Commentaries

Daily Commentary

21 June 2018

Market Outlook
HSI might fluctuate at around 29,400 and 29,900 points today.

The Hang Seng Index opened higher by 10 points yesterday and then posted fluctuating performance. After touching its intra-day low of 29,406 points, the index turned to a positive territory and grew 120 points in the morning. During the afternoon session, the market further extended its gains and grew 476 points at most to reach its intra-day high of 29,944 points. The HSI finally closed at 29,696.17 points, up 228.02 points or 0.77%. Market turnover increased to HKD109.826 billion. The ADR proportional HSI index closed overnight at 29,671 points with 25 points lower than closing price yesterday. Dow continues to be dragged by worries over US-Sino trade war. Dow was down by 42 point to 24,657 points. HSI may fluctuate at around 29,400 to 29,900 points today.

Today’s A-share Snapshot

Company’s Profile:BNBMPLC (000786.SZ) is a comprehensive building material industrial group, covering brand, R&D, production, distribution and service.

Brief Comments:

Business catalysts:The Company proposed to establish a joint venture with Shandong Wanjia. The joint venture will increase capital to Anhui Wanjia and Pingyi Wanjia, and purchase 100% equity interests in Xuancheng Wanjia, board production equipment of Linyi Mengpai Wood and all the registered trademarks of Xuancheng Qianchuan. Upon completion, the joint venture will have the plasterboard capacity of 190 million sq.m.. Such strategic move is expected to help the Company enrich its product line and increase its market share, which might enhance its competitiveness.For 1Q2018, the Company’s revenue rose 40.36% YoY to RMB2.498 billion while its net profit hiked 227.71% YoY to RMB490 million. This is expected to bring positive effects to the Company’s operational results in this fiscal year.

Risk factors:The changes of China’s real estate regulation policy and the price volatility of raw materials might increase uncertainties to the Company’s core business.

Stock Pick

CK Asset with stable financial position and M&A benefiting long-term revenue

CK Asset (01113) announced last week the acquisition of 5 Broadgate property in London, England. The company stated that the purchase price was 1 billion pounds (equivalent to HKD10.54 billion) and the property was wholly-owned by the Cheung Kong Group. The property is located adjacent to the Liverpool Street train station and subway station in London and has a floor area of approximately 1.2 million square feet and is a Grade A office building. After the completion of the property in 2015, it will be leased by UBS as the UK headquarters and the lease term will be 2035. The management pointed out that the property can bring about fixed income and superior returns, which exactly reflects the company’s current investment strategy. Compared with the Center which was sold earlier this year by the company, the price of the 5 Broadgate property is only one-third that of the Center, and the company purchased only 5 Broadgate properties using only 1/4 of the proceeds from the sale of the Centre. The rental income is close to half of the center. Based on the transaction prices of the two properties, the rental return rate of the 5 Broadgate property is nearly double that of the Center. We believe that in the long run, the company will continue to sell low-return projects and purchase higher-return long-term fixed-income projects. The stock price is somehow defensive.

Last year, CK Asset’s revenue was approximately HKD63.78 billion, a decrease of 9% YoY; profit attributable to shareholders was HKD30.125 billion, an increase of 55% YoY. Since 2016, the Group has spent more than HKD8.7 billion in repurchase of company shares several times to reflect the company’s potential value. It is expected that the repurchase program will continue this year and can provide support for share prices.

At the end of the year, the group had a net gearing ratio of 5.2%, with a large amount of cash, and a sound financial position. It is recommended that investors buy below HKD64, with a target price of HKD72 and a stop loss price of HKD60.