Research Reports and Commentaries

Daily Commentary

11 Dec 2018

Market Outlook
HSI may fluctuate at around 25,400 to 25,900 pts today.

The HSI opened lower by 268 pts yesterday and then once narrowed its losses to 218 pts. However, dragged by the negative performance of A-shares, the market tumbled 492 pts at most to touch its intra-day low of 25,570 pts. During the afternoon session, HK stocks maintained its downward trend. The HSI finally closed at 25,572.38 pts, down 311.38 pts or 1.19%. Market turnover amounted to HKD70.571 bn. Dow was up by 34 pts or 0.14% to 24,423 pts. The ADR proportional HSI index closed overnight at 25,639 pts with 113 pts or 0.44% than closing price last trading day. The uncertainty of global market increased. Chinese court has banned the sale of a number of recent iPhone models citing infringement of two Qualcomm patents. Meanwhile, UK Prime Minister Theresa May said she would delay a crucial vote on her Brexit deal. HSI may fluctuate at around 25,400 to 25,900 pts today.

Today’s A-share Snapshot

Company’s Profile:TCL Corp. (000100.SZ)’s major business involves in the areas of semiconductor display, intelligent terminal and applications & services.

Brief Comments:The Company plans to sell its stakes in TCL industries, Huizhou home appliances and other companies to TCL holdings for a total of RMB4.76 billion. After the transaction, the listed Company will focus on semiconductor display and materials business. For 9M2018, the Company's operating revenue increased 0.03% YoY to RMB82.24 bn while its net profit attributable to shareholder increased 30.6% YoY to RMB2.49 bn. The Company stated that the increasing of the revenue is mainly due to the stable growth of the semiconductor display, intelligent terminal business and the continuous improving of the overseas business. The fierce competition in the global consumer electronic market might increase uncertainties to the Company’s core businesses.

Stock Pick

CRP benefited by weak coal price and asset disposal

China Resources Power (00836) is engaged in the development, construction and operation of power plants, including large-scale efficient coal-fired generation units, wind farms, hydro-electric plants, gas-fired power plants and photovoltaic power projects as well as construction and operation of coal mines.

We expect the coal price in 2019 will remain weak. This is due to (1) the release of new coal capacity; (2) coal companies’ interest in acquiring coal mine permits to build new mines; and (3) high coal inventory as IPPs intentionally to build up inventory ahead of winter (but at the end winter is warmer than expected with CRP now having 29 days of coal inventory compared with normal levels of 15-20 days). We expect lackluster coal price can help reduce the cost of CRP.

Also, the Company announced on 23 Nov that the price of the proposed sales of its 51% stake in a coal mine to parentco would be HKD3,926.6 mn, which helps to realise a disposal gain of HKD881mn. The transaction can build a more robust balance sheet with sufficient cash reserves to sustain its current dividend policy. Disposal of coal mines would help to accelerate its transformation from a coal-fired IPP to a renewable company.

In addition, in view of its wind power business, CRP has recorded rising account receivables due to subsidy delays over past 20 months. But the MoF has started paying operators since Sept and we expect significant improvement in cash flow before the year-end. Implementation of the Green Certificates scheme in 2019 should also help. We expect CRP's dividend visibility to be high with its guaranteed dividend yield higher than 6%. We suggest investors to buy at or below HKD14, with target price of HKD16 and stop loss price of HKD13.