1

Yum Cha 飲 茶 August 6, 2018

INDICES Closing DoD%

Hang Seng Index 27676.3 (0.1)

HSCEI 10693.8 (0.4)

Shanghai COMP 2740.4 (1.0)

Shenzhen COMP 1486.1 (1.7)

Gold 1213.7 0.5

BDIY 1773.0 1.0

Crude Oil, WTI(US$/BBL) 68.5 (0.7)

Crude Oil, BRENT(US$/BBL) 73.2 (0.3)

HIBOR, 3-M 1.9 (3.9)

SHIBOR, 3-M 3.0 (1.7)

RMB/USD 6.8 (0.2)

RESEARCH NOTES

DATA RELEASES DUE THIS WEEK

6-7 August Foreign Reserves

6-7 August Foreign Direct Investment

7-8 August Trade Balance

8 August PPI YoY

8 August CPI YoY

9-15 August Money Supply M2 YoY

9-15 August New Yuan Loans CNY

Source: Bloomberg

CHINA LESSO [2128.HK; HK$4.63; BUY] - The share price of China Lesso has dropped 16%

since early June. However, excluding the impact of currency translation, the correction is only

about 10%, reflecting investors’ concerns about slowing infrastructure and property investment

growth. Given that only about 30% of China Lesso’s business is related to the property sector,

we believe 12%/13% recurring EPS growth for 2018E/2019E is still achievable, as the authori-

ties are likely to be more supportive of infrastructure investment in 2H18, according to the policy

statements in the past two weeks. After the strong rebound in cement and steel stocks in the

past two weeks, we believe China Lesso will gradually attract more investors’ attention, as the

stock is trading at 5.5x 2018E PER and 0.82x 2018E PBR. We maintain our BUY rating, with a

target price of HK$7.60 (9x 2018E PER; down from HK$7.90, based on the latest RMB ex-

change rate).

CHINA CEMENT WEEKLY - The average cement price (nationwide) dropped 1.45% to

RMB401/tonne from the price in the previous week. The relatively large decline in cement prices

was distorted by the plummet of cement prices in northeast China. For instance, cement prices

in Changchun (Jilin) dropped RMB40-50/tonne. This should not be a surprise, given the weak-

ness of the economy in the region. On the other hand, there was an increase in packed cement

prices of RMB20-30/tonne in the central part of Jiangsu, and Chongqing. In early August, ce-

ment prices remained relatively stable, excluding northeast China. We maintain our view that

cement demand is likely to recover gradually after mid-August and that cement prices will re-

bound. The average inventory level (nationwide) increased slightly from 56.6% to 57.4% week

on week.

WEEKLY SHORT SELLING ANALYSIS - Last Friday, the HKSFC released the aggregate short

positions data for July 27. We analyzed which companies may be vulnerable to short-selling

activity, based on the following three criteria: (i) the net change in short positions between July

20 and July 27; (ii) short positions as a percentage of free float; and (iii) the absolute amount of

short positions. We must emphasize this is only an objective quantitative analysis based on

official data; the analysis does NOT imply that we feel uncomfortable with the corporate govern-

ance or fundamentals of some companies. According to the results of our analysis, we believe

Xiaomi (1810.HK), China Merchants Bank (3968.HK) and Kuangchi (0439.HK) require close

monitoring, based on the latest short positions outstanding.

SNIPPETS

RMB EXCHANGE RATE – Yesterday, Central Bank Counselor Sheng Songcheng told Eco-

nomic Observer that the actual situation is that China and the United States do not want the

Renminbi to depreciate sharply; nor does it have a so-called equilibrium exchange rate - this is

an afterthought. In the past two years, he has continued to study and analyze the exchange rate

trend. He believes that the current RMB will not break "7" because it is a psychological barrier.

Currently USD:CNY is about 6.827 while USD:CNH is about 6.84.

HANG SENG INDEX QUARTERLY REVIEW - Hang Seng Indexes Company Limited will con-

duct the quarterly review this Friday. If there are any changes, stocks which may be removed

from HSI include China Merchants Port (0144.HK) and China Resources Power (0836.HK). For

potential addition, Sunac China (1918.HK) and China Evergrande (3333.HK) should have a

higher chance based on their average month-end market cap in the past 12 months. However, if

Hang Seng Indexes Company Limited prefers a more diversified sector mix, Shenzhou Interna-

tional (2313.HK) and Sino Biopharm (1177.HK) should also have a chance. Please refer to our

comment here for details. For discussion about Stock Connect candidates, please click here.

1

China Lesso [2128.HK]

BUY

Close: HK$4.63 (Aug 3, 2018)

Target Price: HK$7.60 (+64%)

Price Performance

Market Cap US$1,830m

Shares Outstanding 3,102m

Auditor Ernst & Young

Free Float 31.45%

52W range HK$4.62-6.47

3M average daily T/O US$4.0m

Major ShareholdingWong Luen Hei

(68.36%)

Sources: Company, Bloomberg

Sources: Company, CGIS Research

China Construction Sector

The share price of China Lesso has dropped 16% since early June. However, excluding the impact of currency translation, the correction is only about 10%, reflecting investors’ concerns about slowing infrastructure and property investment growth. Given that only about 30% of China Lesso’s business is related to the property sector, we believe 12%/13% recurring EPS growth for 2018E/2019E is still achievable, as the authorities are likely to be more supportive of infrastructure investment in 2H18, according to the policy statements in the past two weeks. After the strong rebound in cement and steel stocks in the past two weeks, we believe China Lesso will gradually attract more inves-tors’ attention, as the stock is trading at 5.5x 2018E PER and 0.82x 2018E PBR. We maintain our BUY rating, with a target price of HK$7.60 (9x 2018E PER; down from HK$7.90, based on the latest RMB exchange rate).

Investment Highlights

A 10% correction excluding currency translation. Although the share price of China Lesso has lost 16% since early June, we would like to highlight that about 6ppt was caused by currency translation as a result of RMB depreciation. Most of the Company’s business is in mainland China.

High exposure to southern China to offer downside protection. As with other infrastructure plays, we believe the share price correction is related to investors’ concerns about slowing growth in infrastructure and property investment. In 2017, about 57% of the Company’s revenue was generated in southern China, mainly Guangdong province. In 1H18, fixed asset investment (FAI) in Guangdong grew 10.1% YoY, still much stronger than the national average of 6%. Property invest-ment in Guangdong rose 20.2% YoY in 1H18, also much higher than the national average of 9.7%. Therefore, we believe China Lesso is still in a good position to achieve more than 10% EPS growth in 2018E/2019E.

Potential beneficiary of enhanced infrastructure investment to tackle weak-nesses. According to the statement issued after the Politburo meeting last week, infrastructure investment should be enhanced to tackle weaknesses. Apart from railways, roads and bridges, we understand the weaknesses refer to sewage sys-tems, telecommunications infrastructure, environmental protection, etc. Since sew-age system development has been under-invested in China, the authorities will be more supportive of these kinds of projects, in our view. This should benefit China Lesso, as the Company is the biggest plastic pipe producer in the country.

Valuation at the low end of the range. After the share price correction, China Les-so is trading at 5.5x 2018E PER and 0.82x 2018E PBR. Both parameters are lower than the historical average by more than 1 standard deviation and at the low end of the 8-year range. We believe further downside is limited. As some large cap cement and steel stocks rebounded strongly in the past two weeks, investors will gradually shift the focus to some mid-cap infrastructure-related plays, in our view, which should benefit China Lesso. The Company will announce its 1H18 results in late August, which should help relieve the concerns of investors.

A Laggard Infrastructure Play; Maintain BUY

August 3, 2018

Y/E Dec 31 2014 2015 2016 2017 2018E 2019E

Turnover (RMB m) 14,823 15,264 17,221 20,360 23,078 26,905

Recurring net profit (RMB m) 1,653 1,736 1,921 2,021 2,266 2,570

Net margin (%) 11.2 11.4 11.1 9.8 9.7 9.4

Recurring EPS (RMB) 0.53 0.56 0.62 0.65 0.73 0.83

% Change 16 5 11 5 12 13

PER (x) 6.9 6.9 6.5 6.0 5.5 4.9

PBR (x) 1.5 1.3 1.1 0.9 0.8 0.7

EV/EBITDA (x) 6.7 6.2 5.4 4.9 4.4 4.0

Wong Chi Man—Head of Research

(852) 3698 6317

cmwong@chinastock.com.hk

Mark Lau—Research Analyst

(852) 3698 6393

marklau@chinastock.com.hk

Source: Bloomberg

0

50

100

150

200

3

4

5

6

7

Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18

(HK$ million)(HK$)

Turnover (RHS) Price (LHS)

2

Key financials

China Lesso (02128.HK)

Income Statement

(RMB'000, except for per share amount)

Year ended 31 Dec 1H 2H 1H 2H 1H 2H 2015 2016 2017 2018E 2019E

PVC pipes 4,379,253 5,216,182 5,356,435 6,483,721 6,069,425 8,124,828 8,825,281 9,595,435 11,840,156 14,194,253 16,728,527

Non-PVC pipes 2,225,967 2,923,435 2,680,901 3,589,189 2,843,238 3,825,588 4,777,125 5,149,402 6,270,090 6,668,827 7,362,805

Others 719,895 1,756,319 939,711 1,310,043 986,942 1,228,058 1,661,995 2,476,215 2,249,754 2,215,000 2,814,000

Revenue 7,325,116 9,895,936 8,977,047 11,382,953 9,899,606 13,178,474 15,264,401 17,221,052 20,360,000 23,078,080 26,905,332

COGS (5,141,630) (7,497,644) (6,515,743) (8,527,474) (7,186,757) (9,926,169) (11,326,830) (12,639,274) (15,043,217) (17,112,925) (20,121,732)

Gross profit 2,183,486 2,398,292 2,461,304 2,855,479 2,712,849 3,252,305 3,937,571 4,581,778 5,316,783 5,965,154 6,783,601

Operating expenses (984,534) (1,171,144) (1,211,594) (1,488,783) (1,336,447) (1,700,023) (1,792,089) (2,155,678) (2,700,377) (3,036,470) (3,541,510)

Operating profit 1,198,952 1,227,148 1,249,710 1,366,696 1,376,402 1,552,282 2,145,482 2,426,100 2,616,406 2,928,684 3,242,091

Other income and gains 17,941 30,656 37,407 84,067 39,598 79,071 47,506 48,597 121,474 118,669 137,858

EBIT 1,216,893 1,257,804 1,287,117 1,450,763 1,416,001 1,631,353 2,192,988 2,474,697 2,737,880 3,047,353 3,379,949

Net f inance costs (16,614) (35,056) (62,117) (84,814) (97,174) (118,769) (14,902) (51,670) (146,931) (215,943) (226,847)

Profits from associates and JCEs 385 428 253 (10) 12,774 61,872 1,101 813 (1,161) 74,646 142,156

Non-recurrent items (17,044) 17,996 (579) 365,377 - - (114,516) 952 364,798 - -

Income before tax 1,183,620 1,241,172 1,224,674 1,731,316 1,331,601 1,574,456 2,064,671 2,424,792 2,954,586 2,906,057 3,295,258

Income tax expense (275,185) (235,903) (274,001) (414,778) (312,926) (362,125) (446,221) (511,088) (688,779) (675,051) (765,532)

Minority interests 3,945 4,378 20,369 6,879 25,000 10,000 2,667 8,323 27,248 35,000 40,000

Net income 912,380 1,009,647 971,042 1,323,417 1,043,675 1,222,331 1,621,117 1,922,027 2,293,055 2,266,006 2,569,726

Recurring net income 929,424 991,651 971,621 1,049,384 1,043,675 1,222,331 1,735,633 1,921,075 2,021,005 2,266,006 2,569,726

EPS (RMB) 0.294 0.325 0.313 0.427 0.336 0.394 0.521 0.620 0.739 0.730 0.828

Recurring EPS (RMB) 0.300 0.320 0.313 0.338 0.336 0.394 0.558 0.619 0.651 0.730 0.828

DPS (HK$) - 0.150 - 0.180 - 0.176 0.130 0.150 0.180 0.176 0.200

Depreciation and amortization 286,258 307,108 314,368 332,454 317,654 357,269 501,115 593,366 646,822 674,923 676,923

EBITDA 1,503,536 1,565,340 1,601,738 1,783,207 1,746,429 2,050,494 2,695,204 3,068,876 3,383,541 3,796,923 4,199,027

Sales volume (tonnes) 768,611 936,301 869,881 1,134,959 987,750 1,262,250 1,541,954 1,704,912 2,004,840 2,250,000 2,484,000

PVC 626,413 753,431 702,115 880,582 800,078 1,009,800 1,240,900 1,379,844 1,582,697 1,809,878 1,998,130

Non-PVC 142,198 182,870 167,766 254,377 187,673 252,450 301,054 325,068 422,143 440,123 485,870

ASP per tonne (RMB) 8,593 8,693 9,240 8,875 9,023 9,468 8,821 8,648 9,033 9,272 9,699

PVC 6,991 6,923 7,629 7,363 7,586 8,046 7,112 6,954 7,481 7,843 8,372

Non-PVC 15,654 15,986 15,980 14,110 15,150 15,154 15,868 15,841 14,853 15,152 15,154

Cost per tonne (RMB) 5,902 6,355 6,551 6,605 6,464 7,067 6,369 6,151 6,582 6,802 7,178

Gross profit per tonne (RMB) 2,691 2,338 2,689 2,270 2,559 2,401 2,452 2,497 2,451 2,470 2,520

Growth Rates:

Revenue 4% 20% 23% 15% 10% 16% 3% 13% 18% 13% 17%

EBIT 15% 11% 6% 15% 10% 12% 7% 13% 11% 11% 11%

EBITDA 15% 13% 7% 14% 9% 15% 8% 14% 10% 12% 11%

Core net income 13% 8% 5% 6% 7% 16% 5% 11% 5% 12% 13%

Recurring EPS 14% 9% 5% 6% 7% 16% 5% 11% 5% 12% 13%

Margins and Ratios:

Gross margin 29.8% 24.2% 27.4% 25.1% 27.4% 24.7% 25.8% 26.6% 26.1% 25.8% 25.2%

Net margin 12.6% 10.0% 10.6% 9.2% 10.3% 9.2% 11.4% 11.1% 9.8% 9.7% 9.4%

EBIT margin 16.6% 12.7% 14.3% 12.7% 14.3% 12.4% 14.4% 14.4% 13.4% 13.2% 12.6%

EBITDA margin 20.5% 15.8% 17.8% 15.7% 17.6% 15.6% 17.7% 17.8% 16.6% 16.5% 15.6%

Effective tax rate 23% 19% 22% 30% 24% 23% 20% 21% 27% 23% 23%

Sources: Company data, CGIS Research estimates

2018E20172016

3

Key financials

Figure 1: Rolling Forward PER

Sources: Bloomberg, CGIS Research

Figure 2: Rolling Forward PBR

Sources: Bloomberg, CGIS Research

China Lesso (02128.HK)

Balance Sheet Statement of Cash Flow

(RMB'000 , except for per share amount)

As at 31 Dec 2015 2016 2017 2018E 2019E Year ended 31 Dec 2015 2016 2017E 2018E 2019E

Inventories 2,206,543 2,747,065 3,227,742 3,600,000 4,000,000 Profit before tax 2,064,671 2,424,792 2,954,586 2,906,057 3,295,258

Trade receivables 1,186,226 1,254,357 1,981,994 2,279,293 2,552,808 Depreciation & Amortization 467,568 556,329 556,329 626,923 626,923

Bills receivable 292,648 383,921 187,675 200,000 250,000 Change in w orking capital 499,615 699,038 (1,602,424) (154,093) (260,869)

Others 653,331 1,787,658 2,298,691 2,545,688 2,823,042 Others / adjustments (154,870) (715,891) (1,477,798) (1,632,557) (650,481)

Bank balances and cash 3,893,544 3,885,683 4,452,370 2,521,767 2,700,000 Net operating cash f low 2,876,984 2,964,268 430,693 1,746,330 3,010,830

Total current assets 8,232,292 10,058,684 12,148,472 11,146,749 12,325,851

Capex (1,268,384) (2,877,108) (1,200,000) (1,200,000) (1,200,000)

PPE, net 6,011,812 6,621,953 7,156,134 7,858,605 8,424,909 Others (224,635) (1,129,311) (1,586,261) (1,050,000) (650,000)

Prepaid lease payments 1,157,926 1,249,367 1,266,216 1,316,216 1,366,216 Net investing cash f low (1,493,019) (4,006,419) (2,786,261) (2,250,000) (1,850,000)

Others 1,247,093 4,265,282 7,402,803 9,259,404 10,001,560

Total non-current assets 8,416,831 12,136,602 15,825,153 18,434,225 19,792,684 Change in debt 60,906 1,453,821 3,624,814 (819,375) (153,447)

Dividends (318,373) (334,160) (473,250) (475,861) (539,642)

Total assets 16,649,123 22,195,286 27,973,625 29,580,974 32,118,535 Others (416,916) (289,610) (229,309) (131,696) (289,508)

Net f inancing cash f low (674,383) 830,051 2,922,255 (1,426,933) (982,598)

Trade payables 1,681,582 3,603,162 3,021,085 3,600,000 4,140,000

Other payables 1,525,902 1,731,570 1,892,922 1,950,000 2,000,000 Increase / Decrease in cash 694,642 (7,861) 566,687 (1,930,603) 178,233

Bank and other borrow ings 1,065,502 4,252,154 2,877,256 3,000,000 3,300,000 Net cash/(debt) 652,804 (808,878) (3,867,005) (4,978,233) (4,646,553)

Others 104,562 135,006 282,528 322,515 369,660

Total current liabilities 4,377,548 9,721,892 8,073,791 8,872,515 9,809,660 Finance Ratios

Bank and other borrow ings 2,175,238 442,407 5,442,119 4,500,000 4,046,553 2015 2016 2017 2018E 2019E

Others 230,885 493,315 674,224 667,212 667,212 Valuation

Total non-current liabilities 2,406,123 935,722 6,116,343 5,167,212 4,713,765 PE(x) 6.9 6.5 6.0 5.5 4.9

EPS grow th (%) 5 11 5 12 13

Total liabilities 6,783,671 10,657,614 14,190,134 14,039,727 14,523,424 Yield (%) 2.8 3.2 3.9 3.8 4.3

PEG (x) 1.38 0.59 1.16 0.45 0.36

Shareholders' equity 9,770,885 11,231,509 13,489,915 15,282,671 17,376,535 EV/EBITDA (x) 6.2 5.4 4.9 4.4 4.0

Minority interests 94,567 306,163 293,576 258,576 218,576 PB(x) 1.3 1.1 0.9 0.8 0.7

Operational

Revenue grow th (%) 3 13 18 13 17

Gross margin (%) 25.8 26.6 26.1 25.8 25.2

Net profit margin (%) 11.4 11.1 9.8 9.7 9.4

Days receivables 34 33 34 37 36

Days payables 43 76 80 71 70

Days inventories 71 72 72 73 69

Current ratio (x) 1.9 1.0 1.5 1.3 1.3

Quick ratio (x) 1.2 0.6 0.8 0.6 0.6

Asset/Equity (x) 1.7 1.9 2.0 1.9 1.8

Net debt/equity (%) Net cash 7 28 32 26

EBITDA interest coverage (x) 180.9 59.4 23.0 17.6 18.5

Core ROE (%) 19.0 18.3 16.4 15.8 15.7

Sources: Company data, CGIS Research estimates

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Jun

-10

No

v-10

Ap

r-11

Sep

-11

Feb

-12

Jul-

12

Dec

-12

May

-13

Oct

-13

Mar

-14

Au

g-14

Jan

-15

Jun

-15

No

v-15

Ap

r-16

Sep

-16

Feb

-17

Jul-

17

Dec

-17

May

-18

Rolling forward PER (x) Average

+1 Standard deviation -1 Standard deviation

0.6

1.1

1.6

2.1

2.6

3.1

3.6

4.1

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

Jul-

12

De

c-1

2

Ma

y-1

3

Oct

-13

Ma

r-1

4

Au

g-1

4

Jan

-15

Jun

-15

No

v-1

5

Ap

r-1

6

Sep

-16

Feb

-17

Jul-

17

De

c-1

7

Ma

y-1

8

Rolling forward PBR (x) Average

+1 Standard deviation -1 Standard deviation

 1 

 

China Cement Weekly August 06, 2018

Wong Chi Man—Head of Research

(852) 3698-6317

cmwong@chinastock.com.hk

Mark Lau—Research Analyst

(852) 3698-6393

marklau@chinastock.com.hk

Cement Price Weakness Distorted by Lacklustre De-mand in Northeast China The average cement price (nationwide) dropped 1.45% to RMB401/tonne from the price in the previous week. The relatively large decline in cement prices was distorted by the plummet of cement prices in northeast China. For instance, cement prices in Changchun (Jilin) dropped RMB40-50/tonne. This should not be a surprise, given the weakness of the economy in the region. On the other hand, there was an increase in packed cement prices of RMB20-30/tonne in the central part of Jiangsu, and Chongqing. In early August, cement prices remained relatively stable, excluding northeast China. We maintain our view that cement demand is likely to recover gradually after mid-August and that cement prices will rebound. The average inventory level (nationwide) increased slightly from 56.6% to 57.4% week on week.

Coal prices dropped slightly last week. The comprehensive average price index for Bohai-Rim Steam Coal (Q5500K) decreased by RMB1/tonne to RMB567/tonne last week. The index decreased 2.7% on a year-on-year (YoY) basis.

Acceleration of closing clinker production lines with daily production volume below 2,000 tonnes in Beijing, Tianjin and Hebei. Since clinker production capacity in Beijing and Tianjin is quite small, the proposed closure of clinker capacity by the authorities will mainly affect Hebei. Currently total annual clinker production capacity in Hebei is about 100m tonnes, and we estimate that at least 3% of this will be closed, although the authorities’ consultation paper does not specify the time frame. This should benefit BBMG [2009.HK; BUY], in our view, as the Company is the leading player in north China. Meanwhile, starting from 1 October 2018, stricter emissions regulations for heavy industry, including cement production, will be implemented in Beijing, Tianjin and Hebei. We expect to see more production suspensions in the region in order to meet the emission standards.

Cement stocks under coverage dropped 6.3% on average last week. Following the sharp rebound a week earlier (>14%), we saw profit-taking in the sector last week. Best performer Conch Cement [0914.HK; BUY] recorded an decrease of 4.4% in its share price last week. CR Cement [1313.HK; BUY], the weakest among our coverage stocks, fell 8.2% week on week.

China Cement Sector

Sources: Company, Bloomberg, CGIS Research estimates

Valuation Table Net debt/equity (%)

Company Ticker Rating Price (HK$) Market cap (US$m) 2017 2018E 2019E 2017 2018E 2019E 2017 2018E 2019E 2018EConch Cement 914 HK Equity BUY 46.95 29,317 14.6 9.3 9.3 2.37 1.97 1.77 8.2 5.6 5.6 Net cashCNBM 3323 HK Equity BUY 7.95 6,511 10.6 6.2 6.1 0.80 0.71 0.65 8.9 7.3 7.3 169 BBMG 2009 HK Equity BUY 2.89 5,194 10.3 7.0 6.6 0.53 0.47 0.45 10.9 8.9 8.2 95 CR Cement 1313 HK Equity BUY 8.45 7,565 15.5 7.5 7.5 1.95 1.50 1.36 9.8 5.5 5.5 5

Simple average 12.7 7.5 7.3 1.41 1.16 1.05 9.5 6.8 6.7 89 Weighted average 13.7 8.4 8.3 1.89 1.57 1.41 8.8 6.1 6.1 33

PER (x) PBR (x) EV/EBITDA(x)

2017 -2019E PEG(x)

Company Ticker 2018E 2019E CAGR (%) 2018E 2017 2018E 2019E 2017 2018E 2019EConch Cement 914 HK Equity 54.0 0.5 24.4 0.4 17.49 22.94 20.13 3.0 4.8 5.4 CNBM 3323 HK Equity 69.3 1.2 30.9 0.2 7.86 12.10 11.10 1.5 3.2 3.3 CR Cement 1313 HK Equity 105.7 1.0 44.1 0.2 12.67 22.48 19.10 3.2 6.7 6.7 BBMG 2009 HK Equity 44.2 7.1 24.2 0.3 5.32 6.93 7.00 2.3 3.1 3.3 Simple average 68.3 2.4 30.9 0.3 10.83 16.12 14.33 2.5 4.5 4.7 Weighted average 63.0 1.4 28.3 0.3 14.15 19.71 17.35 2.8 4.7 5.1

EPS Growth (%) ROE (%) Dividend yield (%)

 2 

 

1-Year Relative Performance

Sources: Bloomberg, CGIS Research

Peer Comparison

Sources: Bloomberg, CGIS Research

Market capCompany Ticker Rating Price (LC) (US$m) 2017 2018E 2019E 2017 2018E 2019E 2017 2018E 2019EConch Cement 914 HK Equity BUY 46.95 29,317 14.6 9.3 9.3 2.37 1.97 1.77 8.2 5.6 5.6 CNBM 3323 HK Equity BUY 7.95 6,511 10.6 6.2 6.1 0.80 0.71 0.65 8.9 7.3 7.3 BBMG 2009 HK Equity BUY 2.89 5,194 10.3 7.0 6.6 0.53 0.47 0.45 10.9 8.9 8.2 CR Cement 1313 HK Equity BUY 8.45 7,565 15.5 7.5 7.5 1.95 1.50 1.36 9.8 5.5 5.5 Asia Cement 743 HK Equity NR 6.15 1,235 8.6 5.3 4.8 0.82 0.72 0.63 5.8 3.8 3.6 West China Cement 2233 HK Equity NR 1.31 913 8.8 5.4 5.0 0.94 0.78 0.71 4.5 3.4 3.4 Tianrui Cement 1252 HK Equity NR 7.00 2,637 16.2 n.a. n.a. 1.83 n.a. n.a. 9.5 n.a. n.a.

Simple average 12.1 6.8 6.5 1.32 1.02 0.93 8.2 5.7 5.6 Weighted average 13.6 7.8 7.7 1.85 1.46 1.31 8.7 5.7 5.7

PER (x) PBR (x) EV/EBITDA(x)

 3 

 

Figure 1: Regional Cement Price

Sources: Digital Cement, CGIS Research

220

270

320

370

420

470

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

National Average (P.O. 42.5)

2013 2014 2015 2016 2017 2018

200

250

300

350

400

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

North China

2013 2014 2015 2016 2017 2018

250

300

350

400

450

500

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Northeast China

2013 2014 2015 2016 2017 2018

200

250

300

350

400

450

500

550

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

East China

2013 2014 2015 2016 2017 2018

200

240

280

320

360

400

440

480

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

South Central China

2013 2014 2015 2016 2017 2018

200

240

280

320

360

400

440

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Southwest China

2013 2014 2015 2016 2017 2018

200220240260280300320340360380400

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Northwest China

2013 2014 2015 2016 2017 2018

1

Strategy

August 6, 2018

Wong Chi Man—Head of Research

(852) 3698-6317

cmwong@chinastock.com.hk

Mark Lau—Research Analyst

(852) 3698-6393

marklau@chinastock.com.hk

Short Selling Analysis for July 27 Last Friday, the HKSFC released the aggregate short positions data for July 27. We ana-

lyzed which companies may be vulnerable to short-selling activity, based on the following

three criteria: (i) the net change in short positions between July 20 and July 27; (ii) short

positions as a percentage of free float; and (iii) the absolute amount of short positions. We

must emphasize this is only an objective quantitative analysis based on official data;

the analysis does NOT imply that we feel uncomfortable with the corporate govern-

ance or fundamentals of some companies. According to the results of our analysis,

we believe Xiaomi (1810.HK), China Merchants Bank (3968.HK) and Kuangchi

(0439.HK) require close monitoring, based on the latest short positions outstanding.

Adjusted approach to analyzing short-selling data. In the past, our analysis of short-

selling data focused mainly on the data from the HKSFC, which provides the outstanding

short positions in each stock with a delay of one week. To tackle this shortcoming, we also

look at the daily short-selling activity based on the HKEx data (only daily activity, not out-

standing positions) in the past five days, starting from this week’s research note.

Xiaomi: As Figure 2 shows, short positions in Xiaomi rose 23.5% during the week ended

July 27. The outstanding short positions were equivalent to 3.94% of its free float. The short-

selling amount during the week ended August 3 was equivalent to 18% of the stock’s trading

volume, up from 13.3% during the ended July 27.

China Merchants Bank: Short positions in China Merchants Bank rose 21% during the

week ended July 27. The outstanding short positions were equivalent to 3.16% of its free

float. The short-selling amount during the week ended August 3 was equivalent to 27.5% of

the stock’s trading volume, up from 21.7% during the ended July 27.

Kuangchi: Short positions in Kuangchi rose 35.2% during the week ended July 27. The

outstanding short positions were equivalent to 3.49% of its free float. The short-selling

amount during the week ended August 3 was equivalent to 10.1% of the stock’s trading vol-

ume, up from 5.6% during the ended July 27.

Recap: Source of data. The HKSFC releases the aggregate short positions in all eligible

stocks every Friday, with a delay of one week. The HKEx releases the data on short-selling

activity on a daily basis (without a one-week delay), but investors do not know whether the

short positions are covered or not later. Therefore, the usefulness of the HKSFC data is that

it provides the outstanding short positions in each stock, and investors can trace the net

change on a weekly basis. However, there are still some limitations, as this data set cannot

cover short-selling activity using OTC derivative products.

Three angles to analyzing the data. (i) The net change in short positions between July 20

and July 27; (ii) short positions as a percentage of free float; and (iii) the absolute amount of

the short positions.

2

Sources: HKSFC, Bloomberg, CGIS Research

Figure 2: Top 50 short selling stocks (ranked by net change between July 20 and July 27, descending order)

Figure 1: Review of ideas last week

Sources: Bloomberg, CGIS Research

Ticker Company nameMarket cap

(HK$m)

2018E PER

(x)

2019E PER

(x)PBR (x)

2018E Dividend

yield (%)

Price on August

3 (HK$)

Price on July 27

(HK$)Change

Short positions increased significantly during the week ended July 20

2196 HK Equity Shanghai Fosun Pharmaceutical Group Co Ltd 96,431 20.13 16.94 2.98 1.46 34.70 38.95 -10.9%

763 HK Equity ZTE Corp 62,020 n.a. 9.50 1.42 1.16 12.30 13.74 -10.5%

Short positions dropped significantly during the week ended July 20

1171 HK Equity Yanzhou Coal Mining Co Ltd 56,499 4.61 4.99 0.81 6.26 9.01 10.12 -11.0%

Ticker Company name

Aggregated

reportable

short positions

on Jul 27

(shares)

Aggregated

reportable short

positions on Jul

27 (HK$)

% of free

float

Change in short

positions

compared with

Jul 20

Price on

Jul 27

(HK$)

Price on

Aug 03

(HK$)

Price

change

during

the

period

Market cap

(HK$m)

2018E

PER (x)

2019E

PER (x) PBR (x)

2018E

Dividend

yield (%)

Aggregated

reportable

short

positions on

Jul 27/ 3-

month

average

daily

turnover

286 CS HEALTH 952,000 818,720 0.06% Increase from nill 0.86 0.82 -4.7% 2,457 n.a. n.a. 3.21 n.a. 0.17

1111 CHONG HING BANK 188,000 2,759,840 0.12% Increase from nill 14.68 14.3 -2.6% 9,331 n.a. n.a. 0.62 n.a. 1.63

1448 FU SHOU YUAN 6,307,899 47,940,032 0.75% 166.4% 7.6 6.65 -12.5% 14,681 24.26 20.22 4.18 1.19 0.82

708 EVERG HEALTH 4,960,000 46,276,800 0.17% 138.5% 9.33 12.64 35.5% 109,210 n.a. n.a. 114.76 n.a. 0.45

1317 MAPLELEAF EDU 37,648,842 266,177,313 2.91% 128.5% 7.07 6.24 -11.7% 18,590 27.46 22.03 4.82 1.45 2.26

887 EMPEROR WATCH&J 4,610,000 2,028,400 0.16% 120.6% 0.44 0.415 -5.7% 2,813 n.a. n.a. 0.65 n.a. 0.34

995 ANHUIEXPRESSWAY 589,000 2,738,850 0.15% 114.2% 4.65 4.44 -4.5% 9,484 5.68 5.72 0.68 6.17 0.38

683 KERRY PPT 6,518,283 255,842,608 1.09% 83.1% 39.25 39.35 0.3% 57,255 10.20 9.55 0.60 3.73 3.57

1929 CHOW TAI FOOK 10,208,260 87,178,540 1.13% 75.3% 8.54 7.26 -15.0% 72,600 14.94 13.08 2.17 5.06 1.60

2200 HOSA INT'L 620,000 192,200 0.11% 58.2% 0.31 0.244 -21.3% 407 1.19 1.07 0.18 n.a. 0.01

323 MAANSHAN IRON 64,928,697 271,401,953 3.92% 55.9% 4.18 4 -4.3% 34,399 5.69 5.73 1.07 5.51 3.32

525 GUANGSHEN RAIL 10,423,900 42,529,512 0.77% 52.8% 4.08 3.85 -5.6% 31,977 14.41 13.82 0.83 3.53 2.20

2001 NEW HIGHER EDU 8,043,773 65,154,561 1.62% 38.4% 8.1 6.81 -15.9% 9,746 26.86 20.56 4.95 1.11 0.73

439 KUANGCHI 60,799,000 57,151,060 3.49% 35.2% 0.94 0.8 -14.9% 4,926 n.a. n.a. 2.00 n.a. 2.12

1233 TIMES PPT 10,045,000 102,860,800 1.74% 35.1% 10.24 9.4 -8.2% 17,238 4.40 3.47 0.97 6.78 2.73

1070 TCL MULTIMEDIA 8,346,416 31,132,132 0.76% 34.6% 3.73 3.64 -2.4% 8,494 9.92 8.41 0.83 1.98 2.18

2268 YOUYUAN HLDGS 8,290,919 26,033,486 1.93% 33.6% 3.14 3.08 -1.9% 3,831 n.a. n.a. 0.89 n.a. 0.83

715 CHINA OCEANWIDE 28,311,131 11,324,452 0.70% 29.8% 0.4 0.4 0.0% 6,457 n.a. n.a. 0.60 n.a. 4.59

1224 C C LAND 10,762,033 19,048,798 0.65% 27.2% 1.77 1.8 1.7% 6,988 n.a. n.a. 0.41 n.a. 12.20

1281 LONGITECH SMART ENERGY 1,771,000 3,028,410 0.30% 26.2% 1.71 1.8 5.3% 2,481 n.a. n.a. 2.24 n.a. 0.76

1579 YIHAI INTL 2,680,000 49,687,200 0.75% 24.5% 18.54 16.9 -8.8% 17,693 35.57 27.82 10.32 0.81 1.02

392 BEIJING ENT 2,823,729 108,995,939 0.61% 23.6% 38.6 36.95 -4.3% 46,633 6.46 5.82 0.69 2.96 1.62

1810 XIAOMI - W 84,989,628 1,618,202,517 3.94% 23.5% 19.04 17 -10.7% 383,819 37.49 25.23 n.a. n.a. n.a.

813 SHIMAO PROPERTY 22,598,404 524,282,973 2.38% 23.0% 23.2 20.35 -12.3% 68,926 6.57 5.23 1.05 5.88 3.04

6 POWER ASSETS 15,432,083 867,283,065 1.20% 22.9% 56.2 55.2 -1.8% 117,811 14.93 14.96 1.41 5.07 3.84

1585 YADEA 5,734,000 16,972,640 0.64% 22.3% 2.96 2.74 -7.4% 8,220 n.a. n.a. 2.91 n.a. 1.39

753 AIR CHINA 78,208,905 565,450,383 4.91% 22.0% 7.23 6.76 -6.5% 112,079 11.34 8.03 1.00 1.82 3.37

1257 CEB GREENTECH 9,943,383 79,745,932 1.92% 21.3% 8.02 7.62 -5.0% 15,744 11.71 9.30 1.80 1.80 3.54

2202 CHINA VANKE 32,809,121 831,711,217 2.80% 21.2% 25.35 22.6 -10.8% 263,827 6.26 5.09 1.65 5.68 3.38

3968 CM BANK 124,176,265 3,837,046,589 3.16% 21.0% 30.9 29.55 -4.4% 777,465 8.17 7.13 1.41 3.75 5.29

960 LONGFOR PPT 22,226,647 531,216,863 1.84% 20.7% 23.9 20.65 -13.6% 122,461 8.45 6.71 1.51 4.66 4.36

2362 JINCHUAN INTL 35,503,000 44,023,720 0.40% 20.3% 1.24 1.15 -7.3% 14,501 n.a. n.a. n.a. n.a. 2.29

1972 SWIREPROPERTIES 13,375,637 407,956,929 1.31% 20.1% 30.5 29.5 -3.3% 172,575 21.16 20.89 0.67 2.71 5.05

338 SHANGHAI PECHEM 82,835,484 398,438,678 2.59% 20.0% 4.81 4.69 -2.5% 60,253 7.82 8.08 1.57 6.38 5.17

1589 CNLP 5,806,000 15,327,840 1.66% 19.7% 2.64 2.73 3.4% 8,855 199.20 82.43 0.75 n.a. 3.99

2098 ZALL GROUP 23,874,756 181,209,398 0.56% 19.7% 7.59 6.73 -11.3% 78,618 n.a. n.a. 3.85 n.a. 3.93

8279 AGTECH HOLDINGS 13,560,000 10,305,600 0.58% 19.2% 0.76 0.67 -11.8% 7,552 n.a. n.a. n.a. n.a. 1.93

345 VITASOY INT'L 2,749,324 76,568,673 0.37% 19.2% 27.85 28.1 0.9% 29,811 43.03 36.83 10.23 1.35 2.43

1558 HEC PHARM 1,331,800 52,273,150 1.12% 18.8% 39.25 36.9 -6.0% 16,680 16.98 14.57 5.20 1.83 0.53

1336 NCI 19,472,581 705,881,061 2.22% 18.4% 36.25 32.9 -9.2% 138,913 10.41 9.00 1.41 2.55 2.73

386 SINOPEC CORP 318,827,445 2,394,394,112 1.31% 18.3% 7.51 7.34 -2.3% 905,410 9.93 9.81 1.04 7.33 2.48

433 NORTH MINING 118,137,339 6,261,279 0.95% 18.1% 0.053 0.051 -3.8% 24,724 n.a. n.a. 0.35 n.a. 0.94

1086 GOODBABY INTL 22,637,706 95,078,365 2.49% 17.9% 4.2 3.93 -6.4% 15,361 12.72 10.40 1.28 2.06 7.44

1313 CHINARES CEMENT 58,421,953 537,481,968 2.91% 17.8% 9.2 8.45 -8.2% 147,241 8.07 7.98 1.66 5.78 1.41

291 CHINA RES BEER 23,703,352 848,580,002 1.74% 16.9% 35.8 35.1 -2.0% 10,322 49.81 39.55 5.41 0.77 3.54

200 MELCO INT'L DEV 12,399,207 284,561,801 1.86% 16.8% 22.95 22.05 -3.9% 15,883 19.21 13.64 1.78 0.60 2.68

798 CEOVU 2,556,000 1,405,800 0.12% 16.6% 0.55 0.5 -9.1% 3,809 n.a. n.a. 0.56 n.a. 0.68

3369 QHD PORT 1,283,500 2,477,155 0.18% 16.5% 1.93 1.81 -6.2% 21,823 7.73 7.37 0.66 6.56 1.62

2689 ND PAPER 79,015,124 769,607,308 5.07% 16.3% 9.74 9.94 2.1% 5.59 5.85 1.24 5.55 4.37

2282 MGM CHINA 112,487,214 1,925,781,104 14.11% 15.0% 17.12 16.66 -2.7% 63,308 26.78 16.05 7.44 1.78 12.39

3

Figure 3: Top 50 short selling stocks (ranked by net change between July 20 and July 27, ascending order)

Sources: HKSFC, Bloomberg, CGIS Research

Ticker Company name

Aggregated

reportable

short positions

on Jul 27

(shares)

Aggregated

reportable short

positions on Jul

27 (HK$)

% of free

float

Change in short

positions

compared with

Jul 20

Price on

Jul 27

(HK$)

Price on

Aug 03

(HK$)

Price

change

during

the

period

Market cap

(HK$m)

2018E

PER (x)

2019E

PER (x) PBR (x)

2018E

Dividend

yield (%)

Aggregated

reportable

short

positions on

Jul 27/ 3-

month

average

daily

turnover

687 HKICIM GROUP - - 0.00% -100.0% 1.85 1.62 -12.4% 5,511 n.a. n.a. 0.45 n.a. 0.00

743 ASIA CEMENT CH - - 0.00% -100.0% 5.94 6.15 3.5% 9,636 5.28 4.83 0.83 7.34 0.00

1243 WANG ON PPT - - 0.00% -100.0% 1.05 1.1 4.8% 16,720 n.a. n.a. 4.12 n.a. 0.00

1308 SITC - - 0.00% -100.0% 7.75 7.7 -0.6% 20,527 11.96 10.33 2.70 6.22 0.00

1727 HEBEI CONS - - 0.00% -100.0% 4.88 4.69 -3.9% 8,261 n.a. n.a. 1.82 n.a. 0.00

1798 DATANG RENEW - - 0.00% -100.0% 1.49 1.44 -3.4% 10,474 7.55 6.34 0.97 2.86 0.00

1528 RS MACALLINE 2,267,767 21,566,464 0.50% -69.0% 9.51 8.97 -5.7% 51,867 9.58 8.98 0.70 5.92 0.72

3918 NAGACORP 6,471,746 57,792,692 0.46% -66.0% 8.93 8.48 -5.0% 36,812 12.71 12.28 3.26 4.54 1.45

3331 VINDA INT'L 401,000 5,742,320 0.04% -53.8% 14.32 14.28 -0.3% 17,056 20.64 17.52 1.91 1.56 0.84

1045 APT SATELLITE 199,500 584,535 0.05% -51.6% 2.93 2.93 0.0% 2,727 n.a. n.a. 0.51 n.a. 1.16

41 GREAT EAGLE H 160,768 6,205,645 0.07% -47.8% 38.6 38.15 -1.2% 26,642 16.44 17.03 0.41 2.02 1.34

1076 IMPERIAL PAC 68,800,000 5,435,200 0.13% -46.9% 0.079 0.078 -1.3% 11,153 34.15 17.07 3.04 n.a. 3.79

1266 XIWANG STEEL 2,298,000 4,044,480 0.31% -45.5% 1.76 1.74 -1.1% 3,947 2.99 2.51 0.67 10.83 0.26

1098 ROAD KING INFRA 166,000 2,543,120 0.09% -40.3% 15.32 14.2 -7.3% 10,641 n.a. n.a. 0.68 n.a. 0.29

1515 CRPHOENIXHEALTH 21,181,435 155,471,733 3.62% -39.3% 7.34 7 -4.6% 9,077 18.35 16.34 1.45 1.19 3.90

978 CHI MER LAND 3,470,000 4,615,100 0.29% -39.0% 1.33 1.29 -3.0% 6,328 n.a. n.a. 0.75 7.61 1.02

6116 LA CHAPELLE 108,600 878,574 0.06% -38.4% 8.09 8.04 -0.6% 7,666 6.90 6.23 0.99 8.81 0.12

3613 TONGRENTANGCM 263,000 4,265,860 0.12% -35.2% 16.22 15.74 -3.0% 13,176 22.75 19.77 n.a. 1.42 0.28

1212 LIFESTYLE INT'L 1,906,852 30,318,947 0.39% -33.8% 15.9 15.8 -0.6% 25,321 13.50 12.64 6.26 3.90 0.49

2328 PICC P&C 54,726,719 471,197,051 0.73% -33.7% 8.61 9.38 8.9% 208,637 8.04 7.35 1.37 3.02 1.31

488 LAI SUN DEV 407,630 5,445,937 0.24% -33.2% 13.36 13.14 -1.6% 7,964 n.a. n.a. 0.28 n.a. 0.86

270 GUANGDONG INV 10,810,191 145,937,579 0.40% -32.3% 13.5 13.12 -2.8% 85,776 17.22 16.16 2.13 4.23 1.60

173 K. WAH INT'L 4,146,220 18,948,225 0.33% -29.8% 4.57 4.32 -5.5% 13,466 3.00 3.69 0.38 4.51 1.19

1966 CHINA SCE PPT 6,982,000 24,506,820 0.51% -26.3% 3.51 3.2 -8.8% 12,236 4.23 3.13 0.86 7.49 0.62

2877 SHINEWAY PHARM 2,398,900 29,890,294 0.97% -26.1% 12.46 11.12 -10.8% 9,196 13.34 10.94 1.38 5.01 0.78

1385 SHANGHAI FUDAN 188,000 1,564,160 0.07% -24.2% 8.32 8.24 -1.0% 5,433 n.a. n.a. 1.80 n.a. 0.45

3633 ZHONGYU GAS 599,706 5,127,486 0.09% -24.1% 8.55 8.38 -2.0% 21,282 n.a. n.a. 6.67 n.a. 0.14

2858 YIXIN 26,098,041 80,381,966 1.16% -22.7% 3.08 2.76 -10.4% 17,446 37.18 10.69 0.99 0.00 1.98

1777 FANTASIA 33,980,900 41,456,698 2.86% -22.2% 1.22 1.12 -8.2% 6,454 4.09 3.16 0.45 7.44 4.26

8032 VIVA CHINA 6,350,976 5,398,330 0.26% -22.1% 0.85 0.84 -1.2% 7,431 n.a. n.a. 2.58 n.a. 2.98

1828 DCH HOLDINGS 2,465,998 9,025,553 0.32% -21.9% 3.66 3.6 -1.6% 6,717 6.99 6.21 0.66 5.83 1.03

303 VTECH HOLDINGS 1,785,169 157,184,130 1.07% -21.0% 88.05 87 -1.2% 21,887 12.98 12.29 4.31 7.65 5.19

54 HOPEWELL HOLD 789,504 21,750,835 0.14% -21.0% 27.55 27.3 -0.9% 23,713 n.a. n.a. 0.49 n.a. 1.69

728 CHINA TELECOM 75,795,965 269,833,635 0.54% -20.9% 3.56 3.6 1.1% 291,357 12.61 11.34 0.78 3.27 1.55

3306 JNBY 290,000 5,521,600 0.19% -20.3% 19.04 17.26 -9.3% 8,954 18.01 14.74 5.98 3.81 0.19

119 POLY PROPERTY 19,266,041 62,421,973 1.08% -19.7% 3.24 3 -7.4% 10,985 4.80 4.72 0.39 6.00 2.54

2607 SH PHARMA 11,192,938 236,170,992 1.42% -19.5% 21.1 19.92 -5.6% 66,207 12.10 10.46 1.38 2.51 2.26

1908 C&D INTL GROUP 338,000 2,504,580 0.21% -18.9% 7.41 6.97 -5.9% 5,122 n.a. n.a. n.a. n.a. 0.31

832 CENTRAL CHINA 4,421,000 15,915,600 0.68% -18.3% 3.6 3.42 -5.0% 9,341 6.70 4.61 0.95 4.11 1.91

3988 BANK OF CHINA 269,824,161 995,651,154 0.36% -18.3% 3.69 3.61 -2.2% 1,142,000 5.23 4.81 0.66 5.98 0.79

1800 CHINA COMM CONS 74,828,073 639,780,024 1.79% -18.0% 8.55 8.09 -5.4% 203,789 5.58 4.91 0.63 3.54 4.00

1140 OP FIN INV 15,140,000 45,420,000 1.38% -17.8% 3 3.01 0.3% 8,842 n.a. n.a. 1.58 n.a. 4.58

2678 TEXHONG TEXTILE 409,000 5,087,960 0.16% -17.7% 12.44 12.82 3.1% 11,730 7.70 6.51 1.74 3.84 0.39

363 SHANGHAI IND H 1,231,327 22,853,429 0.29% -17.3% 18.56 18 -3.0% 19,570 5.85 5.51 0.47 5.72 0.95

6823 HKT-SS 7,352,689 75,879,750 0.22% -17.1% 10.32 10.32 0.0% 78,140 14.87 14.54 2.00 6.41 1.26

3328 BANKCOMM 132,848,523 746,608,699 1.85% -17.0% 5.62 5.56 -1.1% 442,575 5.14 4.83 0.60 5.90 3.96

256 CITYCHAMP 10,844,000 18,217,920 0.99% -17.0% 1.68 1.67 -0.6% 7,268 n.a. n.a. 1.51 n.a. 4.19

3958 DFZQ 8,676,447 50,930,744 1.21% -16.5% 5.87 5.55 -5.5% 62,739 9.57 8.13 0.65 3.56 3.36

2698 WEIQIAO TEXTILE 376,000 1,240,800 0.10% -16.4% 3.3 3.16 -4.2% 3,774 n.a. n.a. 0.18 n.a. 0.68

659 NWS HOLDINGS 3,028,102 42,999,048 0.22% -16.1% 14.2 13.94 -1.8% 54,317 11.59 10.50 1.12 5.09 2.00

4

Figure 4: Top 50 short selling stocks (ranked by percentage of free float)

Sources: HKSFC, Bloomberg, CGIS Research

Ticker Company name

Aggregated

reportable

short positions

on Jul 27

(shares)

Aggregated

reportable short

positions on Jul

27 (HK$)

% of free

float

Change in short

positions

compared with

Jul 20

Price on

Jul 27

(HK$)

Price on

Aug 03

(HK$)

Price

change

during

the

period

Market cap

(HK$m)

2018E

PER (x)

2019E

PER (x) PBR (x)

2018E

Dividend

yield (%)

Aggregated

reportable

short

positions on

Jul 27/ 3-

month

average

daily

turnover

3808 SINOTRUK 209,798,235 2,534,362,679 39.31% 10.0% 12.08 9.73 -19.5% 26,864 6.94 7.24 1.03 7.40 17.64

3933 UNITED LAB 191,557,675 1,513,305,633 34.56% -0.1% 7.9 7.2 -8.9% 11,806 17.04 13.95 1.88 0.81 33.21

2318 PING AN 1,319,951,310 97,280,411,547 26.59% 1.9% 73.7 70.1 -4.9% 1,237,405 11.25 9.38 2.24 2.78 27.58

1211 BYD COMPANY 154,120,490 6,950,834,099 24.33% 0.1% 45.1 41.4 -8.2% 117,252 22.60 17.29 1.93 0.62 23.55

347 ANGANG STEEL 205,718,299 1,721,862,163 20.65% 6.3% 8.37 7.68 -8.2% 52,584 7.77 7.68 0.97 4.04 12.30

3333 EVERGRANDE 387,396,504 8,503,353,263 20.33% -0.4% 21.95 20.8 -5.2% 274,492 6.17 5.13 2.09 9.90 16.38

2333 GREATWALL MOTOR 586,977,172 3,316,421,022 20.04% 2.9% 5.65 5.34 -5.5% 72,382 5.76 5.22 0.87 5.24 13.80

881 ZHONGSHENG HLDG 90,972,854 1,768,512,282 19.47% -2.3% 19.44 17.8 -8.4% 40,436 8.70 7.37 2.22 2.47 10.74

493 GOME RETAIL 1,673,027,274 1,422,073,183 17.96% -0.7% 0.85 0.75 -11.8% 16,168 41.04 32.83 0.69 0.30 28.87

1728 ZHENGTONGAUTO 165,751,623 797,265,307 16.70% 6.7% 4.81 4.47 -7.1% 10,970 5.75 4.46 0.87 4.11 14.90

607 FULLSHARE 926,401,967 3,223,878,845 16.61% -1.9% 3.48 3.06 -12.1% 60,371 n.a. n.a. 2.20 n.a. 32.22

750 SINGYES SOLAR 60,408,222 151,624,637 16.58% -2.5% 2.51 2.36 -6.0% 1,968 5.55 4.94 0.39 1.79 30.60

1458 ZHOU HEI YA 101,693,942 595,926,500 15.99% -3.9% 5.86 5.13 -12.5% 12,226 14.17 13.10 2.68 2.09 12.16

992 LENOVO GROUP 1,044,341,945 4,511,557,202 15.35% -3.4% 4.32 4.27 -1.2% 51,303 14.32 9.71 1.86 4.60 22.55

3888 KINGSOFT 87,956,538 1,825,098,164 15.30% -2.5% 20.75 15.7 -24.3% 21,568 16.23 10.38 1.50 0.94 7.97

285 BYD ELECTRONIC 83,488,450 822,361,233 15.26% -2.0% 9.85 8.77 -11.0% 19,761 6.56 5.62 1.22 2.55 9.16

2338 WEICHAI POWER 248,893,028 2,476,485,629 15.16% 4.3% 9.95 8.41 -15.5% 69,858 8.15 8.33 1.67 5.76 17.31

1052 YUEXIUTRANSPORT 100,807,815 598,798,421 14.96% 1.2% 5.94 5.81 -2.2% 9,721 7.95 7.07 0.89 6.09 47.55

968 XINYI SOLAR 327,626,522 802,684,979 14.53% -4.6% 2.45 2.25 -8.2% 16,711 7.73 7.01 1.58 6.18 8.77

2282 MGM CHINA 112,487,214 1,925,781,104 14.11% 15.0% 17.12 16.66 -2.7% 63,308 26.78 16.05 7.44 1.78 12.39

2009 BBMG 283,110,997 866,319,651 13.64% -0.3% 3.06 2.89 -5.6% 40,473 6.77 6.05 0.66 2.65 11.52

1548 GENSCRIPT BIO 51,196,500 1,022,906,070 12.85% 1.6% 19.98 16.2 -18.9% 29,704 93.81 85.99 16.43 0.00 2.92

1788 GUOTAI JUNAN I 303,405,539 567,368,358 12.84% -4.0% 1.87 1.7 -9.1% 13,116 7.83 6.85 1.38 6.35 14.67

951 CHAOWEI POWER 60,162,495 240,048,355 12.83% -4.0% 3.99 3.78 -5.3% 4,188 5.88 5.25 1.00 2.42 18.88

151 WANT WANT CHINA 581,326,936 3,918,143,549 12.71% -1.2% 6.74 6.25 -7.3% 77,808 19.54 17.88 4.70 2.81 30.78

3993 CMOC 411,116,611 1,591,021,285 12.39% 0.2% 3.87 3.54 -8.5% 119,247 13.42 12.60 1.72 4.29 6.30

2186 LUYE PHARMA 184,751,564 1,540,828,044 12.31% -1.4% 8.34 7.12 -14.6% 23,318 17.46 14.74 3.00 0.98 7.17

1114 BRILLIANCE CHI 349,324,742 3,730,788,245 12.26% -2.8% 10.68 10.5 -1.7% 52,975 6.89 5.52 1.75 1.61 11.21

981 SMIC 457,248,402 4,494,751,792 12.08% 0.6% 9.83 9.02 -8.2% 45,046 60.48 49.96 1.07 0.00 11.01

1999 MAN WAH HLDGS 145,433,499 862,420,649 11.97% 0.6% 5.93 5.23 -11.8% 20,048 10.57 9.24 3.36 5.56 12.51

371 BJ ENT WATER 570,937,193 2,517,833,021 11.90% 1.1% 4.41 4.14 -6.1% 38,968 8.41 7.18 1.75 4.15 24.39

914 CONCH CEMENT 134,521,414 6,605,001,427 11.89% -1.9% 49.1 46.95 -4.4% 228,477 9.36 9.24 2.44 4.47 10.49

6808 SUNART RETAIL 177,621,276 1,808,184,590 11.77% -2.5% 10.18 9.67 -5.0% 92,249 28.22 26.21 3.62 1.48 13.39

2727 SH ELECTRIC 296,956,411 786,934,489 11.70% -2.8% 2.65 2.52 -4.9% 37,107 13.37 13.21 0.59 3.04 25.15

1060 ALI PICTURES 1,418,619,337 1,333,502,177 11.54% -1.9% 0.94 0.89 -5.3% 22,684 n.a. n.a. 1.34 n.a. 13.66

330 ESPRIT HOLDINGS 175,463,656 373,737,587 11.35% 0.4% 2.13 2.03 -4.7% 3,831 n.a. 88.26 0.36 0.99 32.85

3311 CHINA STATE CON 163,879,111 1,601,098,914 10.71% 2.4% 9.77 9.02 -7.7% 45,543 6.86 5.78 1.20 4.36 22.33

2600 CHALCO 355,693,223 1,259,154,009 10.53% 0.1% 3.54 3.19 -9.9% 57,141 18.14 11.94 1.05 0.32 12.69

772 CHINA LIT 20,499,340 1,442,128,569 10.53% -2.0% 70.35 63.85 -9.2% 57,875 51.29 33.76 4.02 2.16 8.80

1970 IMAX CHINA 11,984,317 275,040,075 10.47% 1.0% 22.95 22.8 -0.7% 8,180 20.17 18.50 4.15 1.51 7.77

1918 SUNAC 209,396,234 5,287,254,909 10.42% 0.5% 25.25 22.4 -11.3% 98,619 6.62 4.03 1.97 3.25 8.33

1818 ZHAOJIN MINING 102,613,532 651,595,928 10.40% -3.7% 6.35 6.23 -1.9% 20,065 25.37 23.41 1.67 1.26 16.07

2638 HKELECTRIC-SS 233,981,321 1,867,170,942 10.36% -1.7% 7.98 7.96 -0.3% 70,336 20.78 27.35 1.43 5.03 51.27

1333 CHINA ZHONGWANG 134,868,951 525,988,909 10.33% -0.4% 3.9 3.62 -7.2% 19,727 5.28 4.73 0.57 5.68 18.36

3800 GCL-POLY ENERGY 1,164,805,383 815,363,768 10.32% 0.8% 0.7 0.66 -5.7% 12,118 5.72 5.07 0.47 0.00 9.01

3900 GREENTOWN CHINA 65,925,351 661,890,524 10.05% -3.8% 10.04 8.51 -15.2% 18,447 7.58 6.80 0.61 2.58 10.94

906 COFCO PACKAGING 41,960,351 154,414,092 9.92% -1.4% 3.68 3.36 -8.7% 3,947 8.78 7.04 0.69 5.95 8.69

327 PAX GLOBAL 67,800,000 263,064,000 9.66% -1.3% 3.88 3.78 -2.6% 4,159 8.67 7.33 1.06 2.35 23.16

877 O-NET TECH GP 35,678,009 168,043,422 9.31% -1.0% 4.71 4.67 -0.8% 3,741 12.97 10.26 1.84 0.51 20.48

6881 CGS 320,379,076 1,313,554,212 9.20% -1.4% 4.1 3.87 -5.6% 68,031 7.58 6.99 0.53 3.98 19.16

5

Figure 5: Top 50 short selling stocks (ranked by absolute amount)

Sources: HKSFC, Bloomberg, CGIS Research

Ticker Company name

Aggregated

reportable

short positions

on Jul 27

(shares)

Aggregated

reportable short

positions on Jul

27 (HK$)

% of free

float

Change in short

positions

compared with

Jul 20

Price on

Jul 27

(HK$)

Price on

Aug 03

(HK$)

Price

change

during

the

period

Market cap

(HK$m)

2018E

PER (x)

2019E

PER (x) PBR (x)

2018E

Dividend

yield (%)

Aggregated

reportable

short

positions on

Jul 27/ 3-

month

average

daily

turnover

2318 PING AN 1,319,951,310 97,280,411,547 26.59% 1.9% 73.7 70.1 -4.9% 1,237,405 11.25 9.38 2.24 2.78 27.58

700 TENCENT 80,415,402 29,994,944,946 1.50% -1.0% 373 349.8 -6.2% 3,330,877 34.32 26.07 10.49 0.30 3.30

3333 EVERGRANDE 387,396,504 8,503,353,263 20.33% -0.4% 21.95 20.8 -5.2% 274,492 6.17 5.13 2.09 9.90 16.38

1211 BYD COMPANY 154,120,490 6,950,834,099 24.33% 0.1% 45.1 41.4 -8.2% 117,252 22.60 17.29 1.93 0.62 23.55

914 CONCH CEMENT 134,521,414 6,605,001,427 11.89% -1.9% 49.1 46.95 -4.4% 228,477 9.36 9.24 2.44 4.47 10.49

388 HKEX 24,601,095 5,825,539,296 2.21% -1.4% 236.8 224 -5.4% 279,274 29.56 26.08 6.95 3.10 4.51

1658 PSBC 1,059,444,098 5,498,514,869 8.82% 1.8% 5.19 5.03 -3.1% 407,584 6.53 5.70 0.93 3.52 30.48

1299 AIA 78,592,536 5,395,377,596 0.68% -2.4% 68.65 66.2 -3.6% 799,445 18.14 15.65 2.42 1.78 3.85

1918 SUNAC 209,396,234 5,287,254,909 10.42% 0.5% 25.25 22.4 -11.3% 98,619 6.62 4.03 1.97 3.25 8.33

5 HSBC HOLDINGS 64,851,347 4,854,123,323 0.34% 4.8% 74.85 72.3 -3.4% 1,441,152 12.92 11.98 0.94 5.54 3.97

939 CCB 645,759,557 4,591,350,450 0.71% 9.7% 7.11 6.95 -2.3% 1,745,734 5.80 5.28 0.87 5.23 1.75

2007 COUNTRY GARDEN 347,993,338 4,565,672,595 5.45% -7.6% 13.12 10.88 -17.1% 235,965 6.05 4.53 2.16 5.61 5.48

992 LENOVO GROUP 1,044,341,945 4,511,557,202 15.35% -3.4% 4.32 4.27 -1.2% 51,303 14.32 9.71 1.86 4.60 22.55

981 SMIC 457,248,402 4,494,751,792 12.08% 0.6% 9.83 9.02 -8.2% 45,046 60.48 49.96 1.07 0.00 11.01

151 WANT WANT CHINA 581,326,936 3,918,143,549 12.71% -1.2% 6.74 6.25 -7.3% 77,808 19.54 17.88 4.70 2.81 30.78

3968 CM BANK 124,176,265 3,837,046,589 3.16% 21.0% 30.9 29.55 -4.4% 777,465 8.17 7.13 1.41 3.75 5.29

2382 SUNNY OPTICAL 27,619,845 3,828,110,517 4.71% 7.5% 138.6 121.2 -12.6% 132,956 28.97 20.96 15.55 0.84 3.56

1114 BRILLIANCE CHI 349,324,742 3,730,788,245 12.26% -2.8% 10.68 10.5 -1.7% 52,975 6.89 5.52 1.75 1.61 11.21

1928 SANDS CHINA LTD 87,028,529 3,559,466,836 3.94% -5.1% 40.9 37.35 -8.7% 301,801 17.75 15.70 10.98 5.55 6.76

941 CHINA MOBILE 50,839,143 3,553,656,096 0.92% 9.3% 69.9 69.25 -0.9% 1,417,927 10.78 10.55 1.26 4.48 3.33

384 CHINA GAS HOLD 107,263,956 3,534,347,350 6.55% 1.0% 32.95 30.85 -6.4% 156,364 19.90 16.72 5.39 1.51 18.67

2601 CPIC 114,696,986 3,521,197,470 4.29% 2.4% 30.7 29.6 -3.6% 311,258 11.74 9.75 1.71 3.90 5.62

2018 AAC TECH 33,802,308 3,414,033,108 4.98% 2.5% 101 94.55 -6.4% 115,540 16.29 13.22 5.76 2.34 4.14

2333 GREATWALL MOTOR 586,977,172 3,316,421,022 20.04% 2.9% 5.65 5.34 -5.5% 72,382 5.76 5.22 0.87 5.24 13.80

607 FULLSHARE 926,401,967 3,223,878,845 16.61% -1.9% 3.48 3.06 -12.1% 60,371 n.a. n.a. 2.20 n.a. 32.22

3 HK & CHINA GAS 190,934,117 3,077,857,966 2.21% -5.4% 16.12 15.58 -3.3% 239,720 29.18 27.82 3.97 2.21 11.63

1044 HENGAN INT'L 43,387,627 3,006,762,551 6.45% -3.3% 69.3 69.3 0.0% 83,596 18.76 17.17 4.54 3.53 12.77

522 ASM PACIFIC 27,542,811 2,583,515,672 9.11% 5.8% 93.8 94.6 0.9% 38,259 13.38 12.40 3.23 3.12 16.27

3808 SINOTRUK 209,798,235 2,534,362,679 39.31% 10.0% 12.08 9.73 -19.5% 26,864 6.94 7.24 1.03 7.40 17.64

371 BJ ENT WATER 570,937,193 2,517,833,021 11.90% 1.1% 4.41 4.14 -6.1% 38,968 8.41 7.18 1.75 4.15 24.39

175 GEELY AUTO 136,469,060 2,513,760,085 3.07% 9.0% 18.42 16.58 -10.0% 148,857 9.40 7.29 3.78 2.36 2.46

2338 WEICHAI POWER 248,893,028 2,476,485,629 15.16% 4.3% 9.95 8.41 -15.5% 69,858 8.15 8.33 1.67 5.76 17.31

762 CHINA UNICOM 249,892,066 2,406,460,596 4.27% -0.3% 9.63 9.53 -1.0% 291,600 28.87 18.06 0.84 1.46 9.13

386 SINOPEC CORP 318,827,445 2,394,394,112 1.31% 18.3% 7.51 7.34 -2.3% 905,410 9.93 9.81 1.04 7.33 2.48

1988 MINSHENG BANK 382,539,855 2,230,207,355 5.90% 2.6% 5.83 5.62 -3.6% 282,471 4.18 4.03 0.57 3.70 10.90

241 ALI HEALTH 238,994,841 2,033,846,097 4.40% -3.7% 8.51 7.63 -10.3% 89,076 635.83 206.22 23.32 n.a. 7.00

322 TINGYI 110,260,451 1,975,867,282 6.39% -1.0% 17.92 16.84 -6.0% 94,603 32.62 27.61 4.26 1.63 14.55

6030 CITIC SEC 123,351,413 1,941,551,241 5.86% -2.9% 15.74 14.88 -5.5% 213,918 12.19 10.82 1.04 3.02 7.28

2282 MGM CHINA 112,487,214 1,925,781,104 14.11% 15.0% 17.12 16.66 -2.7% 63,308 26.78 16.05 7.44 1.78 12.39

2638 HKELECTRIC-SS 233,981,321 1,867,170,942 10.36% -1.7% 7.98 7.96 -0.3% 70,336 20.78 27.35 1.43 5.03 51.27

27 GALAXY ENT 29,071,250 1,866,374,250 1.43% 3.9% 64.2 57.2 -10.9% 247,088 18.49 16.45 4.44 1.53 2.26

2 CLP HOLDINGS 20,973,850 1,845,698,800 1.16% -0.3% 88 87.8 -0.2% 221,822 15.63 17.30 2.04 3.40 7.86

16 SHK PPT 15,009,143 1,844,623,675 1.07% 4.1% 122.9 118.9 -3.3% 344,471 11.36 10.46 0.65 3.75 4.71

3888 KINGSOFT 87,956,538 1,825,098,164 15.30% -2.5% 20.75 15.7 -24.3% 21,568 16.23 10.38 1.50 0.94 7.97

6808 SUNART RETAIL 177,621,276 1,808,184,590 11.77% -2.5% 10.18 9.67 -5.0% 92,249 28.22 26.21 3.62 1.48 13.39

1099 SINOPHARM 53,849,198 1,779,715,994 4.47% -2.3% 33.05 33.4 1.1% 92,421 14.83 13.17 2.30 2.12 9.86

881 ZHONGSHENG HLDG 90,972,854 1,768,512,282 19.47% -2.3% 19.44 17.8 -8.4% 40,436 8.70 7.37 2.22 2.47 10.74

3898 CRRC TIMES ELEC 38,699,553 1,764,699,617 7.20% -1.7% 45.6 44.75 -1.9% 52,603 15.66 13.66 2.54 1.28 14.19

347 ANGANG STEEL 205,718,299 1,721,862,163 20.65% 6.3% 8.37 7.68 -8.2% 52,584 7.77 7.68 0.97 4.04 12.30

1038 CKI HOLDINGS 28,628,723 1,691,957,529 4.81% -0.2% 59.1 57.95 -1.9% 153,607 13.00 12.43 1.44 4.37 11.55

6

Disclaimer

This research report is not directed at, or intended for distribution to or used by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject China Galaxy International Securities (Hong Kong) Co., Limited (“Galaxy International Securities”) and/or its group companies to any registration or licensing requirement within such jurisdiction.

This report (including any information attached) is issued by Galaxy International Securities, one of the subsidiaries of the China Galaxy International Financial Holdings Limited, to the institutional clients from the information sources believed to be reliable, but no representation or warranty (expressly or implied) is made as to their accuracy, correctness and/or completeness.

This report shall not be construed as an offer, invitation or solicitation to buy or sell any securities of the company(ies) referred to herein. Past perfor-mance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regard-ing future performance. The recipient of this report should understand and comprehend the investment objectives and its related risks, and where necessary consult their own independent financial advisers prior to any investment decision.

Where any part of the information, opinions or estimates contained herein reflects the personal views and opinions of the analyst who prepared this report, such views and opinions may not correspond to the published views or investment decisions of China Galaxy International Financial Holdings Limited and any of its subsidiaries (“China Galaxy International”), directors, officers, agents and employees (“the Relevant Parties”).

All opinions and estimates reflect the judgment of the analyst on the date of this report and are subject to change without notice. China Galaxy Interna-tional and/or the Relevant Parties hereby disclaim any of their liabilities arising from the inaccuracy, incorrectness and incompleteness of this report and its attachment/s and/or any action or omission made in reliance thereof. Accordingly, this report must be read in conjunction with this disclaimer.

Disclosure of Interests

China Galaxy Securities Co., Ltd. (6881.HK; 601881.CH) is the direct and/or indirect holding company of the group of companies under China Galaxy International.

China Galaxy International may have financial interests in relation to the subjected company(ies) the securities in respect of which are reviewed in this report, and such interests aggregate to an amount may equal to or more than 1 % of the subjected company(ies)’ market capitalization.

One or more directors, officers and/or employees of China Galaxy International may be a director or officer of the securities of the company(ies) men-tioned in this report.

China Galaxy International and the Relevant Parties may, to the extent permitted by law, from time to time participate or invest in financing transac-tions with the securities of the company(ies) mentioned in this report, perform services for or solicit business from such company(ies), and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto.

China Galaxy International may have served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the last 12 months, significant advice or invest-ment services in relation to the investment concerned or a related investment or investment banking services to the company(ies) mentioned in this report.

Furthermore, China Galaxy International may have received compensation for investment banking services from the company(ies) mentioned in this report within the preceding 12 months and may currently seeking investment banking mandate from the subject company(ies).

Analyst Certification

The analyst who is primarily responsible for the content of this report, in whole or in part, certifies that with respect to the securities or issuer covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject, securities or issuer; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by the analyst in this report.

Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the securities covered in this research report within 30 calendar days prior to the date of issue of this report; (2) will deal in or trade in the securities covered in this research report three business days after the date of issue of this report; (3) serve as an officer of any of the Hong Kong-listed companies covered in this report; and (4) have any financial interests in the Hong Kong-listed companies cov-ered in this report.

Explanation on Equity Ratings

Copyright Reserved

No part of this material may be reproduced or redistributed without the prior written consent of China Galaxy International Securities (Hong Kong) Co., Limited.

China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459

20/F, Wing On Centre, 111 Connaught Road Central, Sheung Wan, Hong Kong. General line: 3698-6888.

BUY share price will increase by >20% within 12 months in absolute terms :

SELL share price will decrease by >20% within 12 months in absolute terms :

HOLD no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL :