Intelligent Hong Kong Stock Analysis | Seize the opportunity to continue to passively reevaluate China's core assets

[Market Analysis]

At a critical moment, the US stock market has found two major boosts again, with all three major stock indexes rebounding by an average of over 2%. The Hang Seng Index also opened higher today, maintained volatility throughout the day, and closed up by 1.17%. Trading volume shrank to 88 billion.

On Thursday morning Eastern Time, the latest US initial jobless claims data showed that for the week ending August 3, initial jobless claims decreased by 17,000 to 233,000, lower than the expected 240,000, marking the largest drop in nearly a year. Additionally, earlier this week, service sector data also exceeded expectations. Jeremy Siegel, a finance professor at the Wharton School of Business who had previously strongly advocated for a 75 basis point emergency rate cut by the Federal Reserve, immediately changed his tune, stating that an emergency rate cut by the Fed is no longer necessary. Generally, data tends to perform well when the US stock market is at a low point.

The key is another piece of news: on the 9th local time, the official Israeli Prime Minister's account on social media announced that based on proposals from the US and other mediators, Israel will send a negotiating team to a designated location on August 15 to finalize the implementation details of a ceasefire and personnel exchange framework in the Gaza Strip. Israel has finally "agreed" to negotiations, with the US naturally playing a role behind the scenes.

Looking at the background: Xinhua News Agency reported from Cairo on August 7th that Yemen's Houthi armed group spokesperson Yahya Sarea stated on the 7th that the organization had used anti-ship ballistic missiles and drones to attack two US warships in the Gulf of Aden and a commercial ship in the Red Sea. Syria took decisive action, attacking US military bases, with Syrian militias vying for control of the illegally occupied Koniko gas field and Omar oil field. The commander of the Belarusian Air Force visited Iran. With the US already overwhelmed, they can only temporarily hold back Israel, as it will take time to deploy strategies to deal with the unfavorable situation.

Moreover, since it is still the Olympic period, everyone is giving face to each other. Looking at the current situation, the Middle East conflict has already spilled over completely, not just an issue for Israel, but the game between major powers has just begun. The stock market continues to tread carefully, the rebound is hard-won, especially after the recent heavy blow to the US stock market.

The performance of the Hong Kong stock market during this period has attracted global attention. Analysts Francis Chan and Marvin Chen wrote in a report, "The mainland China market has avoided the worst impact of the global stock market plunge in early August, and this momentum is expected to continue." They added that this relatively strong performance is due to its "low valuations."

According to data released by the People's Bank of China, as of the end of June, foreign investors held around RMB 2.7 trillion (USD 377 billion) worth of Chinese domestic stocks, accounting for about 4% of the total market value. In fact, the reason does not lie in "low valuations." When the Japanese and Indian stock markets surged, were they not undervalued? Can there be such significant changes in just a few days? The core factor is simply the "rise and fall" under the context of "this for that."

With the expectation of "this for that," Chinese core assets will be re-evaluated, with notable representatives like Tencent (00700), Alibaba (09988), Baidu (09888), Meituan (03690), NetEase (09999), and Kuaishou (01024) all rising across the board today Yesterday we talked about real estate, and today there is some unfavorable information: "Several risk points: first, institutional long-term direction is to reduce holdings, some insurance and fund chips have not been cleared; second, some top-performing real estate companies have unpaid wages and work stoppages, as well as interest extension situations, which are easy to expose; third, due to extensions leading to the inability to restore credit limits, there is no hope for land acquisition with loans; fourth, real estate data in July has turned downward."

It can only be said that these phenomena do exist, indeed there are many problems, but don't forget, real estate has already fallen to what extent, how much worse can it get. When looking at issues, one must have a forward-looking perspective, rather than being limited to the present. The worst times are often the best times for investment. When you see good data, it is often a good opportunity to sell.

As for policy advancements, let's not mention that, let's talk about something very realistic. The Fed's rate cut in September should be a foregone conclusion, so it is highly probable that global synchronized rate cuts will also occur, benefiting real estate. Therefore, those with positive news will continue to perform well. As mentioned yesterday, Zhuangguang Holdings (01176) rose by over 10% today, while Shimao Group (00813) also rose by over 8%, along with many others. Even the hot stock in August, Vanke (02202), rose by 3.65% today, indicating market approval of its logic.

Chip stock SMIC (00981): Second-quarter revenue was $1.90 billion, an 8.6% increase quarter-on-quarter and a 21.8% increase year-on-year; net profit was $164.6 million, a 59% decrease year-on-year, far exceeding the market's estimated $76.3 million. The company expects third-quarter revenue to increase by 13% to 15% quarter-on-quarter, with a gross margin ranging from 18% to 20%. Both performance and guidance are good, with a nearly 5% increase today, but Huahong Semiconductor (01347) saw its second-quarter net profit fall short of analysts' average expectations, leading to a drop of over 6%.

Looking at unexpected events: According to reports, at 15:42 on August 8th, a 7.1 magnitude earthquake occurred near Kyushu Island, Japan. Kyushu is a major hub for Japan's semiconductor industry, with the earthquake mainly affecting wafer manufacturing, some semiconductor equipment, and materials. The actual impact is still being assessed. This short-term stimulus is difficult to evaluate, and the key going forward is demand.

Data from the China Association of Automobile Manufacturers shows that in July, new energy vehicles produced and sold 984,000 and 991,000 units respectively, an increase of 22.3% and 27% year-on-year. New energy vehicles accounted for 43.8% of total new car sales. The latest data from the China Passenger Car Association shows that in July, nationwide retail sales of conventional fuel passenger cars reached 840,000 units, while retail sales of new energy passenger cars reached 878,000 units. For the first time, monthly retail sales of new energy passenger cars exceeded those of traditional fuel passenger cars. Overall, sales figures are not bad. Electric cars are already a trend.

On the evening of August 8th, BYD Company (01211) announced the launch of the 2025 model Dolphin and Dolphin 07 DM-i. The new Dolphin is the first sedan created on BYD's e-platform 3.0 Evo, and also the first model equipped with LiDAR, featuring the DiPilot 300 advanced driving assistance system that supports city and highway navigation assistance functions. The company plans to hold a board meeting on August 28th to approve its mid-term performance, and the stock rose by over 3% today. Li Auto (02015): In July, Li Auto delivered 51,000 new cars, a 49.4% year-on-year increase, reaching a historical high, and rose by 5.45% today On August 7, Changcheng Life Insurance Co., Ltd. increased its holdings of Green Power Environmental Protection (01330) by 2 million shares, with a price of HKD 2.6456 per share, totaling HKD 5.2912 million. After the increase, the latest number of shares held is 74.15 million shares, with a latest shareholding ratio of 18.34%. Insurance companies generally focus on stable varieties and have a long lock-up period.

On August 8, there was news online about Shanxi Aorui Biomaterials Co., Ltd. being suspected of illegally producing "allogeneic bone implant materials", which has attracted widespread attention in society. With the implementation of orthopedic group procurement, the market share of domestic leading enterprises is gradually rising. The main varieties include Aikang Medical (01789), Chunli Medical (01858), and Weigao Group (01066).

[Sector Focus]

On the morning of August 9, several digital influencers posted photos on social media showing Huawei's Executive Director Richard Yu operating a new device in the cabin. The photo shows Richard Yu holding a new device with a triple-fold screen, with what appears to be the WeChat app displayed on the screen. The left screen shows the message list, while the right side shows the chat box or the content of the webpage being browsed. A stylus pen seems to be hidden in the protective case on the right side.

Huawei's foldable screen market share ranks first in the domestic market. According to IDC data, the cumulative shipment volume of foldable screen smartphones in China reached 2.57 million units in Q2 2024, a year-on-year increase of 104.6%. Among them, Huawei's market share is 41.7%; vivo, Honor, OPPO, and Samsung rank second to fifth with shares of 23.1%, 20.9%, 8.4%, and 3% respectively.

Foldable screen smartphones are expected to become the new catalyst for consumer electronics. The main varieties include Sunway Optoelectronics (02382), Goertek Technology (02018), and BYD Electronics (00285).

[Stock Analysis]

CR Gas (01193): Core Profit to Resume Growth, Price Increase Expectations Strengthen

Recently, the company signed comprehensive energy project framework agreements with CR Beer and CR Gas respectively, with a term from January 1, 2024 to December 31, 2026, lasting for 3 years.

Analysis: With the centralization of global natural gas prices falling back, the continuous promotion of the domestic pricing policy, the urban gas industry's profitability has reached a turning point. In 2023, the company aims to increase retail natural gas sales volume by at least 7%. Due to more mergers and acquisitions, the growth of retail natural gas sales outperforms the industry. The company has 276 urban gas projects, adding 3 projects annually, distributed in 25 provinces in China, with a total gas sales volume increasing by 8.1% to 38.78 billion cubic meters.

CR Gas is expected to resume core profit growth this year, with the profit growth rate of gas sales expected to reach double-digit percentage for the whole year, gas sales volume expected to grow by 6.3%, and comprehensive energy sales volume expected to grow by 50% annually. The gross profit of comprehensive service business is expected to grow by 21% annually. The industrial and commercial gas sales volume remains stable compared to the same period last year, and in the second half of the year, even the monthly industrial gas sales volume may achieve a low double-digit percentage year-on-year growth rate. Based on the optimization of gas sales structure, the improvement of residential gas supply compared to last year is evident, supporting higher profits from commercial and industrial gas sales, with a significant improvement in gross margin Supported by a slight improvement in commercial and industrial demand, the company's natural gas volume growth has increased from a year-on-year growth of 6.9% in 1H23 to 7.6% in 10M23. The company's JCE project in Tianjin incurred a loss of 780 million yuan in 2022, and the company is still negotiating subsidies with the Tianjin government in hopes of offsetting the losses.

On the positive side, residential gas prices in Tianjin were adjusted in September, which is expected to help recover some of JCE's losses. With international gas prices bottoming out and rebounding, the profitability of overseas long-term resale in 2023Q4 and 2024 is expected to recover.

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