德银中国投资策略3季度首读业绩估值盈利和流动性评论20171025DeutscheBankChina

DeutscheBankMarketsResearchAsiaChinaStrategyChinaStrategySpotlightDate25October2017StrategyUpdate3Qfirstread;performance,valuation,earningsandliquidityreviews________________________________________________________________________________________________________________DeutscheBankAG/HongKongDeutscheBankdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Thus,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.DISCLOSURESANDANALYSTCERTIFICATIONSARELOCATEDINAPPENDIX1.MCI(P)083/04/2017.THECONTENTMAYNOTBEDISTRIBUTEDINTHEPEOPLE’SREPUBLICOFCHINA(“THEPRC”)(EXCEPTINCOMPLIANCEWITHTHEAPPLICABLELAWSANDREGULATIONSOFPRC),EXCLUDINGSPECIALADMINISTRATIVEREGIONSOFHONGKONGANDMACAU.MichaelTong,CFAResearchAnalyst(+852)[e-mail](+852)[e-mail]t(+852)[e-mail]19thCCPPartyCongress,revisedGDPgrowthand3QearningsquicktakeAtthe19thCCPPartyCongress,PresidentXigaveaspeechoutliningaplanforChinainthelongterm,withoutmentioningthe2020growthtargetashispredecessordidinthepast.3QGDPcameinat6.8%yoyinrealterms,inlinewithexpectations.OurChiefChinaEconomistZhiweiZhangnowexpects6.6%growthin4Qand6.8%forthefullyear.3Qearningsseasonhasjustgottenunderway;300+A-shareshaveannouncedresults,forwhichearningsgrew59%yoyin3Q,vs.45%yoyin2Qonacomparablebasis,withcyclical(steel/chemical/paper)beingthemostrobustsectors.Weincludesomeofouranalysts’3Qresultscommentaryonpage4andalsokeyearningsupgradesestimateoverthepastmonthonpage7.Performanceandvaluations:HSCEI/MXCI/CSI300gained3.8%/2.5%/2.6%Inthepastfourweeks,HSCEIgained3.8%,outperformingMSCIChina(+2.5%),A-shares(+2.6%)andEM(+1.3%).Environmental,insurance,banksandselectdefensivesled,whilerealestate,transportationandtelecompostedlosses.TheMSCIChina(ex.ADRs)12mforwardP/Estandsonparwithhistoricalaverageat11.5xwhileP/Bisat1.5x,ora12%discounttothehistoricalaverage.A-shareCSI300rose2.6%inRMBtermsinthepastfourweeks,ledbydefensives,insuranceandlarge-caps.Theindextradesat13.6xand1.7x12mforwardearningsandbookvalue,respectively.DespitestrongYTDperformance,webelieveMSCIChinaremainsveryattractiveintermsofdiscounttoitshistoricalaverageascomparedtootherglobalindices.Macroandearnings:3Qmacroinline;material/propertyledearningsupgradeMacrodatawaslargelyinlinefor3Q/Sept:1)PMIstayedstrongasNBSPMIrosetoamulti-yearhigh.IPslightlybeatat6.6%yoyandisnotablyabovelastmonth’s6.0%;2)NewloansandTSFbeatexpectationsagain.AdjustedTSFbalancegrowthwasstableat14.8%yoywhilecorp.M/LTloanbalancewasgrowingatanelevated17.4%yoy;3)InvestmentdivergedasFAIgrowthslowedacrosstheboard,butpropertyinvestmentimprovedby0.2pptto8.1%YTDyoy.MSCIChina2018EconsensusEPSremainlargelyunchangedinthepastfourweeks,thoughmaterialsandrealestatesawnotableupgrades.Liquidityandsentiment:H-shrandA-shrliquidityandsentimentlargelystableHKequities’ADTaveragedHKD93bninOct’MTD,atouchlowerthanlastmonthbutstillstrongcomparedwiththeYTDaverage.Connectinflowscontinuedbothwayswhilevolatilitiessubsided.A-sharesentimentwasstable.Onshoreratesandcreditspreadsbothmoderated.End-FY17indextargets,sectorpreferenceandweightingsWereiterateourend-17MSCIChina/HSCEItargetsat83/11,900.Werecommendoverweightinternet,financials,consumerservices(education),metalsandmining(steel,non-ferrous)andwater/IPPs,andwewouldunderweighttelecom,coal,airlines,traditionalretailingandstaples.Weexpect2017/18growthof18.5%/15.1%forMSCIChina.Ourrecommendedsub-sectorpreferenceandweightingsforMSCIChinaareshowninFigure2.RisksKeydownsiderisks:1)tighter-than-expectedmonetarypolicy;2)harsher-than-expectedpropertytightening;3)anydisorderlydeleveragingasChinatightensshadowcredit;and4)sharper-than-expectedRMBdepreciation.Distributedon:24/10/201717:54:25GMT0bed7b6cf11c25October2017ChinaStrategySpotlightPage2DeutscheBankAG/HongKongTableofContentsA-share3Qearnings–anearlyread...................................................................2Sectorpreference,recentearningsupgrade/downgrade...................................6Marketperformance...........................................................................................8A-/H-marketvaluations....................................................................................14Macroandhigh-frequencydata.......................................................................19Consensusearningstrends..............................................................................23Liquidityandsentiment....................................................................................25TableofExhibitsFigure1:A-sharequarterlyearningsgrowthtable(8%mcapreported).............5Figure2:DeutscheBankChinaStrategysectorpreference...............................6Figure3:NoticeableDeutscheBankHK/Chinaanalystearningsrevisionsinthepastonemonth..................................................................................................7Figure4:MSCIChinasectorperformance