Every now and then the South China Morning Post likes to check in with brokerage analysts to see what stocks they are recommending to buy or sell. To focus the discussion, we asked Starmine, a research firm owned by Thomson Reuters, to rank the top analysts covering Hong Kong and mainland stocks.
An analyst can score points in this ranking by rating a stock a "buy" before its price rises, or by rating a stock a "sell" before it tanks. We detail some recommendations of top-ranked analysts indentified in this survey.
Recommendation: Sell Hopewell Highway Infrastructure (Danie Schutte, CLSA)
Be very cautious about investing in any toll roads on the mainland, says the deputy head of Asia research.
In the past, local governments have had a lot of leeway in approving individual road tolls. However, a year ago the Guangdong provincial government started a programme of "toll unification", which standardised charges for toll roads and substantially lowered toll prices in the process. Good for drivers, bad for the industry.
The rest of the country has to follow suit and Schutte says this is simply a matter of when. "It's tough to be overly positive on any of these companies."
Schutte's recommendation is a long-term sell on Hopewell Highway, even though his target price is higher than the stock's current price. The company, which builds and operates highways in Guangdong, saw its earnings drop after the province unified the charge scheme for toll roads. Its profit is also falling because of competition.
"Hopewell Highway has one key asset - the Guangzhou-Shenzhen superhighway. That is the key to generating cash flow for the company," Schutte says. "It is also going to go head-to-head against a competing coastal highway operated by the Guangdong government."
Hopewell Highway snapshot
Does what: Builds highways, tunnels and bridges
Market capitalisation: HK$11.28 billion
Year-to-date share price change: -15.08 per cent
Price-earnings ratio: 12.73
CLSA target price: HK$4
Current share price: HK$3.66
Recommendation: Buy China Telecom Corp (Steven Liu, Standard Chartered)
The growth in the past few years for the telecommunications sector has been strong, triggered by the launch of the iPhone in 2007.
The big trend in the sector continues to be smartphone penetration, says Liu. "It's a big driver that will continue in developed and emerging markets. In China last year, smartphone owners were less than 30 per cent of mobile phone users. This year it should be over 50 per cent."
He notes that mainland-made smartphones are increasingly affordable for consumers.
Liu likes the sector, and his job, therefore, is to identify which of the big service providers he likes best. His pick is China Telecom.
"Starting from this year, we will see a few years of double-digit earnings growth, propelled by the expansion of its third-generation network," Liu says. "Third-generation penetration is still very low overall at less than 25 per cent of mobile users. Secondly, the company is the country's largest operator and has a very extensive network coverage, which is a nice advantage."
He also believes the firm will be more generous than its rivals in terms of dividends.
The development of cheap chat applications such as WhatsApp, WeChat and KakaoTalk could undermine the company's margins but Liu thinks this will drive data usage and be a positive.
China Telecom snapshot
Does what: Telecommunications
Market capitalisation: HK$297.8 billion
Year-to-date share price change: -14.62 per cent
Price-earnings ratio: 15.74
Target price: HK$5.30
Current share price: HK$3.68
Recommendation: Buy Sino Biopharmaceuticals (Carol Dou, UOB Kay Hian)
The heath-care analyst says the company is strong in cardiovascular and hepatitis drugs, which are in demand on the mainland. In addition, "most of the drugs they produce are first-to-market generic or exclusive drugs, which enjoy high prices and less competition".
Sino Biopharmaceutical recently received production approval for a new drug to fight cancer, Imatinib Mesylate, known commercially as Genike. Dou says the firm will be the first to make the drug in the country, "It will start to generate revenue from September and will be a blockbuster drug for the company for the next two years."
Sino Biopharmaceuticals snapshot
Does what: Drugmaker
Market capitalisation: HK$27.8 billion
Year-to-date share price change: +52.16 per cent
Price-earnings ratio: 31.23
Target price: HK$7.20
Current share price: HK$5.63
Recommendation: Buy Country Garden (Donald Yu, Guotai Junan)
The property analyst has a neutral outlook for the sector on the mainland. He is concerned about rising interest rates in general and, in particular, about the end of a government policy to offer lower rates to first-time home buyers.
However, he still likes developer Country Garden.
The company specialises in building town houses and villas in second-tier cities such as Shenyang. Yu says such cities are high-growth and that Country Garden offers a desirable product - town houses and villas which give home owners a better sense of space and privacy than high-rise flats sold by rivals.
Country Garden snapshot
Does what: Property developer
Market capitalisation: HK$76 billion
Year-to-date share price change: +1.48 per cent
Price-earnings ratio: 8.57
Guotai Junan target price: HK$4.83
Current share price: HK$4.12