Guangdong Investment Recommendation: Buy Brokerage: Dao Heng Securities GUANGDONG Investment has become a medium-size conglomerate with diversified interests covering property, travel and hotels, retail and wholesale, manufacturing, and infrastructure development, with operations principally based in Hongkong and Guangdong province. Exposure to the rapidly growing Guangdong region will continue to accelerate earnings growth in the years ahead. The strategy of building up a diversified investment portfolio shows the management's long-term objective of upgrading GDI's earnings quality by reducing reliance on property income. To enhance growth in earnings per share and net asset value, GDI is expected to acquire ongoing and profitable ventures with short payback periods and low P/E multiples in the manufacturing, infrastructure, retail and wholesale industries in the foreseeable future. The rewards could be enormous, according to Dao Heng. Renminbi devaluations should have no material impact on GDI's bottom line as over 65 per cent of its earnings are in hard currencies. GDI's P/E ratio of nine times Dao Heng's 1994 estimated earnings is low, even taking into account a further 10 per cent drop in the swap rate. Technically oversold, GDI is more likely to surprise on the upside than the downside at current prices. Also riding on its solid backing from the provincial government in China, the red-chip conglomerate deserves a premium rating. Currently trading at a P/E of 8.8 times FY 1994 earning and a 35 per cent discount to its NAV, the counter is a solid buy. HAECO Recommendation: Buy Brokerage: Morgan Grenfell Asia DESPITE rising labour costs, HAECO is expected to record earnings growth of more than 15 per cent in fiscal 1993 and 1994, better than some Hongkong utilities commanding much higher P/E multiples. Over the past few years, management has displayed substantial skills in driving up productivity, resulting in improved margins. To complement this successful formula, management has now started a quality drive. On the revenue side, it should benefit from Cathay Pacific's ongoing fleet expansion programme - with 15 aircraft deliveries between FY 1993 and FY 1995 - and fast-growing Dragonair. Boeing's recent proposal requiring adjustments to the engine mounts of all 747s could result in additional work from Cathay, owner of 34 747s. With a 25.6 per cent stake in ASTA in Australia, now profitable, and the recently entered joint-venture in Xiamen, HAECO is in a better position to cope with the possibility of losing its exclusive franchise at Chek Lap Kok.