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Zhang Shidong

Deb Price

Good day, traders —
Catch up on the day's action below.
If you have any feedback or questions, please send them to deb.price@scmp.com .
— Zhang Shidong in Shanghai and Deb Price in Hong Kong
 


Stocks Blog: Traders look to corporate results as earnings season kicks off

Yang Jian, executive director and chairman of Zhongliang Holdings, gives a couple of thumbs up before the market opens and his company debuts. Photo: Enoch Yiu

Business

Markets

Six companies debut in Hong Kong, which needed some good news after the Budweiser Brewing Company APAC IPO fell through
Rising iron ore prices weigh on Chinese steelmakers


Jefferies stays upbeat on China consumption, keeps Maoyan as its top 'buy' in sector


Live

* Overnight markets/ What futures foretell
  -- Overnight in US markets, the S&P 500 gained less than 0.1 per cent, the Nasdaq rose 0.2 per cent, and the Dow Industrials added 0.1 per cent
 -- Hong Kong futures were 0.5 per cent higher, while the China A50 futures climbed 0.1 per cent
* IPO debuts: Kelfred Holdings (1134 HK), Contel Technology (1912 HK), Platt Nera International (1949 HK), Zhongliang Holdings (2772 HK), Edvantage Group Holdings (382 HK), and Kimou Environmental Holding (6805 HK) will start trading in Hong Kong today. Quectel Wireless Solutions (603236 CH) will debut in Shanghai.
* Economic statistics/Central Bank action: nothing major
* Corporate events: earnings, meetings, news conferences
-- Chinese liquor juggernaut Kweichow Moutai is expected to release first-half result tomorrow. The distiller said on Friday that profit for the six-month period probably increased 26 per cent from a year earlier.
-- Hangzhou Hikvision Digital Technology, China’s biggest maker of surveillance cameras, is due to release its interim report on Friday.


Morning guidance 

 
Kelfred Holdings, Contel Technology Company, Platt Nera International, Zhongliang Holdings Group, Edvantage Group Holdings and Kimou Environmental Holding banged the gong today @HKEXGroup pic.twitter.com/74eYzo7orM
— Joy Pamnani (@joypamnani) July 16, 2019
Kelfred Holdings (1134 HK), Contel Technology (1912 HK), Platt Nera International (1949 HK), Zhongliang Holdings Group (2772 HK), Edvantage Group Holdings (382 HK), and Kimou Environmental Holding (6805 HK) started trading on Hong Kong’s main board today.
 


Banging the Gong: Six companies debut in Hong Kong

The consolidating pattern on Chinese stocks drags on as traders assess both positive and negative news flows.
While China’s growth clocked in at the slowest pace on record in the second quarter, June data alone suggests a stabilisation is probably under way.
Investors also refrained from buying as the earnings season kicks off and they want to watch closely. Meanwhile, the prospect of a China-US trade deal remains murky.
The Shanghai Composite Index rose 0.1 per cent at the open and Hong Kong’s Hang Seng Index was little changed.
— Zhang Shidong


China stocks trade sideways at open

Baoshan Iron & Steel (600019 CH) and other Chinese steelmakers are dealing with some bad news: surging costs.
Futures contracts on iron ore have already jumped 96 per cent this year on the Dalian Commodity Exchange, eroding margins at steelmakers that are already struggling with sapping demand.
The futures contracts gained 4 per cent to 919.5 yuan per metric today.
Baoshan Steel dropped 0.3 per cent to 6.23 yuan, extending its decline to 4.2 per cent this year, and Hesteel (000709 CH) fell 0.4 per cent to 2.82 yuan, heading for a 1.1 per cent drop in 2019.
 

— Zhang Shidong 


Rising iron ore prices weigh on Chinese steelmakers

Kelfred Holdings (1134 HK), Contel Technology (1912 HK), Platt Nera International (1949 HK), Zhongliang Holdings Group (2772 HK), Edvantage Group Holdings (382 HK), and Kimou Environmental Holding (6805 HK) started trading on Hong Kong’s main board today, raising a combined HK$3.98 billion.
The shares of Kelfred Holdings rose in their trading debut, with an opening price of HK$1.29 from an initial public offering price of HK$1, or a 29 per cent premium. It was last trading at HK$1.25.
The Hong Kong and mainland eyewear manufacturer focuses on selling spectacle frames and sunglasses. The company plans to use its proceeds to strengthen production capacity and repay bank borrowings, among other things.
Shares of Contel Technology rose in their trading debut, with an opening price of HK$0.88 from an initial public offering price of HK$0.65, or a 35.4 per cent premium. It was last trading at HK$0.81.
The company sources and sells integrated circuit (IC) products, in addition to other things. Contel Technology plans to use its funds to finance the growing purchase payment of ICs under a ship-and-debit arrangement, purchase testing and R&D equipment, and recruit and retain staff.
Shares of Platt Nera International rose in their trading debut, with an opening price of HK$1.73 from an initial public offering price of HK$1.25, or a 38.4 per cent premium. It was last trading at HK$1.55.
The group provides IT solutions to Thai financial institutions, government departments and agencies predominantly in administrative, telecommunications and utilities sectors. The Euromonitor report said that the company occupies a unique market position in offering ATM IT solutions for the ATM Project with the Bank for Agriculture and Agricultural Cooperatives (BAAC). With the proceeds, the group aims to repay existing borrowings, expand services offered to the banking and financial sector, telecommunications and utilities and government administrative sectors, as well as target Southeast Asian customers.
Shares of Zhongliang Holdings Group were flat in their trading debut, with an opening price of HK$5.55 from an initial public offering price of HK$5.55, or neither a discount or premium. Shares later rose, and they were last trading at HK$5.65.
Zhongliang Holdings is a Yangtze-based real estate developer, recognized as a top 100 real estate developer by PRC Real Estate Top 10 Research Team for six consecutive years in terms of comprehensive development capability. Funds will be used for construction and the repayment of loans.
Shares of Edvantage Group Holdings were flat in their trading debut, with an opening price of HK$2.85 from an initial public offering price of HK$2.85, or no discount or premium. It was last trading at HK$2.88.
Edvantage Group was the largest private higher education group in the Greater Bay Area in terms of student enrollment of business majors for the 2017-2018 year, according to a report by F&S. Operating two private higher education institutions in China and one in Australia, the group aims to use funds to finance improvement projects of its Chinese campuses, build or buy new educational institutions in the Greater Bay Area, and support overseas operations. 
Shares of Kimou Environmental Holding rose in their trading debut, with an opening price of HK$1.35 from an initial public offering price of HK$1.33, or a 1.5 per cent premium. It was last trading at HK$1.28.
The China-based group develops and operates large-scale industrial parks, specifically designed for the electroplating industry. According to the Industry Consultant’s Report, the company ranked first among the operators of electroplating industrial parks in China in 2018, in terms of total revenue. With funds raised from the IPO, the company has set sights on acquiring land for the Hubei Jingzhou Project and constructing relevant infrastructure, expanding the current wastewater treatment facilities of its Tianjin Bingang Park, funding the construction cost of two factory buildings in its Guangdong Huizhou Park and repaying short-term bank loans.
— Joy Pamnani
 


Banging the Gong: How today's six IPO debutantes are doing in Hong Kong

Alibaba Group Holding’s shareholders overwhelmingly approved a 1-to-8 split of the company’s US-listed stock, a move the company has said would give it greater flexibility for raising capital, including issuing new shares, according to a US securities filing late on Monday.
The approval comes as the company is reportedly considering a secondary listing of its shares in Hong Kong.
Bloomberg previously reported that Alibaba, the operator of the world’s largest e-commerce platform, is considering raising as much as US$20 billion in the offering.
In addition to increasing the company’s flexibility for future capital-raising activities, the split would increase the number of shares available for issuance
 at a lower per-share price. Alibaba’s American Depositary Shares (ADS) closed on Monday on the New York Stock Exchange at US$173.50, up 2.6 per cent .
Alibaba is the parent company of the South China Morning Post.
The announcement followed Alibaba’s annual general meeting in Hong Kong on Monday.
Read full story by Chad Bray here. 


Alibaba shareholders approve stock split, as e-commerce giant reportedly considers secondary listing in Hong Kong 

Emerging economies should not sit out investing in 5G just because the US and China are competing head on in the next-generation mobile network technology, as the ultrafast telecoms infrastructure will bring benefits to all, according to a Cisco executive.
“[Smaller countries] sometimes don’t feel like they can win. But emerging economies can benefit … they [should] invest and compete,” Guy Diedrich, global innovation officer at Cisco, said in an interview last week in Hong Kong. “We have to change the notion that 5G is a sprint and only one winner is going to emerge.”
China and the US have in recent months clashed over Huawei, the largest telecommunications gear supplier in the world that currently also holds the largest number of 5G essential patents, as both countries compete for 5G supremacy.
The US has said that using Huawei’s telecommunications equipment poses security risks as the equipment could be used for Chinese intelligence activities – an accusation that Huawei has vehemently denied. Huawei has since been put on a trade blacklist that prevents it from doing business with US companies as the US continues to dissuade its allies from using Huawei’s equipment.
Read full story by Zen Soo here. 
Read a handy guide to 5G investing by Yujing Liu here.  


Too early to know who will win the 5G battle, Cisco executive says

China’s crackdown on stock market excesses is in full swing.
Eight people, including three from Taiwan, were arrested for allegedly engaging in unlicensed stockbroking and consulting businesses, the Shanghai police said in a statement last night.
One suspect, who was identified as Liao, used his fame as a host of TV business programs to make huge amounts of ill-gotten profits by organizing unlicensed analysts to parse and predict stocks and futures for the public, it said.
— Zhang Shidong 


Shanghai police make arrests over illegal stockbroking

"Positives outweigh negatives in China's 2Q19 data dump. While the lowest on record, headline GDP growth of 6.2 per cent is within guidance. Industrial production, (fixed-asset investment) and retail sales all showed positive momentum in June vs. May. Policy traction should accelerate as higher than expected total social financing and substantial tax cuts pulse through China's economy in (the second half of 2019). Sustainable growth, however, will depend on economic reforms, in our view," a new note by Jefferies analysts says.
They point out that a massive fiscal stimulus is moving through China's economy in the form of tax cuts that amount to about 2.5 per cent of the country's GDP.
"Most of the tax cuts commenced in April and May. We believe the full economic impact will not be realized until (the fourth quarter of 2019). However, these tax cuts are supposed to be funded in large part by squeezing (state owned enterprises or SOEs) for dividends, which could offset the sugar high if SOEs cut capex. In theory, efficiency gains are supposed to accrue in the long term as capital is redistributed from SOEs to the broader economy."
The analysts ask whether the trade war is a tempest in a teapot.
"Contribution of trade to growth was actually quite positive with net exports adding 1.3 percentage points to GDP growth in 1H19. First-half growth of 6.3 per cent was likely suppressed by lingering effects of 2018 deleveraging and trade uncertainty rather than actual trade/value-chain diversion. While US tariffs on US$200B will rise to 25 per cent in 2H19, year-to-date total social financial is up 31 per cent, an increase of (about) US$460B and per annum tax cut run rates amount to (about) US$370B. China's exports to the US account for (about) 4 per cent of GDP and less than 3 per cent in value-added terms," wrote analysts Laban Yu, Patrick Yuan and Aaron Xiao. 
"While the trade and tech war may dominate headlines and weigh on sentiment, the actual economic impact appears paltry compared to policy levers. While both sides appear reluctant to escalate further, a deal also appears distant. We believe US-China conflict will be an overhang for decades which the market will have to learn to discount," they wrote.
— Deb Price 
 


Jefferies says 'positives outweigh negatives' in China's data dump

Brilliance China Automotive Holdings (1114 HK) surged 7.5 per cent to HK$9.09 in Hong Kong, on track for the biggest gain since September, after the carmaker said it will convene a board meeting to review the issuance of a special dividend.
The meeting is scheduled for July 25, Brilliance China said in an exchange statement Monday night.
 

— Zhang Shidong


Brilliance China rises most in 10 months on prospect of special dividend payout

Citic Securities set a price target of 28 yuan for Three Squirrels (300783 CH), a Shenzhen-listed online retailer of snacks from nuts to candied fruits, China’s biggest listed brokerage said in a report today.
Citic Securities cited the boom of the e-commerce industry generally, where the snack products are heavily marketed and sold, and the company’s leading position in the sector.
More than 400 million shoppers visited the online shop of Three Squirrels on Alibaba’s Tmall platform, the statement said. The stock jumped by the 10 per cent daily limit for a second straight day to 25.58 yuan after it began trading on Friday.
— Zhang Shidong


Citic Securities initiates coverage of nuts retailer Three Squirrels with 'buy' rating

Monday's retail sales numbers out of China highlight why Jefferies analysts Summer Wang and Don Lau say they continue to be upbeat on "function-led and content-driven" consumption.
"China June retail sales sprinted to 9.8 per cent YoY (vs 8.6 per cent in May; 8.4 per cent in the first half of the year), aided by (1) auto sales surge due to deep discounts on older models (ahead of stricter State VI emission standards effective on 1 July); and (2) the '6.18' Shopping Festival (driving cosmetics, jewlery and appliance sales). Small ticket items like foods and daily goods still outperformed."
Leading growth in June were cosmetics, autos and daily goods.
"We believe the beauty category is continuing to benefit from functional premiumization, as consumers (both women and metrosexual men) are willing to pay a premium for tangible improvement in appearance," they wrote.
Maoyan Entertainment (1896 HK), which provides online entertainment ticketing services in China, is their top buy. Analyst Wang last month gave it a target price of HK$19, and there was no mention of a change in that.
Maoyan has a lot of bullish fans, despite five months of pretty much getting nowhere since its IPO on February 4 in Hong Kong. Of 11 analysts tracked by Bloomberg covering the stock, all rate it a "buy," with a consensus target price of HK$20.18.
It started at HK$14.80, and closed Monday at HK$14.42. It's having a very bad day today, falling 4 per cent, to HK$13.84. 
Also today, CICC analyst Meng Wei rated Maoyan an "outperform," with a target price of HK$19.30.

 
— Deb Price 
 


Jefferies stays upbeat on China consumption, keeps Maoyan as its top 'buy' in sector

"China's economy has weakened, a trend that Monday's GDP figures reinforced," said Charlie Sunnucks, emerging markets fund manager at Jupiter Asset Management, in an emailed commentary.
"It will become increasingly crucial to differentiate between those businesses that have simply enjoyed cyclical gains in what has been an expanding economy, with those that are delivering based on genuine structural opportunities within a market that is changing considerably."
— Eugene Tang


'Increasingly crucial' to pick out true winning businesses in China amid slowdown, says Jupiter Asset analyst

Today's six initial public offerings (IPOs) raised a total of HK$4.4 billion (US$563.3 million) in Hong Kong, raising the city’s fundraising tally to almost HK$74 billion so far for the year, lagging behind the amount of capital raised on the Nasdaq and the New York Stock Exchange in the world’s top two spots.
The bumper day was a much-needed boost for Hong Kong Exchanges & Clearing Limited (HKEX), the operator of Asia’s second-largest capital market, after ESR Cayman and Budweiser Brewing Company APAC cancelled their fundraising within a month, knocking a combined US$11.05 billion off the tally and setting back Hong Kong’s attempt to reclaim the IPO crown.
Sentiment has been downbeat in Hong Kong, squeezed by the year-long US-China trade war between the world’s two largest economies, and rattled by massive rallies involving tens of thousands of protesters, almost a month after 2 million people took to the streets to oppose a controversial extradition bill that has been declared by its drafter to be “dead.”
“Hong Kong won many gold medals in the IPO market worldwide last decade; sometimes we get the silver, and sometimes the copper,” said Charles Li Xiaojia, chief executive of the HKEX, during a listing ceremony at the exchange. “The most important things is to do our best to attract companies around the world to list here.”

Read full article by Enoch Yiu here.


6 new IPOs raise HK$4.4 billion, as city tries to claw back its fundraising crown

Serenity is back in ... at China's stock markets.
The 60-day volatility on the Shanghai Composite Index dropped close to the lowest level in almost four months, with the benchmark equity gauge stuck in a range-bound pattern, according to Bloomberg data.
Concern about first-half earnings results and nascent signs of a stabilisation in the economy left traders baffled. The market may make a breakthrough after the earnings season ends by August, said Ken Chen Hao, a strategist at KGI Securities in Shanghai.
Today, the Shanghai Composite Index was last trading down by 0.20 at 2,936.

 
— Zhang Shidong 


Volatility? China takes a break

Casino stocks are having a good day, buoyed by a lot of recent sweet talk from analysts and the move last week by Public Security Minister Zhao Kezhi to crack down on cross-border online gambling. 
MGM China (2282 HK) shot up 4.4 per cent at HK$14.14, Melco International was up 4.2 per cent to HK$20.95, SJM (880 HK) jumped 3.4 per cent to HK$9.39, Galaxy Entertainment (27 HK) rose 2.9 per cent to HK$57.30, Wynn Macau (1128 HK) climbed 2.4 per cent to HK$19.16, and Sands China (1928 HK) was up 1.6 per cent to HK$41.15.  
Bloomberg Intelligence says that operators geared toward the mass market — like Sands China —"should see bigger profits and plumper margins in 2Q. The mass segment's double-digit growth has sent it soaring to more than 50 per cent of the city's gaming revenue. Those gains have staying power despite China's sputtering economy and tough annualized comparisons, which have prompted Macau casino operators to focus on the mass market for steady revenue. We believe this segment will be their growth engine in 2H, reflecting better infrastructure and more non-gaming amenities on Cotai." The Cotai is the hot strip across from the old casino area where operators are upgrading and building new glitzy properties, in a second-generation competition over the "wow" factor. 
Bloomberg Intelligence sees Sands China getting the largest mainstream revenue share in the world's biggest gambling centre, as a result of more foot traffic — tourist visits are up — and added contribution from non-gaming parts of the business, like hotels and restaurants. 
"With the largest hotel-room inventory, Sands is best positioned to capture the double-digit growth in Macau tourist arrivals in 2Q. ... The shift in revenue mix toward the mass market bodes well for Sands through 2H and beyond. It's likely to keep its Ebitda (Earnings Before Interest, Taxes, Depreciation and Amortization) lead through 2020 as it debuts its new Londoner property, which features a greater range of retail, hotel and dining amenities," Bloomberg Intelligence writes in a new note today.
Meanwhile, Bloomberg Intelligence expects that VIP junket demand is poised for a turnaround due to the U.S.-China trade-war truce. 
Also, Xinhua reported on July 12 that China will bust criminal networks that organize outbound gambling, use the Internet to open casinos, and use underground banks for financial payments. That's a boost for Macau casinos, whose visitors are overwhelmingly from the mainland.

Check out our latest on what investors need to know about Macau stocks, with an interview as well from strategist Kenny Wen.
— Deb Price 
 


Casinos in winner's chair today

The Shanghai Composite Index closed down 0.2 per cent at 2,937.62, snapping a three-day stretch of gains.
Corporate earnings continued to dominate sentiment, as donkey-hide gelatin maker Dong-E-E-Jiao and Han's Laser Technology Industry slumped for a second consecutive day after issuing negative profit warnings. Liquor distillers also added to the drag on the index, with Luzhou Laojiao (000568 CH) retreating 3 per cent for the biggest decline in seven weeks.
— Zhang Shidong 


China’s stock benchmark closes lower for first time in four days

The Hang Seng Index added 0.1 per cent, or 64.74 points, to close at 28,619.62. Gaming stocks including Sands China (1928 HK) and Galaxy Entertainment Group (27 HK) were among top gainers, and Chinese social media giant Tecent Holdings (700 HK) contributed most to the boost. 
Brilliance China Automotive Holdings (1114 HK) also surged on proposal to paying a special dividend to shareholders.
— Zhang Shidong 


Hong Kong’s Hang Seng Index rises for fifth straight day

Stocks Blog: Traders look to corporate results as earnings season kicks off

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;}Six companies debut in Hong Kong, which needed some good news after the Budweiser Brewing Company APAC IPO fell through Rising iron ore prices weigh on Chinese steelmakers

Six companies debut in Hong Kong, which needed some good news after the Budweiser Brewing Company APAC IPO fell through

Rising iron ore prices weigh on Chinese steelmakers