MADE_IN_CHINA：PROBABILITY_DISTRIBUTION_OF_RMB_FORECASTS-2012-08-30.ppt

deutsche bank markets research,asia china strategy,periodical made in china,date 29 august 2012 jun ma, ph.d chief economist (+852) 2203 8308,hui miao, ph.d strategist (+852) 2203 5934,probability distribution of rmb forecasts key points, michael tong, cfa research analyst (+852) 2203 6167 ,,sinopec - yin and yang (0386.hk, hold, target price: hkd 8.21, closing price: hkd 7.40, david hurd),daily market statistics performance price,28/08/2012 1d% chg 1m% chg,air china - 1h12 miss due to weak cargo; staying upbeat for 2h12e; buy (0753.hk, buy, target price: hkd 6.70, closing price: hkd 4.84, vincent ha) theme of the day asia economics special - probability distribution of rmb forecasts (jun ma) since may, the rmb has depreciated by 0.9% against the usd. in q2, chinas capital and financial account recorded the largest net outflow in history. investors and corporations have felt increasingly uncertain about the direction,hsi h-share a300 volume hsi h-share a300 indexes,19,812 9,522 2,238 price 1,077 1,279 3,377,0.1 -0.2 0.5 1d% chg -12.5 -10.1 -10.7,2.7 1.3 -4.9 1m% chg -45.8 -38.0 7.9 13/08/2012,of the rmb in the future. in this note, we present a rmb forecasting model,hsi,cy2011,cy2012,cy2013,and estimate the probability distribution of rmb movement against the usd in the coming four quarters. our model found that the rmb exchange rate can be explained largely by four macro factors: chinas gdp growth, its current account to gdp ratio, the strength of the usd, and the pbocs fx intervention. (jun ma 852 2203 8308),epsg per pbr hscei epsg per,4.5% 5.9% 11.5 10.9 1.4 1.3 cy2011 cy2012 12.1% 0.4% 8.4 8.3,9.0% 10.0 1.2 cy2013 9.1% 7.6,/p/4375-12ab/64061755/0900b8c085a25600.pdf shanghai pharmaceuticals - ndr takeaways: re-emergence of confidence,pbr msci hk epsg,1.4 cy2011 10.7%,1.2 cy2012 -2.0%,1.1 cy2013 11.6%,(2607.hk, hold, target price: hkd 15.00, closing price: hkd 13.48, jack hu) we believe sph will deliver 10-15% profit growth for 2013, though management did not quantify the 2013 growth outlook. other key takeaways include: 1) distribution business is likely to grow inline with market growth of,per pbr msci china epsg per,13.9 15.7 1.1 1.2 cy2011 cy2012 14.4% 5.3% 9.7 9.3,14.0 1.2 cy2013 11.4% 8.3,20% in the mid/long term, and 2) growth for manufacturing business may,pbr,1.6,1.6,1.3,improve due to the continuing product mixture optimization. retain hold rating (on balanced risk/reward) and hkd15 target price. (jack hu 852 2203 6208) /p/1185-bc6c/64617053/0900b8c085a202ed.pdf,data for 2011 are calculated using members, weights and prices fro the 31st of december of that year (nlf_epsfooter db economic forecasts,china life - 1h12 superior ev growth and a cleaner book (2628.hk, buy, target price: hkd 22.80, closing price: hkd 20.30, esther chwei) china life reported 1h12 ev of rmb334,326mn (+14.2% hoh) and vnb of rmb12,494mn (+2.5% yoy), both ahead of our expectation by 6.9% and 0.9%,hong kong gdp (%) merch. exp. (%) cpi (%) china,2011f 5.0 11.2 5.3 2011f,2012f 2013f 1.5 2.8 3.3 8.5 4.9 2.3 2012f 2013f,respectively. net profits was down 25.7% yoy to rmb9,635mn, 2.7% below our forecast which we see as a non-issue. solvency margin ratio improved to 231% (from 170% in 2h11) thanks to sub-debt issuance. overall, we see this as a solid set of results with superior ev growth of 14.2% hoh (vs. ping ans 8.2% and,gdp (%) 9.2 merch. exp. (%) 20.3 cpi (%) 5.4 fx rate (eop) cny/usd 6.30 source: deutsche bank ag estimates,7.6 10.0 2.8 6.23,8.2 14.0 3.5 6.00,cpics 10.7%) and a cleaner book with minimal unrealized losses of rmb846mn in 1h12 (vs. ping ans rmb8.4bn and cpics rmb5.6bn), which should make it more resilient amidst market weakness in 2h12. we maintain our buy rating on china life. (esther chwei 852 2203 6200) /p/469-eda7/64588000/0900b8c0859cda28.pdf _ deutsche bank ag/hong kong all prices are those current at the end of the previous trading session unless otherwise indicated. prices are sourced from local exchanges via reuters, bloomberg and other vendors. data is sourced from deutsche bank and subject companies. deutsche bank does and seeks to do business with companies covered in its research reports. thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. investors should consider this report as only a single factor in making their investment decision. disclosures and analyst certifications are located in appendix 1. mica(p) 072/04/2012.,29 august 2012 made in china db equity research china southern airlines - we still expect qoq recovery in 3q, but to a lesser extent (1055.hk, buy, target price: hkd 4.15, closing price: hkd 3.50, vincent ha) while we still expect china southern airlines (csa) to stage a solid 3q qoq earnings recovery on peak season tourist traffic, we now believe that core earnings growth will be skewed more towards csas 51%-owned xiamen airlines considering its better regional macroeconomic backdrop. meanwhile, csas core operation is subject to near- term earnings risk from opening new long-haul international routes and increasing capacity on big aircraft. nonetheless, we maintain our buy rating on what we see as appealing valuation (0.9x fy12e p/bv with 3% fy12e yield). (vincent ha 852 2203 6247) /p/767-43fb/64693695/0900b8c085a244fc.pdf cosco pacific - 1h12 in-line; core businesses robust; maintaining buy (1199.hk, buy, target price: hkd 13.50, closing price: hkd 10.44, michael lee) despite a tough chinese export/import environment in 1h12, the 23% net profit growth from the core businesses of cosco pacific that accounts for 85% of net profit has shown the companys terminal portfolio and container leasing business are well positioned to withstand an uncertain global economic outlook. we expect cps core businesses to maintain the positive momentum going into 2h12 as our economists expect double-digit chinese export growth recovery in 2h12. maintaining buy with a target price of hk$13.5. (michael lee 852 2203 6136) /p/872-0670/63540813/0900b8c085a10f0f.pdf orient overseas intl - trading conditions not great (0316.hk, buy, target price: hkd 69.00, closing price: hkd 44.25, joe liew) we recently had a conversation with the company and management say that trading conditions have not been great with some slowdown in the tp and ae routes for the industry. their ae rates have returned back to april levels while tp rates have been pretty stable. however, 3q results should still be pretty strong for the whole industry. 0.8x 2012e p/b is below most regional peers and forecast 2012 dividend yield of 2.9% is decent. (joe liew 852 2203 6198) /p/679-ea8b/64181765/0900b8c085a201e3.pdf sino biopharmaceutical - growth momentum continues (1177.hk, buy, target price: hkd 3.30, closing price: hkd 2.85, jack hu) sino biopharm reported 2q12 revenue/non-gaap eps of hk$1,943m/ hk$0.029, +32% and -4% yoy respectively, vs. consensus hk$1,939m/ hk$0.042, and our forecast of hk$2,017m/ hk$0.042. the bottom-line miss was due to retrospective tax payments. management reaffirmed its full year revenue/eps guidance of 30%/20% growth. we reiterate buy (on valuation) and raise our target price to hk$3.30. (jack hu 852 2203 6208) /p/1156-4dfb/64827787/0900b8c085a2346d.pdf yuanda china - 1h12 review: weak first half with lower margins (2789.hk, buy, target price: hkd 1.20, closing price: hkd 0.70, eugene yeoh) yuanda reported an interim net profit of rmb263m, which is 37% yoy below our and consensus estimates. management attributed the weak results to project delays and cost overruns. cash flow and working capital also deteriorated during the period. with improved liquidity conditions, management is cautiously optimistic about 2h earnings and cash flow performance. given a still-healthy backlog, we believe the 4x pe valuation is too modest; hence, we maintain our buy rating. (eugene yeoh 852 2203 6248) /p/738-faae/64232450/0900b8c0859c870e.pdf sinopec - yin and yang (0386.hk, hold, target price: hkd 8.21, closing price: hkd 7.40, david hurd) snp reported 1h12 eps of rmb 0.28/ shr, 40% lower year-on-year. consensus was rmb 0.27/ shr; we were at rmb 0.24/ share. we have lowered our 2012 eps to rmb 0.65/ shr from 0.72/ shr and continue to see downside risk to our 2012 estimate. end- dec. 2011 consensus was rmb 0.98/ share. we maintain our hold rating on snp on the back of additional downside risk to 2012 numbers and no visible progress on refined product price reforms. (david hurd 852 2203 6242) /p/773-f081/64457902/0900b8c085a21b2c.pdf,page2,deutsche bank ag/hong kong,29 august 2012 made in china sun art retail group - proven ability in cost control; maintaining hold (6808.hk, hold, target price: hkd 10.13, closing price: hkd 9.75, anne ling) sun art posted respectable 1h12 results given tough sssg. we are impressed by the companys ability to control opex ratio. management maintains its store opening plan and has turned more bullish on ebitm. its strategy to reinvest margins for market share remains intact. we fine-tuned fy12-14e eps by 0-3%.to reflect higher interest income; retain hold on balanced risk/reward. (anne ling 852 2203 6177) /p/882-c5c4/64638486/0900b8c085a211a1.pdf china mengniu dairy - 1h12 earnings miss, a bumpy road to recovery; hold (2319.hk, hold, target price: hkd 22.60, closing price: hkd 23.10, mabel wong) mengnius road to recovery has been bumpy year-to-date, as it hit a few rough patches in the form of quality issues. we expect sales/npat growth to improve in 2h12 but not enough for 2012 npat growth to move into positive territory. the new management team appears determined to turn mengniu around, but execution is key, in our view. we await concrete signs of a silver lining. we cut our 2012-14 npat forecasts by 7-9% on lower sales and higher sg hold (0220.hk, hold, target price: hkd 7.00, closing price: hkd 7.46, mabel wong) upcs 1h12 npat came in 4% above our forecast on a lower-than-expected tax rate. looking at 2h12, while input cost pressure looks tame (except palm oil), we are concerned that slowing noodles sales growth (intense competition) and an increase in depreciation expense (back-end loaded capex) could dampen yoy earnings growth. we raise our 2012-14 npat forecasts by 7-9% mainly on lower taxation and finance costs, and lift our target price from hkd6.6 to hkd7.0. we maintain our hold rating on fair current valuations. (mabel wong 852 2203 6178) /p/618-5e8c/63374168/0900b8c085a0310d.pdf shanda games limited - softening growth outlook (game.oq, hold, target price: usd 4.04, closing price: usd 3.45, alex yao) managements weak 3q guidance (11% below our estimate) indicates the aging of core games could be more severe than we initially expected. although content updates in coming quarters are likely to help recover core game usage to a certain degree, we expect woool and mir 2 to gradually lose gamer base in the near future. margins will likely be under pressure as revenue growth slows or declines despite stricter cost controls. however, the contribution from new games in the pipeline should mitigate the pressure on sales and margins. (alex yao 86 21 3896 2831) /p/972-45da/64692330/0900b8c085990345.pdf china unicom - further post-interim tweaks (0762.hk, buy, target price: hkd 19.30, closing price: hkd 13.00, alan hellawell iii) cu mgmt discussions post-results reinforce our view that cu is tracking to achieve 3m 2g net adds and 36m 3g net adds in 2012. 3g arpu however declined more than we expected in 2q12, falling 24% yoy to rmb90.1 (and from rmb93.9 in 1q12). we cut our 3g arpu from 2h12e onwards. rev from sales of telecom products was higher than what we expected, increasing by 75% yoy to rmb19.3b (rmb11.2b in 1q12 and rmb8.1b in 2q12) in 1h12 due to strong sales of the iphone 4s in 1q12. according to mgmt, iphone sales slowed in 2q12. we increase telco product sales in 2h12e on smartphone promotions, clustered increasingly around a rmb1,000 pricepoint. the weighting of wcdma smartphones with a price of rmb2,000 or below increased by 14pp to 67.9% in 1h12. (alan hellawell iii 852 2203 6240) /p/935-e620/64944355/0900b8c085a1552b.pdf /p/619-b831/64588000/0900b8c0859cda28.pdf china comms construct - 1h12 results below expectation on lower sales and higher financial costs (1800.hk, buy, target price: hkd 9.31, closing price: hkd 6.67, phyllis wang) ccc reported that its 1h12 net profit decreased 14% yoy to rmb5,016m, accounting for 40% of our and the markets full-year earnings forecasts. if we strip out the gain on debt restructuring of iraq loans worth rmb930m (in 1h11), net profit in 1h12 fell 11%. the results are below our and market expectations due to lower-than-expected sales and higher finance expenses. (phyllis wang 86 21 3896 2839) /p/703-6028/64385608/0900b8c085a26b16.pdf,deutsche bank ag/hong kong,page3,29 august 2012 made in china haitong securities - key takeaways from 1h12 analyst briefing (6837.hk, buy, target price: hkd 13.20, closing price: hkd 8.90, judy zhang) haitong securities (hts) proposed to buy the convertible bond of hkd4.85bn issued by haitong intl holdings, a wholly owned subsidiary and the holding company of haitong intl (665.hk), in order to strengthen the capital base of haitong intl holdings for potential overseas expansion opportunities. the money to invest in the cb equals 34% of hts ipo proceeds, and it is largely in line with the companys plan to allocate 35% of its h-shr ipo proceeds into overseas expansion. upon regulatory approval, the management expects the return of the proceeds will be improved from current 3% to 6%, which would increase hts fy13 eps by 2.6% and roe by 0.2%. despite management having said hts would not do any overseas m buy (3808.hk, buy, target price: hkd 5.20, closing price: hkd 4.33, vincent ha) sinotruk reported a 82% yoy 1h12 net profit decline to rmb182m, 34% below our estimate. the companys 1h12 revenue dropped by 32% yoy to rmb15.0bn on 38% yoy fall in heavy-duty truck (hdt) sales volume and 40% yoy fall in engine sales volume, partially offset by sales from medium and light duty trucks (up by 41%). the discrepancies between sinotruks actual net profit and our estimate are attributable to weaker-than-expected revenue and earnings contributions from the medium and light,page4,deutsche bank ag/hong kong,29 august 2012 made in china duty truck segments. indeed, with weakening sales in 1h12 offset by easing material costs, we probably have seen the end of negative earnings momentum with a hoh surge in 1h12 net profit. (vincent ha 852 2203 6247) /p/684-61a6/64892110/0900b8c085a2971a.pdf shougang fushan - 1h12 results ahead of db estimates - buy maintained (0639.hk, buy, target price: hkd 3.10, closing price: hkd 2.09, james kan) fushan has reported its 1h12 results. its revenue at hk$3,339m implies a 14% yoy decline and achieves 52% of 2012fy dbe and 49% of 2012fy bloomberg consensus. fushans gp achieves 58% of 2012fy dbe and op achieves 59% of 2012fy dbe. its npat at hk$1,006m declines 11% yoy but achieves 55% of 2012fy dbe and 51% of consensus estimates respectively. fushans npat is 7% ahead of dbe 1h12 estimate. (james kan 852 2203 6146) /p/634-d9d0/64914370/0900b8c085a246c3.pdf sinoma - disappointing 1h12 results - margin contraction across all segments (1893.hk, buy, target price: hkd 3.15, closing price: hkd 1.95, johnson wan) sinoma reported its 1h12 results at noon on aug 28, with bottom line of rmb182m (eps of rmb0.05/sh), down 76% yoy and top line of rmb23b, up 3% yoy. the earnings were 21% below db estimates (achieving 26% and 16% of fy12 db and (johnson wan 852 2203 6163) /p/713-e2a0/64259295/0900b8c085a25673.pdf sun art retail group - 1h12 np beats while ebit in line (6808.hk, hold, target price: hkd 9.95, closing price: hkd 9.50, anne ling) sun art announced 75% rise in net profit to rmb1.37bn on 14% rise in sales to rmb39bn for 1h12. sales growth is below our expectation of 18% but np growth was higher than our expectation of 63% to hk$1.28bn. total margin improved to 21.3% from 20.8% in 1h12, mainly from improvement on merchandise margin. opex ratio was 16% vs last years 15.7% on increase in depreciation (0.2ppt), staff cost ratio (0.6pt to 6.6%) and rental cost ratio (0.1ppt to 2.2%)but was partially offset by decline in other expenses. ebit growth was thus up 21% to rmb1.96bn with ebitm improved from 4.7% in 1h11 to 4.83% in 1h12. np beats our expectation due to lower etr and higher interest income. (anne ling 852 2203 6177) /p/856-b190/63546534/0900b8c085a1e9ca.pdf bank of beijing - strong 1h12 results on b/s expansion and fee income growth (601169.ss, hold, target price: cny 9.82, closing price: cny7.36, judy zhang) bobj reported 1h12 npat growth of 26% yoy to rmb6.4bn, which accounts for 62% and 58% of our and consensus fy12 estimates. the major variations of the results and our expectation are faster than expected balance sheet expansion (+16% hoh and +35% yoy), strong fee income (+73% hoh and +39% yoy) and cost efficiency improvements (cir down 3.4% yoy to 26.6% in 1h12). strong fee income growth is a bright spot mainly driven by the strong income from investment banking (+110% yoy) and settlement