Zhitong Hong Kong Stock Analysis | Sudden Negative News in the Securities Market, Institutions Cluster Around High-Yield Varieties

[Market Analysis]

Last week, the markets in both regions rebounded under the stimulus of significant meetings, but then returned to normal. This is almost always the case; once the expectations are traded, it's over. The Hang Seng Index saw a slight rise today but then lost momentum, closing down 0.88%.

Over the weekend, several major ministries reiterated their messages. The China Securities Regulatory Commission (CSRC) stated: firmly implement the important requirement of "stabilizing the real estate and stock markets" and effectively maintain the stability of the capital market. Deepen the comprehensive reform of capital market investment and financing, and focus on promoting the entry of medium- and long-term funds into the market. Encourage mergers and acquisitions aimed at industrial integration and upgrading; the Ministry of Finance: next year, a more proactive fiscal policy will be implemented to ensure that fiscal policy continues to exert force and is more effective; Wang Xin, director of the Research Bureau of the People's Bank of China, stated that monetary policy support should be appropriately increased, with timely cuts in reserve requirements and interest rates, and an increase in monetary credit investment.

Stephen Roach, a well-known American economist and former chairman and chief economist of Morgan Stanley Asia, believes that China has its own "trump cards," including various recent countermeasures, such as the option to sell a large amount of U.S. Treasury bonds. China will place greater emphasis on domestic consumption and seek more diverse export markets to reduce dependence on the U.S. export market. This viewpoint has formed a consensus; does it have any impact on U.S. stocks? For now, it seems not obvious, as the Nasdaq remains relatively strong, with technology and AI becoming a lifeline, but NVIDIA also appears to be struggling, while the software sector maintains its advantage, with Tesla becoming the new bullish banner.

Another point is that this week's Federal Reserve meeting is also a tool to rely on, with the market generally expecting a 25 basis point cut. However, Trump's tariff increases have raised inflation expectations, which has lowered the expectations for Fed rate cuts next year. Therefore, this is also a dilemma; without expectations, funds will remain cautious. Without a catalyst for bullishness, the market trend will be quite tangled.

At the same time, there was a negative development during the trading session, as the Shanghai Stock Exchange required brokerages to conduct self-inspections on margin trading, client transactions, and investment banking business (including whether they monitor "T+0" trading behavior for margin financing and whether they implement front-end controls for "T+0" margin financing), which is certainly a negative for brokerages. The performance of securities stocks reflects this, with sentiment remaining quite low.

The Central Economic Work Conference, scheduled for December 11-12, has attracted significant attention from all sectors. After the meeting, relevant officials from the Central Financial Office promptly accepted interviews with media such as Xinhua News Agency to deeply interpret the spirit of the 2024 Central Economic Work Conference and respond to current economic hot issues. A relevant person in charge of the Central Financial Office stated: next year, efforts should be made to enhance consumption capacity and improve consumption willingness; more funds will be arranged next year to include more consumer goods in the support scope. Consumer stocks have already been traded for many days; unless new and unexpected developments occur, stocks like Helen's (09869) are all declining.

As mentioned last time, the personal pension system will be expanded nationwide starting December 15. Today, the sixth batch of four personal pension financial products has been newly launched, bringing the total number of personal pension financial products to 30. Currently, there are 19 commercial banks selling 26 personal pension financial products, with investors' cumulative purchase amount exceeding 6 billion yuan. According to Wind, the unit net value of all personal pension bank financial products currently exceeds 1 From the perspective of investment nature, most personal pension financial products are fixed income types, with a small portion being mixed types. Depending on the term, the performance benchmarks for related products are set between an annualized 2.2% and 3.4%.

From this, it can be seen that the so-called entry of pension funds into the market is currently mainly focused on stable fixed income types, with very low equity types. This means that the expectation for pension funds to enter the stock market as incremental capital has weakened significantly. Therefore, the reason why heavily held stocks by institutions are generally performing poorly now is that there is fundamentally no incremental capital; without incremental funds, stock prices cannot be pushed higher, and speculative funds and retail investors are even less likely to take over. Instead, they tend to avoid stocks held by institutions for fear of being caught in a sell-off after a price increase.

This is the current situation, and out of helplessness, institutions can only look for relatively better fundamental stocks to cluster around, with high-dividend stable stocks being the top choice, such as those in the power and telecommunications sectors, as well as banks. Today, stocks like China Resources Power (00667), Datang International Power Generation (00991) in the power sector; China Unicom (00762), China Telecom (00728), China Mobile (00941) in the telecommunications sector; and Agricultural Bank of China (01288) in the banking sector, as well as utility stocks like Qingdao Port (06198), Beijing Enterprises Water Group (00371), China Resources Gas (01193), Jiangsu Ninghu 高速 (00177), etc. These types of stocks are strengthening, and another logic is that future pension products will favor dividend-paying stocks more, which may welcome incremental capital.

The National Radio and Television Administration: Cancel the approval for the establishment of television drama production units, guiding more institutions to participate in creation and production. The relaxation of approvals will play a role in promoting market prosperity. Today, the main focus is on China Literature Group (00772), which has a large content IP. The company will accelerate its development in the short drama sector this year, planning to launch more high-quality short drama projects in the second half of the year, and will form a development loop of complementary long and short dramas, with an estimated 100 or more short drama projects to be launched throughout the year. Today it rose by 5.71%, and another is Alibaba Pictures (01060): as one of the largest internet film and television companies in China, deeply laying out the upstream and downstream of the film and television industry chain, it naturally benefits significantly, rising over 4% today.

The economic direction of the initial public offering mentioned last Friday, Pop Mart (09992) as the most authentic target, rose again by over 2% today, also a leader in the "guzi" economy. The initial public offering economy also covers the gaming industry. The company Heartbeat (02400), which is a golden stock for December, surged over 12% today. According to a report by Shenwan Hongyuan, the self-developed products "Maifen" and "Little Town" are expected to explode in 2024, which has not yet fully reflected in the profit statement. In the first half of 2024, contract liabilities are 350 million, supporting subsequent profit releases. In 2025, focus on the strategy round-based RPG "Yise Reboot Day" for self-developed new products, as current market expectations are not sufficient. Another key point is the increase in user value and gross margin brought about by improved advertising precision.

On Monday, Bitcoin soared to a record high of over $105,000 in early Asian trading, continuing the rise since Trump was elected President of the United States last November, promising support for cryptocurrencies. Since Trump won the presidential election on November 5, direct investments in Bitcoin through U.S. ETFs have attracted a net inflow of $12.2 billion. Boyaa Interactive (00434) and FA Southern Bitcoin (03066) rose over 5% Other companies worth repeated attention in the AI application sector include Meitu Inc. (01357), Innovation Works (02121), Fourth Paradigm (06682), and Huoliang Technology (01860).

[Sector Focus]

On December 13, Han Jun, Secretary of the Party Leadership Group and Minister of the Ministry of Agriculture and Rural Affairs, presided over a meeting of the Party Leadership Group to convey and study the spirit of the Central Economic Work Conference and to discuss the implementation of work. In the overall economy, the agricultural and rural economy has multiple values, bears multiple missions, and faces various opportunities. It can be said that the agricultural and rural economy is both a "ballast stone" and an "accelerator"; it is both a margin of maneuver and a space of potential; it is both rear support and front-end demand. The meeting proposed to vigorously enhance the level of agricultural science and technology equipment, accelerate joint efforts in high-oil high-yield soybeans, high-protein corn, and short-board agricultural machinery, and vigorously cultivate leading enterprises in agricultural science and technology, accelerating the deep integration of industry, academia, and research led by enterprises.

Agriculture is indeed a top priority; every Central No. 1 Document focuses on agriculture. In the new era, rural work needs to improve efficiency, and the modernization of agricultural machinery and equipment is an inevitable move, with policies expected to lean in this direction. Major varieties: First Tractor (00038).

[Stock Picking]

Times Electric (03898): Acquires CRRC Commercial Vehicle Power to Enhance Competitiveness and Expand New Energy Vehicle Electric Drive Industry Layout

Recently, the company announced a related transaction to acquire a total of 100% equity in CRRC Commercial Vehicle Power from CRRC Zhuzhou Institute, Xiangyang CRRC Motor, and CRRC Electric for a cash consideration of 107 million. The company achieved operating revenue of 16.256 billion yuan in the first three quarters of 2024, a year-on-year increase of 15.33%; net profit attributable to the parent company was 2.501 billion yuan, a year-on-year increase of 21.82%; and net profit attributable to the parent company after deducting non-recurring gains and losses was 2.047 billion yuan, a year-on-year increase of 21.86%.

Comment: The company has fully acquired CRRC Commercial Vehicle Power, improving its electric drive industry chain layout and directly enhancing its competitiveness. The company's profitability is steadily increasing, with a net profit margin of 17.85% in Q3 2024, the highest quarterly figure in nearly three years. In the first three quarters of 2024, revenue from new energy vehicle electric drive systems reached 1.572 billion yuan, a year-on-year increase of 27.42%. The company's rail transit equipment business has seen some slowdown in growth, while in the emerging equipment business, power semiconductors and electric drive business have performed well.

The communication signal business has become a new growth point for the rail transit business, mainly benefiting from previously awarded subway projects in Changsha, Wuxi, Ningbo, and Hefei. With the continuous delivery of these projects, growth momentum is expected to be maintained. The company's subsidiary, Zhuzhou CRRC Times Semiconductor, will serve as the official supplier of IGBT modules for a certain electric drive system project of Valeo Group. This electric drive system project will first be installed in a certain model of Renault cars, with mass production starting in 2023 and total delivery expected to exceed 2.5 million units. The company is actively expanding its overseas market business and is expected to see a resumption of bidding, bringing high demand growth. Recently, Times Electric announced plans to repurchase H shares according to the share repurchase authorization, with a repurchase amount not exceeding 1.7 billion yuan.

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