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Daily Commentary

15 Oct 2018

Market Outlook

HSI might fluctuate at around 25,600 and 26,100 points today.

The Hang Seng Index opened higher by 135 points last Friday and then posted a fluctuating performance. The index once narrowed its gains to 20 points. Afterwards, the market regained its upward trend and grew 297 points in the morning. During the afternoon session, HK stocks grew 569 points at most to reach its intra-day high of 25,835 points thanks to the upward trend of A-share. The HSI finally closed at 25,801.49 points, up 535 points or 2.1%. Market turnover amounted to HKD111.147 billion. As a review of last week, the HSI dropped 771 points or 2.9% in total. The ADR proportional HSI index closed overnight at 25,801 points with 72 points or 0.28% higher than closing price last trading day. More than 60 blue-chip stocks in S&P 500 Index will release their financial reports for the previous quarter this week. It is expected that the overall performance of the blue chips will be satisfactory, and their earnings are expected to increase by more than 20%. Dow was up by 287 points or 1.15% to 25,339 points. HSI may fluctuate at around 25,600 to 26,100 points today.

Today’s A-share Snapshot

Company’s Profile:Bohai Financial (000415.SZ) specializes in financial leasing and operating leasing businesses.

Brief Comments:The Company's wholly-owned subsidiary, Tianjin Bohai, plans to transfer 35.87% share of Wanjiang Financial leasing to Anhui Transportation Holding Group with a transaction price of RMB2.98 billion. After the deal, Tianjin Bohai will hold 17.78% share of Wanjiang Financial leasing.For 1H2018, the revenue of the Company grew 0.78% YoY to RMB17.87 billion while its net profit increased 25.66% YoY to RMB1.29 billion. In particular, its revenue of the aircraft business climbed 1.25% YoY to RMB15.547 billion. Amid the high proportion of the Company’s overseas turnover, the global macro economy and international trade development might affect the Company’s business operation significantly.

Stock Pick

Shenzhou(02313) ables to diversify its business risk by having international customer base

Shenzhou is China's largest vertically integrated knitwear manufacturer, mainly producing sportswear and casual wear, and has stable partnerships with well-known domestic and international customers including Nike, Adidas, Puma and Uniqlo. The Group's recent expansion in Vietnam and Cambodia is expected to account for nearly 40% of total production by 2020. The increase in production capacity will help the Group to handle with increasing orders and benefit from the cost reduction led by the increase in production efficiency.

In the past two years, the Group has achieved satisfactory growth in revenue and earnings, up 20% and 28% CAGR respectively, and its gross profit margin has remained at above 30%, mainly due to the strong growth from sportswear segment, which accounted for nearly 70% of sales in Shenzhou in 2017. The Group expects Nike and Puma to achieve double-digit growth in 2018, while revenue contribution from new customers Ralph Lauren and New Balance will also increase. We believe that with the excellent R&D capabilities of the Group and the steady growth of its customer base, Shenzhou has the ability to increase its market share in the global market.

Investors are advised to buy the share at HKD85 or below, with the target price and stop- loss price at HKD96 and HKD83 respectively.