2014 note about china a shares

1. (1) China A Shares Traded in 2014:
1.Zhonghong Holding Co., Ltd (000979): restructure of travelling real estate development
A) Cheap price, $1.6b mv, P/E 31 ( vs. industry P/E 115)
B) Partner with Asian Travel for accelerate O2O platform with 11.4% ownership in 2014
C) PBOC cut interest rate in Nov 2014 and Mar 2015, reduce real estate buyer’s interest burden,
Estimate additional eps 0.09RMB attribute to the change of interest rate in Mar 2015
D) SH composite increased from 2341 to 3406 with 46.6% growth rate, share price decreases from 5.19 to
4.34 with -19.6% growth rate, the gap of growth rate was totally 66.2%
2. SGIS Songshan Co., Ltd (000717): Recovery and reform of steel industry, profitability quick turn
A) Cheap price, $1b mv
B) Shanghai Baosteel Group Corporation- Canton SGIS Group Co., Ltd 56% ownership

2. 3. TsingHuaTongFang Co., Ltd (600100): Electronic industry header
A) Diversification: Computer, networking, microelectronics, multimedia, semiconductors, digital TV
B) 99 subsidiary companies form industry chain, possible spin-off according to different sectors
C) Acquisition of E-people E-book, shifting from PC markets to tablet computer markets
D) Tsinghua Holdings Co., Ltd. 22.93% ownership with excellent management team
4. China National Chemical Engineering Co., LTD (601117): International chemistry industrial leader
A) low p/e 11, positive eps (0.75 RMB in 2014, 0.85 RMB in 2015, 1.01 RMB 2016)
B) China National Chemical Engineering Group Corporation 67% ownership
C) 2014 Indonesia: bid $ 435m three-year fertilizer contract, 2014 Inner Mongolia: 3.56b RMB three-year
energy contract, 2012 Dubai: $2.95b five-year national housing contract

3. (2) Data About China’s A Shares:

4. 1. Politic vs. Economic:
China has political and economic system, political decisions significantly affect the stock markets.
China reform, anti-corruption, environmental protection, and “One Belt & One Road” Policies
have positive impacts on the stock markets.
President Xi’s “Belt & Road”
1）The “silk road” in 1970s was for silk and porcelain transportation to Asia, Africa, and European.
2）The “new silk road” is called “Belt & Road” connected Asian - Pacific economic circle in eastside and
European economic circle in westside. China is planning and developing Asian Highway Network (13
highways) and Trans- Asian Railway Network (8 railways); Oil and gas pipelines, cross-border bridges,
power lines, and fiber optic transmission systems will be in built.

5. Shanghai Composite dropped from 6100 points in 2007 to 2000 points in 2013, as the same time, Chinese
wealth are traditionally deposited in banks, invested in real estate, and invested in securities. Stock
investing only account for little portion of Chinese wealth. Stock investors were disappointed, while real
estate investors were enjoying the bubble. If the trends continue, low-income Chinese will suffer under
extremely high housing price and pain in stock investing. That is the right time for Chinese government to
“make some noise” for balancing real estate market and stock market. After President Xi’s policy came out,
corruption are reduced, company reform and restructure created positive impacts to the China A Shares.
Shanghai Composite has recovered to round 3000-3400 points recently.

6. 2. Money moves to stock markets as a result of real estate bubble and higher education. Chinese house
owners are required to make public filings about how many houses they own. Real estate sales tax is
increasing, and property tax is going to be applied. Under the condition of rising housing prices and
national GDP, the stock price will be in upside trend after depressing for 7 years.
3. QFII, RQFII, QDII, and margin financing increase market liquidity

7. 4. PBOC cut interest rate in Nov 2014 and Mar 2015, money in banks will shift into stock markets.
5.

8. 6. China’s GDP reach world’s 2nd
large position, GDP growth rate decreases from 10% to 7-8%;
Assume U.S. maintains 2-3% GDP growth rate, IMF forecasts China’s GDP may reach the top of the
world in 2024.

9. (3) Watching List:
1. China Northern Railways (CNR) and China Southern Railways (CSR): High Speed Railway

10. A) China has the world’s fastest growth, largest scale, highest operating speed, longest operating distance,
strongest integration. In 2015, the high speed railway under construction will be about 12,427 miles.
According to transportation industry researcher, Cai Jianming, the total 2015 output value of China's
high-speed rail is expected to exceed $63.8b.
B) China Northern Railways (CNR) and China Southern Railways (CSR) merged as CRRC in 2014.
C) Positive EPS (0.29 RMB in 2013, 0.41 RMB in 2014, 0.50 RMB in 2015, 0.60 RMB 2016)
2. Wind-Power Corporation (601016): Competitive Enterprise with innovation
A) $306m mv; Owed by China Energy Conservation and Environmental Protection Group (CECEP)
B) sub-company under big company CECEP (54% Ownership) has high possibility of fund injection
under China reform policy and environmental protection policy
C) Positive EPS (0.10 RMB in 2013, 0.13 RMB in 2014, 0.16 RMB in 2015, 0.21 RMB 2016)
D) In Mar 2015, Chai Jing’s investigation “Under The Dome” has positive impact on environmental sector.
Sustainability will be the hot topic for China reform.

11. E) Lanzhou LS Heavy Equipment Co., Ltd (603109): Nuclear Power
A) 21 units of nuclear power plants with 19.02m kw capacity were run in 2014.
27 units of nuclear power plants with 29.53m kw capacity were under construction in 2014.
9 units of nuclear power plants are in planning process in 2015.
B) $76.6b is going to be invested in nuclear power plants with the next 6 years. Under government policy
support, nuclear power will be the hot topic and “business card” for foreign trade and economic
cooperation.
C) $374b mv; 60-year solid brand awareness in heavy pressure vessel industry.
D) Positive EPS (0.08 RMB in 2013, 0.20 RMB in 2014, 0.32 RMB in 2015)