Tracking Large Investors as a Strategy for Selecting Stock Winners

Transcription

1 Tracking Large Investors as a Strategy for Selecting Stock Winners Large investors usually refer to those investors that trade and invest in the financial markets in huge volumes or big amounts to such an extent that they have the power to move stock prices and set trends. They are mostly big business groups, trust investment companies, professional fund/asset managers as well as groups/individuals with large sums of money or strong financial backing. 9 May 2012 Tracking large investors stock trading and investment actions may be considered a shortcut to picking stock winners. The underlying reason behind is simple. Stock markets are full of rapidly changing information and noises, which ordinary investors may find difficult to grasp and analyze. At this juncture, ordinary investors may find taking references from investment and trading actions of major funds and investors useful. This is because professional fund managers and investors have more investment experiences and skills and the necessary resources for extensive market and investment analysis. Therefore, when the major funds continue to increase stakes in certain stocks, ordinary investors should pay more attention to such stocks. Since April 2003, the Hong Kong Stock Exchange has required shareholders holding more than 5% of issued share capital of a listed company to disclose their changes in the underlying share holdings. This provides transparency to investors. However, taking large investors investment actions as reference for stock selection is only the first step. Investors, however, should not follow blindly but be aware of the following pitfalls: 1. Some funds prefer to speculate by capturing a stock s share price volatility or holding both long or short positions in the same stock at the same time, which are less relevant as reference to ordinary investors. 2. Even after following major shareholders or funds into buying shares, investors should follow up on and be up-to-date with the changes. If these major shareholders or funds begin to sell, investors should follow and sell as soon as possible. 3. Major funds or shareholders may deliberately buy small amount of shares to reveal their identities so as to draw investors attention. It is therefore more important for ordinary investors to consider a stock s earning performance and industry fundamentals. Meanwhile, it would also be useful for investors to compare a stock s PE ratio with its peers to justify its overall quality and determine whether or not the stock is overpriced. We have selected two stocks, China Longyuan (916) and Zoomlion (1157), in which major shareholders have recently raised stakes significantly while considering their future prospects and industry fundamentals. We believe they can outperform the market. China Longyuan (916) can benefit from favorable industry policies and its multi-business development model The renewable energy industry has been bestowed with a number of good news recently, including the upcoming introduction of this industry s 12th Five-year Plan, which is currently under assessment, as well as the new industry subsidies launched in April this year. These have become positive catalysts for related stocks. China Longyuan (916) has been actively expanding capacity since last year. In addition, it has been the pioneer amongst peers to develop offshore wind power. As offshore wind power has large market development potential and competition is less intense, its offshore wind power business may become the new profit driver in the future. Furthermore, the group has purchased other new energy businesses, such as solar and biomass energy from its parent company. This multi-business development model can help reduce business concentration risk. Zoomlion (1157) has successfully entered into the overseas market while domestic industry fundamentals improved Zoomlion has become China s first manufacturer of construction machinery products exporting to Japan. It has broken the myth that Chinese construction machinery manufacturers are technological backward and incapable of competing directly with foreign counterparts, and became a pioneer and successful role model for peers in the domestic construction machinery industry in overseas market exploration. Meanwhile, the domestic rail and road infrastructure sectors indicated a significant rebound in terms of investment growth in 1Q12, which directly contributed to the higher demand for construction machinery. Favorable factors from both domestic and international markets have emerged, This, together with an attractive valuation, will help the stock outperform. Analyst : Becky Liu Important: please refer to our disclosures and disclaimers at the end of this report.

2 PERFORMANCES, VALUATIONS & POTENTIAL UPSIDES OF SELECTED STOCKS Share Target YTD Avg daily Last PE Est. Stock Company price price Upside Chg Mkt Cap T/O FY T T+1 T+2 Yield Recomm code HK$ HK$ % % HK$bn HK$m T X X X % -endation 916 China Longyuan / BUY 1157 Zoomlion # / BUY Sources: Bloomberg, South China Research Closing@5 May 2012 *Target price based on Bloomberg consensus #Sum of A+H stocks Date of relevant event SIGNIFICANT SHAREHOLDING INCREASE BY SUBSTANTIAL SHAREHOLDERS Company(stock No. of shares code) interested Name of substantial shareholder No. of shares bought/sold /involved Average price per share % of issued share capital 2/5/2012 Zoomlion(1157)* Morgan Stanley 2,482,707(L) HKD11.68 # 128,800,495(L) 9.01(L) 2/5/2012 Zoomlion (1157)* Morgan Stanley 1,735,693(L) HKD11.68 # 124,957,941(L) 8.74(L) 2/5/2012 Zoomlion (1157)* Credit Suisse AG 3,609,400(L) HKD11.68 # 87,047,577(L) 6.09(L) 2/5/2012 Yurun food (1068) Morgan Stanley 20,000(L) HKD10.44 # 118,036,635(L) 6.48(L) 2/5/2012 Yurun food (1068) UBS 1,995,530(L) HKD10.44 # 90,314,403(L) 4.95(L) 2/5/2012 CSR (1766)* Morgan Stanley 829,610(L) HKD6.21 # 121,810,844(L) 6.02(L) 2/5/2012 CSR (1766)* Morgan Stanley 845,000(L) HKD6.21 # 120,778,844(L) 5.97(L) 30/4/2012 Zoomlion (1157)* BlackRock 200,000(L) HKD11.58 # 136,983,031(L) 9.57(L) 30/4/2012 Zoomlion (1157)* Morgan Stanley 3,118,800(L) HKD11.58 # 125,060,596(L) 8.75(L) 30/4/2012 Zoomlion (1157)* UBS 8,211,385(L) HKD ,465,286(L) 8.77(L) 30/4/2012 Henderson Land (12) Lee Shau Kee 240,000(L) HKD ,473,040,349(L) 62.18(L) 30/4/2012 Yurun Food (1068) Morgan Stanley 717,000(L) HKD9.93 # 115,622,635(L) 6.34(L) 30/4/2012 CSR (1766)* Morgan Stanley 1,281,390(L) HKD6.26 # 120,778,844(L) 5.97(L) 30/4/2012 CSR (1766)* Morgan Stanley 343,000(L) HKD6.26 # 121,522,844(L) 6.00(L) 27/4/2012 Zoomlion (1157)* BlackRock 500,000(L) HKD11.44 # 136,942,104(L) 9.57(L) 27/4/2012 Zoomlion (1157)* JPMorgan 5,144,600(L) HKD ,926,611(L) 16.01(L) 27/4/2012 Zoomlion (1157)* Morgan Stanley 300,600(L) HKD11.44 # 124,991,324(L) 8.74(L) 27/4/2012 Henderson Land (12) Lee Shau Kee 500,000(L) HKD ,472,800,349(L) 62.17(L) 27/4/2012 Yurun Food (1068) Morgan Stanley 6,971,000(L) HKD9.81 # 115,264,606(L) 6.32(L) 27/4/2012 CSR (1766)* Morgan Stanley 41,000(L) HKD6.14 # 121,573,844(L) 6.01(L) 26/4/2012 Zoomlion (1157)* Morgan Stanley 1,050,442(L) HKD11.50 # 125,356,824(L) 8.77(L) 26/4/2012 Henderson Land (12) Lee Shau Kee 911,000(L) HKD ,472,300,349(L) 62.15(L) 26/4/2012 Yurun Food (1068) Morgan Stanley 63,000(L) HKD9.80 # 116,945,602(L) 6.42(L) 26/4/2012 Yurun Food (1068) UBS 6,904,556(L) HKD9.80 # 97,832,126(L) 5.37(L) 26/4/2012 CSR (1766)* Morgan Stanley 988,000(L) HKD9.80 # 121,573,844(L) 6.01(L) 25/4/2012 Henderson Land (12) Lee Shau Kee 303,000(L) HKD ,471,389,349(L) 62.11(L) 25/4/2012 Zoomlion (1157)* JPMorgan 3,717,800(L) HKD ,167,611(L) 15.26(L) 25/4/2012 Zoomlion (1157)* Morgan Stanley 4,956,360(L) HKD11.17 # 120,143,053(L) 8.40(L) 25/4/2012 Zoomlion (1157)* UBS 1,156,356(L) HKD11.01 # 129,797,250(L) 9.08(L) 24/4/2012 Henderson Land (12) Lee Shau Kee 157,000(L) HKD ,471,086,349(L) 62.10(L) 23/4/2012 Zoomlion (1157)* Morgan Stanley 10,200(L) HKD11.47 # 114,980,894(L) 8.04(L) 20/4/2012 Zoomlion (1157)* BlackRock 600,000(L) HKD11.41 # 133,346,002(L) 9.32(L) 20/4/2012 Zoomlion (1157)* Morgan Stanley 1,430,800(L) HKD ,968,095(L) 8.04(L) 18/4/2012 China Longyuan (916)* The Capital Group 1,149,000(L) HKD ,629,000(L) 5.00(L) 30/1/2012 China Longyuan (916)* The Capital Group 1,612,000(L) HKD ,778,000(L) 4.97(L)) 19/1/2012 China Longyuan (916)* The Capital Group 1,865,000(L) HKD ,390,000(L) 5.03(L) Sources: HKEX Notes:(L)-Long Position *H-Share #Daily weighted average price Important: please refer to our disclosures and disclaimers at the end of this report. -2-

3 BUY Date: 9 May 2012 HSI: 20, Share Price: HK$ Mth Target Price: HK$7.65 Upside Potential: 31.9% Renewable energy SHARE INFORMATION Ticker: 916 HK Market cap: HK$43.29bn Issued shares 2710m Ent value HK$83.2bn Net debt to equity 146.1% 3-yr core EPS CAGR 0.18% BVPS HK$3.41 Price/BVPS 1.70 Avg daily T/O HK$63m ROE 11.50% ROA 4.01% 12-mth high/low HK$8.42/5.25 Major shareholder: China Guonian % Exchange rate Source: Company, South China Research SHARE PRICE CHART HK$ CHINA LONGYUAN POWER GROUP-H HSI (rebased) RMB1 = HK$1.20 US$1 = HK$7.75 m shares May Jul Sep Nov Jan Mar May Source: Bloomberg, South China Research 1mth 3mths 6mths 12mths Share price chg +19.6% -0.6% -8.4% -12.4% Relative to HSI +6.7% -5.1% -0.6% +1.4% CHINA LONGYUAN Favourable industry policies have become catalysts Industry guidelines to be launched, quota scheme assures industry benefits The 12 th Five-year Plan guidelines for renewable energy prepared by the National Energy Administration is under final assessment. After it is officially launched, renewable energy quotas will be provided and renewable energy projects will be assessed according to the proportion of electricity consumption in different regions. This can significantly alleviate the constraints on power grid delivery and operation as well as addressing the problem of high proportion of abandoned wind power. The industry as a whole can benefit. National subsidies for renewable energy was introduced recently Since April, China has started implementing the additional funds policy for renewable energy, particularly for project with investment and maintenance costs arising from renewable energy power generation projects when connecting to the power grid system. The subsidies cover wind, biomass, solar, geothermal and ocean energy power generation. This policy indirectly benefits manufacturers of power generation equipment. Offshore wind power business has less intense competition but more market potential - Offshore wind power generation in China is still in its initial stage of development. The government has proposed targets of 5m kw and 30m kw for offshore wind power development by 2015 and 2020, respectively. As the leading wind power enterprise in mainland China, the group has been actively expanding production capacity. Last year, it spent RMB1.51bn to purchase wind and biomass power businesses from its parent company, including ~RMB1.43bn of wind power business. It has also gained a number of construction patents for offshore wind power in many other countries. As offshore wind power has large market development potential and competition is less intense, it can become the group s new profit growth driver. Multi-business development model can help spread risks - In addition to wind power, the group is actively expanding its solar, biomass and other renewable energy projects. Last year, it has increased production of solar photovoltaic power plants located at solar power bases in Tibet, Qinghai, Gansu, Xinjiang and Inner Mongolia etc. In addition, the group is actively planning biomass, tidal and geothermal power projects to achieve coordinated development of various renewable energies. This can help spread business risks and assure earnings. COMPANY BACKGROUND: The group designs, develops, manages and operates wind farms, and sells the electricity generated by its own wind farms to local power grid companies. EARNINGS DATA Analyst: Becky Liu Important: please refer to our disclosures and disclaimers at the end of this report Year to 31 Dec 2011A 2012E 2013E 2014E Net profit* RMBm 2,638 3,120 3,589 4,380 Change % EPS* RMB Change % DPS* HK$ PER X Yield % Source: *Bloomberg consensus forecast, South China Research All prices in this report are based on the 8 May 2012 close -3-

4 BUY Date: 9 May 2012 HSI: 20, Share Price: HK$ Mth Target Price: HK$13.30 Upside Potential: 31.7% Construction machinery SHARE INFORMATION Ticker: 1157 HK Market cap A+H HK$92.25bn Issued shares H 1430m Ent value HK$77.87bn Net debt to equity 5.91% 3-yr core EPS CAGR 0.16% BVPS HK$4.59 Price/BVPS 2.20 Avg daily T/O HK$216m ROE 21.48% ROA 10.91% 12-mth high/low HK$11.62/7.21 Major shareholder Hunan SASAC 16.19% J.P. Morgan % Exchange rate Source: Company, South China Research SHARE PRICE CHART HK$ m shares ZOOMLION HEAVY INDUSTRY - H HSI (rebased) RMB1 = HK$1.20 US$1 = HK$ May Jul Sep Nov Jan Mar May Source: Bloomberg, South China Research 1mth 3mths 6mths 12mths Share price chg +2.7% -4.0% -10.6% +9.0% Relative to HSI -8.4% -8.3% -3.0% +26.1% Analyst: Becky Liu Important: please refer to our disclosures and disclaimers at the end of this report ZOOMLION Improving domestic construction machinery sector environment with overseas market breakthrough Domestic industry demand keeps improving Domestic investment growth in rail transport during 1Q12 indicated a significant rebound. The State Council pointed out that large-scale railway projects would continue, emphasising that RMB500m would be invested in railway construction (same below) this year. Infrastructure construction, including railway and road construction, will remain an important part of stable economic growth. Successfully entered overseas markets The group s overseas sales income increased 46.3% YoY to RMB2.23bn in Currently, its overseas business covers over 40 countries. During September last year, the group signed up bulk export contracts of 30 pump machines with Japan and became the first Chinese construction machinery manufacturer exporting to Japan. In addition, the group has invested substantially in technology in recent years. Last year, the group developed the largest truck-mounted crane in the world and successfully broke the monopoly position held by foreign companies with better brand reputation in the large crane market. Leading position in the 2 nd and 3 rd tier cities drives profits and continuing growth - The group recorded a 72.9% increase in net profit to RMB8.07bn last year despite the domestic economic slowdown. This was partially due to the fact that demand for infrastructure development in 2 nd and 3 rd tier cities remained strong. In addition, the group ranks 1 st and 2 nd in the concrete and crane machinery sectors, respectively, and is expected to maintain its leading position in the industry with new products launching constantly. Inexpensive valuation Zoomlion is currently trading at 7.3x of Bloomberg s consensus FY12 EPS of RMB1.15. At Bloomberg s consensus target price of HK$13.30, the company is valued at 9.6x FY12 earnings. We believe this stock is inexpensive given its industry fundamentals and potential growth. COMPANY BACKGROUND: The group is mainly engaged in the development, manufacture, sales and leasing of concrete machinery, crane machinery, road construction machinery, and environmental and sanitation machinery and accessories. EARNINGS DATA Year to 31 Dec 2011A 2012E 2013E 2014E Net profit* RMBm 8,066 8,843 10,348 12,878 Change % EPS* RMB Change % DPS* HK$ PER X Yield % Source: *Bloomberg consensus forecast, South China Research All prices in this report are based on the 8 May 2012 close -4-

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