中信建投:短期涨幅过大,下调评级至“卖出”公司快报

投资要点
    发布2018年年报,与业绩预告一致。公司2018年营业收入109.1亿元、同比-3.5%;扣非归母净利润30.6亿元、同比-23.3%(vs行业-41%),加权平均ROE 6.79%。其中投行收入31.3亿元,同比-6.4%(vs行业-27%)。
    大幅上调2019-21年盈利预测。A股景气程度好于我们预期、科创板进度也超出我们预期。基于最新市场环境,我们假设1)2019年日均成交7000亿(vs原假设4000亿,年初至今5444亿);2)行业两融余额全年平均1.2万亿(vs原假设9000亿,目前余额8883亿);3)2019年科创板实现IPO 100家、平均每家募资10亿元,承销费率平均4.5%,公司市占10%(我们认为这些假设已非常乐观)。受假设上调影响,我们将公司2019-21年净利润分别上调71%/64%/64%,2019E BVPS上调4.02%。上调后公司净利润2019、20年同比+104%、+21%。我们已充分考虑了A股市场景气和公司较强的投行能力,但即便大幅上调盈利预测,公司2019-20E ROE 10.9%和10.8%,长期可持续ROE预计10%左右。
    投资建议:我们维持公司核心竞争力尤其投行实力较强、成长性较好的判断,但基于以下几点将评级由“买入”下调至“卖出”:
    1)2月中旬以来,公司股价快速上涨超110%,涨幅大幅超越其他上市券商。此外,互联互通、同股同权情况下公司A股价格已是H股的425%。
    2)公司ROE并不突出,尤其130亿元增发完成后。我们认为10%左右的长期可持续ROE支撑2.0-2.5xP/B是合理的。公司目前2018A、19E P/B达4.26x和3.49x,大幅高于可比公司。我们认为公司盈利能力难长期支撑目前估值。
    3)33.0亿股限售股(是目前流通盘8.25倍)将于6月20日解禁,届时自由流通市值较小而产生的流动性溢价将不复存在。
    风险提示:市场景气超预期;政策力度超预期;公司科创板业务表现超预期。

中信建投:估值显著高估,下调至卖出评级

估值远高于同梯队券商和国际投行,有下行风险,下调至“卖出”评级
    公司A股2019年PB估值4.5倍(乐观假设下业绩预测),显著高于同梯队券商当前1.4-2倍PB和国际投行1-2倍PB估值水平。对海外投行PB-ROE回归分析,15%-20%的ROE对应1-2倍PB。我国证券行业处于资本型业务发展期,ROE有较大提升空间,但需要业务持续积累和深化。乐观估计公司2019-2020年ROE水平约10%、10.5%,公司2019年EPS0.67元,BPS6.93元,预计合理股价在13.86-17.33元/股。PB估值存在较大下行风险,下调至“卖出”评级。
    市值体量超越基本面地位,透支成长预期
    当前PB估值已严重透支成长性预期。2018三季度公司净资产居上市券商第10, 营业收入第7, 净利润第8,当前总市值已超过2000亿元,处于A股上市券商中第2位,显著高于其净资产、营收和净利润绝对指标和相对指标排名位置。和高盛对比,净利润占高盛5%,但总市值约为高盛45%。市值体量远超其与国内外可比公司水平,同时,A/ H溢价372%,远超同梯队可比券商,估值严重高估。
    投行业务优势显著,业务结构偏集中
    公司特色优势显著,投行竞争力领跑,自营业务偏稳健。业务结构集中,经纪、投行、投资三大业务合计占比70%-80%,盈利能力波动性大,2018年ROE为6.5%,核心业务实力较强。在行业商业模式升级变化下对券商的综合竞争力、定价能力、风险控制能力要求都很高,对战略布局、业务整合能力和产品创设能力都提出更多挑战,未来综合竞争力待观察。
    看好制度市场化改革红利下的行业前景
    当前市场化改革加速,促使资本市场业态模式变革。证券公司的竞争模式从通道业务向现代化投行转变。我们坚定看好证券行业前景,但并不盲目乐观。行业成长向上方向是确定的,但发展之路并非一蹴而就。龙头证券公司的崛起也非短期实现,而应回归基本面视角从多维度跟踪考察。治理机制是根,决定发展基因;业务模式是果,带来发展动能;资本、资质和改革将成为券商发展的核心竞争要素。在市场化机制、优秀管理层、创新意识强、改革力坚定、业务前瞻性强等多维度都持续突破的券商才有望崛起为最优秀的投资银行。
    估值显著高估,下调至“卖出”评级
    乐观情况估计公司2019-2020的ROE分别为10%、10.5%,对应BPS为6.93元、7.4元,对应PB为4.5倍、4.2倍,估值严重高估。考虑公司是次新股上市券商,可适当给予一定估值溢价,预计合理PB估值2-2.5倍,对应目标价13.86-17.33元/股,存在较大估值下行风险,下调至“卖出”评级。
    风险提示:市场波动风险、股票质押风险、政策调整等。

獐子岛:再遭“黑天鹅”,扇贝存货异常或致全年亏损

事件:1)近日,公司发布2017年度业绩预告修正公告,公司预计2017年归母净利润亏损5.3亿元-7.2亿元,上年同期盈利0.80亿元。公司于2017年10月27日披露的《2017年第三季度报告》中预计2017年度归属于上市公司股东的净利润比上年同期增减变动幅度为13.07%-38.20%,2017年度归属于上市公司股东的净利润变动区间为0.9亿元-1.1亿元。2)公司发布年终盘点结果,拟对107.16万亩海域成本为57758.13万元的底播虾夷扇贝存货进行核销处理,对24.3万亩海域成本为12591.35万元的底播虾夷扇贝存货计提跌价准备5110.04万元,上述两项合计影响净利润62868.17万元,全部计入2017年度损益。
    部分海域扇贝存货异常,原因或系环境恶化所致。公司在年末盘点中发现部分海域的底播虾夷扇贝存货出现异常,拟对部分海域的底播虾夷扇贝存货计提跌价准备及核销处理,或致公司全年亏损。根据公司年终盘点结果显示,扇贝存货出现异常的原因主要包括,降水减少导致扇贝的饵料生物数量下降,养殖规模的大幅扩张更加剧了饵料短缺,再加上海水温度的异常,造成高温期后的扇贝越来越瘦,品质越来越差,长时间处于饥饿状态的扇贝没有得到恢复,最后诱发死亡。
    参考近期召开的2017年度国家贝类产业技术体系年终总结和考评,会议对我国黄海及渤海贝类养殖产业发生的局部规模死亡、贝体消瘦和产量下降等产业问题展开研讨,其中指出辽宁长海县(公司海域所在区域)、庄河市等产业问题较严峻,会议认为原因主要有四点:一是局部环境异常,高温期提前且持续时间长、降水和径流骤减导致海区饵料生物数量显著下降;二是竞争性品种盲目扩张,养殖规模过大;三是贝类养殖苗种高度依赖异地输入,易形成环境应激;四是养殖模式粗放单一,缺乏应对环境突变等问题的预警机制。
    再遭“黑天鹅”,恍如昨日。此次扇贝存货异常事件与2014年“冷水团事件”有相似之处,2014年公司北黄海遭遇异常冷水团,105.64万亩海洋牧场绝收,7.34亿元底播虾夷扇贝存货进行核销处理,影响全年巨亏。“冷水团事件”之后公司加强环境监测及预警控制,并放弃一部分风险海域且积极调整海洋牧场的耕种模式,实施“3+1”轮播的耕种方式以保证牧场资源的可持续性,公司公告显示近两年海洋牧场资源环境逐渐恢复,下游渠道布局不断完善,经营本应呈现向好之势,不料再次遭遇“黑天鹅”。尽管此次风险事件或由不可控的外部因素引起,但由于两次风险事件的发生间隔短、影响大,或对公司信誉度和影响力造成一定负面影响。
    关于虾夷扇贝亩产假设的几点说明。我们在前次报告中对公司主要产品虾夷扇贝进行经营假设,预计2017年虾夷扇贝亩产37公斤,且对预测年度的亩产给予每年0.5公斤的增长假设,这主要是基于对公司公告信息及调研情况的综合判断。
    据公司2017半年报显示,一龄贝生产及收获达到预期且扇贝活品供应增长稳定,2017上半年公司虾夷扇贝收入较上年同期增长20.81%,毛利率同比提升2.58个百分点。据公司2017年秋季底播虾夷扇贝抽测显示,公司通过对涉及2014-2016年底播预估到2017年10月末未收获的海域面积135万亩包括调查点位共120个进行抽查显示,公司底播虾夷扇贝不存在减值风险。2017年12月公司“大雪采捕节”如期举办,我们现场调研捕捞和播苗情况,从现场捕捞的部分海货(包括虾夷扇贝、海胆、海星等)来看,产品完好无损、品质优良,没有“存货异常”的任何迹象,播苗方面管理规范、分拣认真。近期发生的事件远出我们所料,预期与实际情况出现极大反差,我们也对公司再次遭受风险事件深感遗憾。值得一提的是,由于公司虾夷扇贝业务占比较大存在品种单一风险,为提示扇贝亩产恢复不及预期的风险,我们在前次报告中做了虾夷扇贝亩产和吨值变动对营收增速和每股收益的敏感性分析,分析显示虾夷扇贝亩产和吨值的变动对公司业绩有较大影响,虾夷扇贝亩产或吨值每分别变动3公斤/亩或0.3万元/吨,影响公司2017年营收增长率变动约2个百分点,影响每股收益变动0.01元。
    盈利预测及评级:基于以上分析,我们下调公司盈利预测,预计公司17-19年摊薄每股收益分别为-0.77元、0.00元、0.08元。一方面,公司发生风险事件导致2017年业绩不达预期,且当前公司虾夷扇贝存量锐减,同时为加强海洋牧场的风险管控,公司计划将虾夷扇贝底播区域由234万亩压缩至60万亩,实施3年轮收轮播的耕种方式,公司虾夷扇贝产能或需要一段时间的恢复期,公司业绩向下承压,另一方面,三年内突发两次对公司业绩造成重大影响的风险事件,对仍处在信心重筑阶段的投资者造成再次重创,无异于“伤口上撒盐”。我们下调公司评级至“卖出”评级。
    风险因素:突发灾害性天气、经营管理不善、扇贝亩产恢复不达预期等。

Wangsu Technology Alert:False alarm

No white knight, expect speculators to retreat
    In response to recent news articles suggesting Tencent taking a 10% stake inWangsu (Sina 26th Jan), Wangsu announced on 28 January that the companyhas not had any discussions with Tencent around this topic nor has thecompany received any such offers from Tencent. While we see some rationalethat Tencent may be interested in a strategic stake in Wangsu, given thestrong wording from Wangsu, such possibilities may be slimmer than what themarket may be hoping for (as reflected by the recent rally in its share price).
    Without a white knight and with competition in the CDN market continuing tobe intense and the stock trading on FY17 PE of 40x, we retain our SELL.
    Tencent would be a useful ally
    Notwithstanding the news, we think Tencent would be a useful ally to Wangsudue the following: 1) the two can cross-sell into each other’s client base andimprove their product offerings, 2) the two combined would have strongerpurchasing power when negotiating bandwidth pricing with the telecomoperators, 3) industry competitive dynamics may be improved if the twoindustry heavyweights were to join forces, and 4) the ability to leverage offeach other’s resources, particularly in security software and the overseasnetwork PoPs.
    What could deter the deal from happening?
    We also see a few deterrents for such deal from happening which make usshunning away from the stock despite the appeal of potential M&A: 1) Wangsudoes not yet have a strong cloud offering and hence would not directly bolsterTencent’s cloud capabilities, 2) earnings visibility in the CDN market remainslow and current valuation of Wangus is not cheap, 3) Wangsu may want toremain independent given a significant portion of their customers are internetcompanies and siding with one internet giant could result in customer attritionof those from the other camps, 4) potential difference in personalities andstrategic directions between founders of the two businesses.

Wangsu Technology Alert:FY17profit guidance inline but some positives emerging

Profit guidance inline with DB forecast
    Wangsu’s profit guidance of a 32-40% decline in FY17net profit (midpoint -36%) was broadly inline with our forecast of a 35% reduction. Both revenueand net profit saw improvement QoQ. While seasonally 4Q is a strongerquarter due to timing of iPhone upgrades etc, company also indicated thatgross margin has improved QoQ due to improving product mix (from growth inhigher value security and web acceleration services).
    Some easing in industry competition
    Our recent channel checks suggest that most CDN providers are barelybreaking even and have limited room for further price declines. As a resultcompetitive intensity has eased somewhat in 2H17with the rate of pricereduction not as severe as the first half. Wangsu continues to charge premiumpricing vs peers however given their better service quality and more stablenetwork. It is uncertain what premium customers would be willing to place onservice quality and hence there is still risk that Wangsu’s pricing will convergecloser to that of its peers. As such despite these positive signs, given the stockis still trading on 33x FY17PE and still limited earnings visibility, we retain theSELL.

ZTE-A and -H:Caution,speed bump ahead;initiating ZTE-H with Hold,ZTE-A with Sell

Leverage to 5G and market share gains mostly priced in.
    ZTE is well leveraged to grow in telco capex from 5G build-out starting in 2020.
    That said, current global appetite for large 5G capex is limited; while there isstronger political support for 5G tech in China, with limited applicationopportunities, we expect Chinese telcos to tread a middle path in the 5G buildout.
    Short term, global telco capex is set to fall 5-7% p.a., although ZTE'scompetitors struggle with profitability, providing some room for share gains.
    With ZTE's share price doubling YTD against a tough market backdrop, upsidepotential appears mostly priced in; Hold ZTE-H and Sell ZTE-A.
    Limited applications to support a widespread 5G rollout.
    Global telcos have expressed reservations about 5G, which likely reflect acombination of: 1) failure to monetize 4G, 2) reduced profitability and 3) limitedviable applications requiring nationwide 5G. For many applications, e.g., videostreaming and IoT, existing technology suffices; for others, e.g., robotics, needscan mostly be met by regional 5G rollout. For most global telcos around theworld, we expect 5G networks to be deployed like islands in a sea of 4G.
    Stronger political support in China should see ZTE better placed.
    There is stronger political support for a 5G build-out in China, with thegovernment aiming to make the nation a networking powerhouse. Hence,Chinese telcos spend on 5G capex will likely be more than their internationalpeers. Our bottom-up build suggests a total 5G capex in China of ~RMB1.5trnto be spent from 2020 (twice the estimated 4G spend), which would lead toc.RMB1.9trn in total capex spending between 2020 and 2024. This would drivea 30% lift in ZTE’s China carrier revenue in 2020 and a further 15% in 2021.
    Opportunities in the near term, but it is a tough environment.
    In the near term, operating conditions for equipment vendors remain tough,with our global team expecting a 6-7% p.a. decline in telco capex (ex US) overthe next two years. Issues at its major competitors present some opportunitiesfor share gains for ZTE, i.e. teething integration issues and potentiallyexcessive pricing discipline at Nokia and poor profitability at Ericsson. We haveassumed a 2-3ppt p.a. market share increase for ZTE in the Asia Pacific andEMEA regions over the next three years to reflect these. In China, we seelimited opportunities for ZTE to gain further material share prior to 5G, given itsalready dominant position with a 30-35% market share in wireless equipment.
    Many of these factors are priced in, with close to no upside potential for ZTE-A.
    While ZTE has put the litigation issues in the US behind it, significant executionrisks remain, given the competitive threat posed by Huawei. With ZTE-Htrading in line with its peers (albeit expensive vs. its own long-run average12mth PE), and with ZTE-A valuation already implying a bullish scenario ofshare gain, margin lift and significant capex blowout in China (leaving little freecash flow for the telcos), we rate ZTE-H a Hold and ZTE-A a Sell.
    Valuation and risks.
    PT based on mid-point of SoTP and DCF valuations (WACC 8.7%, TGR 1%).
    Upside risks: 1) keen 5G applications and 2) govet push to drive 5G spending.
    Downside: 1) share loss and 2) delays in formalizing 5G. See pp. 36–7.

中国中车业绩符合预期:营业外收入上升和税率走低推动盈利增长

与预测不一致的方面中国中车公布2017年三季度收入/净利润为人民币520亿/31亿元,相当于高华预测的57%/66%。分业务来看,铁路装备/城轨与城市基础设施/现代服务/新产业业务的同比增速为13%/42%/-83%/10%,其中机车/客车及货车/动车组同比增速为34%/48%/-6%。要点:1)三季度综合毛利率同比/环比上升2个/1个百分点,主要归因于地铁业务(对总收入的贡献为15%)毛利率上升2个百分点。2)三季度净利润率达到6%的历史高点,受益于营业外收入带来人民币8.31亿元贡献(同比增长33%)和有效税率降至16%(同比下降3个百分点),这两项因素对净利润增长15%的贡献总计为11%。3)公司预计2017年和2018年动车组交付量分别为300-350标准列和350-400标准列(三年历史均值为450标准列),符合我们2017/2018年预测的322/350标准列。我们预计2018年收入走势不会大幅逆转,但我们认为增速将有适度增长。4)我们看到公司正在开拓新产品,例如时速160公里的“复兴号”城际高铁。但考虑到产品开发和测试阶段通常需要1-2年,我们认为招标不太可能在2018年进行。
    投资影响我们将2017-19每股盈利预测小幅上调了1-3%以计入营业外收入,并维持基于2018年预期EV/GCIvs.CROCI/WACC的中国中车A/H股12个月目标价格人民币7.1元/5.7港元(现金回报倍数仍为1.19倍/0.9倍)。维持卖出评级。主要上行风险:1)铁路密度提高和线路竞争加剧将带来更多动车组需求;2)货运量增长将令2018-19年机车招标量增加。

Dr.Peng Group Alert:Dr.Peng to acquire 49%of Citic Network

A positive step in the long run but negative in the short term
    Dr. Peng announced today that it would look to acquire 49% of Citic Networks’ shares for RMB1.34bn. It came through after a failed attempt by Citic Telecom to acquire the asset due to concerns around foreign ownership. While the deal brings Dr. Peng closer to an integrated fixed broadband provider, restrictions remain around full private ownership of backhaul assets in China with no clear sight of when such rules could be relaxed. Without full operational control, the deal is likely to result in a near-term earnings drag for Dr. Peng and with its top-line growth remaining sluggish, we retain our SELL rating.
    Limited impact on the major operators
    Given Dr. Peng only has 14m fixed broadband subs, representing only 4% of the market, we see a limited competitive threat to the major operators even if Dr. Peng is able to improve its backhaul capabilities via the deal.
    Citic Networks’ losses continue
    Citic Networks is the only backbone operator in China outside of the major telcos with 32,000km of fiber backhaul connecting the capital cities of almost all provinces in China. It reported a RMB104m loss after tax in FY16 with the trend continuing in 1H17. It was also loss making in FY14 and FY15.

Gemdale Corp:Low visibility for sustainable growth,Sell

Growth in sales not translating to bottom-line growth; maintaining Sell
    We maintain Sell, raise FY17-19E earnings by 30-50%, and increase TP by 8%to RMB10.06after factoring faster sales (lifting FY17/18E sales by 24%/75%),better margins (28-30%), new land acquisitions, and 1H results. We believe itscurrent landbank (33msqm) is not enough to sustain sales growth and expectsales to start dropping from FY18E. In addition, we expect more JV projects(only 57% attributable saleable resources), leading to only 9% earnings CAGRin FY17-19E despite gross sales growth. Its slow growth does not justify thevaluation. Gemdale trades at a 19% NAV discount and 8.3x FY18E PE (higherthan Vanke-A with 7.1x PE and 19% NAV discount, but 30% earnings CAGR).
    Unsustainable sales growth and more land acquisitions needed
    In 1H17, Gemdale turned more aggressive in the land market, acquiring GFA of4.45msqm of land, equivalent to 68% of its FY16GFA sold. We estimate thatits current gross landbank of 33mqm can support RMB141bn sales in FY17E(+36% yoy) but more land acquisition is required to sustain its sales in 2018E(estimated RMB135bn sales based on current landbank, -4% yoy).
    Single-digit earnings growth due to increasing JV projects
    Although we expect Gemdale to have 63%/36% sales growth in 2016/2017E,only 55%/42% is attributable. Hence, we expect earnings CAGR of only 9% inFY17-19E, despite gross margin expansion to 28-30% (vs. 25% in 2016).
    High valuation vs. A-share peer
    Gemdale is trading at a 19% NAV discount and 8.3x 2018E PE, which is higherthan the peer average of a 40% NAV discount and 7.1x FY18E PE. Gemdale isdelivering 9% earnings CAGR and 7-8% dividend yield for FY17-19E, while itsA-share peer, Vanke-A, is trading at 7.1x 2018E PE, but delivering 30%earnings CAGR and 4-7% dividend yield.
    Good results, margin improvement to be sustained
    Gemdale reported stronger-than-expected 1H17results: 1) revenue decreasedby 1% yoy to RMB12.7bn; 2) gross margin improved by 8.7ppt to 28.7%; 3)together with the increased contribution from associates and JV, attributableprofit was up 48% yoy and core net profit was up 51% yoy to RMB1.07bn; 4)gearing increased to 41% (28% at end-2016); and 5) no interim dividend wasdeclared. Management guided that the improved margin (~30%) could bemaintained for FY17/18E.
    Valuation and risk (see p.3for details)
    Our revised target price of RMB10.06is based on a 30% discount to revisedNAV of RMB15.3/share. Currently, the ticker is trading at a 19% NAV discount,8.3x FY18E P/E and 1.3x FY17E P/B. Upside risks: 1) better-than-expected salesand margin expansion; and 2) fast and good-quality land acquisitions.

NavInfo Co.,Ltd.:1H17missed on lower revenue contribution from IoVs and Jiefa

1H17missed on slower revenue; margin expansion at navigation offset by Jiefa
    1H17revenue expanded 16.8% YoY to RMB833.8m, driven by the consolidationof revenue from Jiefa Technology (AutoChips). Gross profit grew 16.9% YoYto RMB625.1m in 1H17with a stable 75.0% gross margin. The 4.3% marginexpansion in navigation segment and 5.6% margin expansion in Internet ofVehicles (IoVs) were offset by the inclusion of lower margin Jiefa business (60.4%in 1H17). Together with 3.8ppt drop in SG&A expenses ratio, but partially offsetby a 1.3x jump in finance costs, 1H17net profit increased by 54.9% YoY toRMB121.3m (38% of FY17DBe and 32% of consensus). Excluding non-recurringitems (mainly RMB5.7m government subsidy and RMB3.8m investment gains),1H17core net profit grew 61.6% YoY to RMB114.2m, with 3.8ppt improvementin core net margin.On a quarterly basis, 2Q17revenue grew 27.1% QoQ and 19.7% YoY. Grossmargin deteriorated 7.1ppt QoQ (0.9ppt YoY) to 71.8%. 2Q17net profit increasedby 42.1% QoQ (57.4% YoY) to RMB71.2m.
    Deutsche Bank view - slower ramp-up of auto chips business; maintaining Sell
    We consider 1H17net profit a miss due to lower revenue contribution fromInternet of Vehicles and Jiefa Technology. Gross profit margin was better thanexpected while net profit margin was in-line. Maintain Sell on worse-thanexpectedrevenue and net profit contribution from Jiefa Technology/IoVs andexcessive valuation.
    We cut our FY17-19E revenue by 13.7-14.7% to reflect weaker revenue growthof Jiefa and FY17-19E net profit by 11.1-12.6% to factor in Jiefa's weaker-thanexpectedgross margin, partly offset by further margin expansion at navigationand IoVs segments. We expect NavInfo to deliver 15.9% FY16-19revenue CAGR,driven mainly by acquisition of Jiefa. Our TP is set at 45x FY18E P/E (unchanged),c.60% below its mid-cycle P/E of 108x. This is justified, in our view, since weexpect the company to deliver a 43.1% net profit CAGR in FY16-19. Key upsiderisks: 1) less-than-expected competition in in-dash navigation market; 2) strongerthan-expected auto sales volume; 3) faster-than-expected development in theIoVs and ADAS businesses; and 4) a more efficient consolidation of Jiefa Tech.

Tianqi Lithium Alert:Mismatch of D/S balance vs demanding valuation;Sell maintained

1H17results beat DBe but in-line with Bloomberg consensus
    Tianqi Lithium announced its 1H17result after market close on 17August2017. The company delivered revenue of RMB2.4bn in 1H17, accounting for57% FY17DBe and 50% Bloomberg 2017full year estimates. NPAT for 1H17amounted to RMB924m, achieving 65% FY17DBe and 48% Bloomberg 2017full year consensus. 1H17results beat DBe due to slower-than-expectedlithium carbonate ASP drop, while in line with Bloomberg consensus.
    Strong supply response let risk of price correction high in coming weeks
    YTD Australian lithium import into China has gone up strongly 26% YoY, whileYTD China EV production also enjoyed 30% YoY uplift (but EV batteries onlyaccount for c.20-30% of total lithium demand). As per our Australian researchteam (report: “Mt. Marion site visit - Proving the point” dated 8August 2017),spodumene concentrates from Wodgina (Mineral Resources) could have soldinto China, equivalent to c.80ktpa LCE, which will likely impact the lithiumcarbonate price some time in 2H17. With big supply responses to high lithiumcarbonate prices, we expect D/S of lithium carbonate will likely be loosenedand correct lithium carbonate prices over coming quarters.
    Mismatch of D/S balance vs. demanding valuation; Sell maintained
    The company is currently trading at c. 34x 2017E consensus PE. With a highrisk of lithium carbonate price correction in coming quarters due to strongsupply responses, we believe this high valuation is not justifiable, especiallywhen Tianqi might not be able to have volume growth in 2018E. We re-iterateour Sell rating.

Wangsu Technology:Not easy fighting off giants...Downgrade to Sell

Near-term bleak while the long-term outlook is more uncertain than ever.
    While Wangsu’s -31% year-to-date performance (vs. ChiNext’s -6%) hassomewhat reflected the competitive intensity that the company is facing, ourchannel checks suggest that such pressures have worsened into the year, withunit pricing on new deals down ~50% vs. FY16(vs. cost declines of 10-20%).With the cloud players using low CDN pricing as a lead-in to sign up enterprisecustomers, we find it difficult to see such cut-throat competition easing in thenext 1-2years and fear that the current environment may result in long-termdamage to Wangsu’s franchise. With the stock trading on 30x FY17NPAT, wesee further downside potential to the current share price. Downgrading to Sell.FY17likely to be a forgettable year.
    We forecast Wangsu’s gross margin will deteriorate 9ppts this year withcustomers increasing the frequency at which they request a review of theirCDN pricing terms, and unit pricing declining 50% year to date on newcontracts. Meanwhile, the recently-acquired CDNetworks and other businessessuch as cloud and security are unlikely to make material contributions nearterm, with Wangsu still bedding down the acquisition and our channel checkssuggesting limited presence of Wangsu’s cloud business. Our forecasts are 20-40% below Bloomberg consensus over the next three years.Tempering our long-term favorable view of Wangsu.
    We are toning down our long-term favorable view of Wangsu, as margin onCDN products may be permanently lower with the large cloud providers usinglow CDN pricing as a lead-in to sign up cloud customers. Furthermore, withthe product cycle shortening, the company’s return profile could bepermanently lower than in the past and we fear that talent retention maybecome increasingly difficult, given the challenging environment and weakshare price.Valuation and risks.
    We value Wangsu based on the mid-point of our peer-based P/E valuation andDCF. Risks relate to market share, tax rate, regulation, and margins, see pages9-10.

Gemdale Corp:Unsustainable growth in land bank expense

Maintaining Sell as growth unlikely to sustain given diminishing land bank
    We maintain our Sell rating on Gemdale with the target price trimmed 5.9% toRMB9.32 after factoring in the FY16 results and the latest land acquisitions.We think the current valuation (among the highest in our coverage universe,with a 17% NAV discount and 11.2x FY17E P/E) is not justified given its weakgrowth outlook. Due to the change to the asset-light model, its diminishingland bank is unlikely to deliver sustainable growth, despite the low base in2015 resulting in a profit jump in 2016.
    Over 20% decline in attributable land bank from 2013 to 2016
    Since 2013, Gemdale has adopted an asset-light model. Its attributable landbank has dropped since then. In FY15 and FY16, the company acquired a totalof c.9.8msqm of land with attributable of only c.4.2msqm. As a result, itsattributable land bank at end-16 was 15msqm, about 21% less than 19msqmat end-13. Given the intense competition in the land market, it would bechallenging to replenish its land bank rapidly at reasonable prices.
    Sales and profit to drop, but valuations were above peers
    We are expecting revenue to drop by 22%/12%/7% from FY17E to 19E andflattish gross margin going forward. Our forecasts on its core profit inFY17E/18E/19E are -14%/+4%/-3% respectively. However, the ticker is tradingat a 17% discount to NAV, more expensive than 19% for Vanke-A and 31% forCOLI; its 11.2x FY17E P/E is also higher than 9.2x/6.7x for Vanke-A/COLI. Suchvaluation is not justified, in our view.
    2016 core profit up 210% due to low base effect
    Due to the low base of RMB1.67bn core net profit in 2015 (down 52% y-y), itscore net profit jumped 210% to RMB5.2bn. Revenue increased by 69% y-y,with gross margin improving by 2.4ppt to 25.4%. Gemdale proposed a finaldividend of RMB0.7/share, up 67% y-y, representing a 61% payout. Netgearing improved and decline 22ppt to 28%.
    Unjustified valuation at 11.2x FY17E P/E and 1.3x FY17E P/B
    Our lowered target price of RMB9.32 is based on a 30% discount to revisedNAV of RMB13.32/share (down from RMB14.15). Currently the ticker is tradingat a 17% NAV discount, 11.2x FY17E P/E and 1.3x FY17E P/B, which we thinkare not justified vs. peers’ valuations. Upside risks: 1) better-than-expectedsales and margin expansion; and 2) fast and good-quality land acquisitions.

Dongfang Electric:Caught in the thermal power downcycle –downgrading to Sell

The recent H-share rally lacks fundamental support.
    We expect the southbound appetite for Dongfang Electric H-shares to fade andwe downgrade the stock to Sell. We believe that not only is the valuationunjustifiable with a recovered ROE of under 2%, but long-term fundamentalsare deteriorating - thermal equipment will likely remain an earnings drag in theforeseeable future while nuclear is unlikely to become a meaningful driver until2018/19. In our view, the valuation of 0.75x PBV is not justified, nor is itsupported by the proposed asset injection. We note that the H/A discount hasnarrowed to its historical average level.
    Over half of the business exposed to thermal downcycle.
    Coal-fired equipment (60% of 2016 GP): Dongfang is highly vulnerable to theongoing thermal equipment downcycle, which we believe is structural innature. The current thermal backlog covers <2 years of the segment’s 2016sales while new orders look set to drop significantly. Falling sales, along withmargin contraction could lead to a c.15% CAGR decline in GP over 2017-19. By2019, when new thermal capacity starts to drop significantly, thermalequipment should still make up c.1/3 of its GP, which means the businesscould remain a drag even beyond 2020.
    Wind equipment (11% of 2016 GP): The 2020 capacity target for wind powerdisappointed the market and the annual capacity addition looks set to fallstarting 2018. Dongfang has been struggling in terms of market position (onlyc.5% share) and profitability (single-digit GPM).
    Nuclear power the only bright spot, but more likely a 2018/19 story.
    Market expectations for the resumption of nuclear project approvals is high.
    Given most of the projects in the approval pipeline have already been reflectedin high order backlog (covering 13.4x 2016 sales), we believe incrementalpositives to new orders may prove to be limited. Under the percentage-ofcompletionaccounting method, revenue recognition for the segment will notsee meaningful acceleration until 2018/19.
    Asset injections offer only one-time boost.
    The assets to be injected generated a total NP of Rmb443mn in 2016 but c.2/3was derived from the finance company. The asset injection may turn Dongfangprofitable in 2017 (DBe: net loss of Rmb91mn) once the deal finalizes, but theboost is one-time in nature as the finance company is not a growth driver.
    Automation assets to be injected are small in size and the focus is on processautomation, the demand outlook for which appears gloomy given itsdownstream verticals are mainly traditional heavy industries. High marketconcentration leaves limited room for new entrants like Dongfang to grow.
    Revising earnings forecasts and TPs; downgrading H-share to Sell; risks.
    We cut our earnings forecasts for 2017/18 and introduce 2019 estimates. Weslightly raise our target P/B to 0.60x (vs. 0.55x previously) to reflect thepotential for ROE accretion from the announced asset injections. The H-sharerallied >20% over the past six months (HSCEI: +8%), largely driven bysouthbound flow (its holding now accounts for >20% of Dongfang-H’s marketcap). H-share looks expensive at 0.8x 2017E P/B against negative ROE. Wetherefore downgrade the H-shares to Sell with 20% downside potential. Wereiterate Sell on A-shares. Key risks: better-than-expected delays/cancellationsin thermal power projects and lower-than-expected provisions.

Shanghai Shimao Co Ltd:Maintaining Sell for expensive valuation and weak earnings outlook

Maintaining Sell with 14% potential downside
    We maintain our Sell rating, but raise the TP by 5.4% to RMB6.33, afterfactoring in the FY16 results and latest land acquisitions. We think the currentvaluation of the stock is still expensive at 12.5x FY17F P/E (vs. Vanke A’s 9.6xand Gemdale’s 10.9x), despite its improving sales visibility. Our TP implies 14%potential downside from the current price.
    More expensive valuation than large-caps
    SH Shimao is now trading at 12.5x FY17F P/E and only offers 1-2% dividendyield in the next three years, which is much more expensive than large-caps(Vanke A’s 9.6x P/E and 4-5% yield; Gemdale’s 10.9x P/E and 2-3% yield),based on our estimates. Also, the company’s ROE is low at ~8% (vs. Vanke A’s19% and Gemdale’s 11%). We think the weaker fundamentals of the companydo not justify its current high valuation.
    Earnings are still lagging behind
    Due to its weak sales and the RMB1.1bn disposal gain last year, we expect SHShimao’s core earnings to decline 6% yoy to RMB1.6bn in FY17F, despite thegross margin possibly expanding further to 32.9% (vs. 31.9% in FY16).
    Improving sales visibilityGiven the low base in 2016 (-16% yoy), we expect the company to grow itscontracted sales by 27% to RMB19.0bn in 2017F (which is only 7% higher thanits 2015 sales), and grow another 27% to RMB24.1bn in 2018F.
    Core earnings up 9% to RMB1.7bn including asset disposal
    SH Shimao reported decent FY16 results: 1) revenue was down 12.2% yoy toRMB13.7bn; 2) gross margin recovered to 31.9% (vs. 29.8% in FY15); 3) coreprofits increased 8.6% yoy to RMB1.7bn (including RMB1.1bn asset disposalgain to Leshi); and 4) net gearing remained stable at 23%. The companyproposed a final dividend of RMB0.08/share, implying a 1.1% dividend yield,based on the current price.
    Valuation and risk
    Our TP is based on a 35% discount to end-2017F NAV of RMB9.74. The stocknow trades at 12.5x FY17F P/E and a 27% discount to NAV. Key risks include:1) stronger-than-expected contracted sales, 2) better-than-expected rentalgrowth; and 3) faster-than-expected gross margin expansion. See p. 3.

Dr.Peng Group Alert:Less money to be raised

Equity raising reduced from RMB6bn to RMB4.8bn
    Dr. Peng announced that its proposed equity raising (first announced on 22January) will be reduced from RMB6bn to RMB4.8bn. See our report on theprior announcement here. The impetus for the change seemed to be the resultof a recent regulatory announcement by the China Securities RegulatoryCommission (“CSRC”) which revised rules surrounding private placementswith related parties. The lower amount raised means the company also neededto revise down its capex plans accordingly from RMB8.4bn to RMB6.5bn,which hopefully would result in a more disciplined approach to its future capexplans but may also slow down its network expansion.
    Less participation from the major shareholders
    The two controlling shareholders, who were looking to take up the entireRMB6bn stake to be raised previously, will now be eligible for a maximum ofRMB1.2bn in shares each. The remaining amount (RMB2.4-3.4bn) is to besatisfied by issuing shares to a maximum of 10other institutional investorswhom will be approved by the CSRC. The other institutional investors will besubject to a lock-up of 12months for the additional subscriptions while themajor controlling shareholder will be subject to a 36-month lock-up.

Guangzhou Baiyun Int'l Airport:Remain UW on near-term concerns of capacity saturation and capex

We maintain UW rating even though we factor in potentialbenefit of a modest tariff hike. We believe the company willface downward earnings pressure from capacity constraintscombined with heavy capex on the construction of a newterminal building and potential runway costs.
    What's new: Our Hong Kong/China Transportation & Infrastructure team haspublished a report titled "Hong Kong/China Transportation & Infrastructure: AtThe Crossroad of Industry Reforms". In this report, we explore how possibleindustry reforms could help to improve the current situation and what theimplications would be for public infrastructure firms (e.g., railways, airports,ports, toll roads, and so on). While the real magnitude of pricing changes maydepend on regulatory approvals, we think a 10% hike is a realistic assumption forairport services.
    Changes to earnings forecasts and price target: We raise our DCF-derived PT toRmb14.40 from Rmb13.70 to reflect a 10% tariff hike on domestic routes in 2019.
    However, we largely maintain earnings estimates for 2016-18 (Exhibit 3), afterfactoring in 2016 actual traffic data.
    Valuation: GBIA is trading at 1.5x 2017e P/B and 8.3x 2017e EV/EBITDA, on ourestimates, versus its historical average of 1.3x P/B and 5.4x EV/EBITDA since2009. Our price target implies 1.4x 2017e P/B and 8.2x 2017e EV/EBITDA.