Intelligence Hong Kong Stock Analysis | Rate cut benefits may fall through "Cote Estimate" strikes again

[Market Analysis]

No positive news over the weekend, Hong Kong stocks opened lower today. The market once broke through 18,000 points during the day, but the lack of bullish confidence led to a final decline of 0.03%. With the start of the European Cup, the market in general was relatively quiet. Looking at the trading volume, it was only 96.3 billion, shrinking by nearly 20 billion from the pre-match level of 110 billion. As there wasn't much market activity to begin with, many traders went to watch the games.

Currently, Hong Kong stocks are in a downward channel. To break this awkward situation, there must be positive stimuli. One of the hopeful factors is a rate cut. The morning surge was a bet on this news, but it turned out to be unfounded.

On June 17th, the central bank conducted a 182 billion yuan 1-year MLF operation with a winning bid rate of 2.50%, unchanged from before. The continued decrease in trading volume indicates that the funding situation remains relatively loose. In the short term, expectations for reserve requirement ratio cuts and interest rate cuts are basically hopeless. The market expects the next window to possibly open in the third quarter. Real estate stocks collectively weakened today, with funds that were lurking last Friday now withdrawing as they see unfavorable conditions today.

Europe has become a new source of risk. European stock markets across the board are falling, especially in France. With the far-right political party gaining advantage and using the freezing of Russian assets at the G7 meeting as collateral to provide Ukraine with a $50 billion loan, it undoubtedly poses a great risk to Europe. Citigroup took advantage of the situation: if the far-right government comes to power in France, it will bring risks to the European stock market. Therefore, they downgraded the European stock market rating to "Neutral" while upgrading the U.S. stock market rating. To make matters worse, the latest introduction of import tariffs on Chinese electric cars in Europe will also trigger countermeasures.

The latest countermeasures are following closely. On June 17th, the Ministry of Commerce issued a notice on initiating an anti-dumping investigation into imported pork and pork by-products from the European Union. It was decided to initiate an anti-dumping investigation into imported pork and pork by-products from the EU starting from June 17, 2024. The dumping investigation period determined for this investigation is from January 1, 2023, to December 31, 2023, and the industry damage investigation period is from January 1, 2020, to December 31, 2023. It was reported that China imported $6 billion worth of pork products, including offal, last year, with over half coming from EU countries. Among the pork products imported from the EU to China are items like pig ears, pig noses, and pig feet that are not favored in Europe. Originally, there was mutual benefit, but now with these orders being terminated, European pork industry will suffer huge business losses. The consequences may not be limited to this, and there are likely to be other retaliatory measures. If the EU cannot reach an agreement, the supply chain system will need to be restructured again. China may increase imports from other major sources. Recently, the Chinese Premier visited Australia, which may be related. Overall, the gap in imports cannot be quickly replaced, which will stabilize pork prices. Major companies like COFCO Meat (01610) and WH Group (00288) have taken action, and dairy companies are likely to follow suit. China Mengniu Dairy (02319) also rose by nearly 3 points today Recently, the market focus is on "Cote Gu", with the Nasdaq continuously hitting new highs, reflecting the strength. Star stocks include NVIDIA and TSMC. There is also a lot of stimulating news, with TSMC planning to raise prices. The price increase for 3nm foundry services may be over 5%, and advanced packaging prices for next year are expected to increase by about 10%-20%. TSMC's 3nm production capacity is fully booked by seven major clients including Apple and NVIDIA, with demand outstripping supply, and orders expected to be full until 2026. High-end chip displays are in short supply, with China's highest-end being SMIC (00981), which rose by 2.61% today. Meanwhile, Shanghai Fudan (01385) at the bottom has been climbing with small positive candles recently, rising by another 2.58% today.

The consumer electronics sector also has new catalysts. According to TSMC experts, Apple has started to increase orders, with additional orders for Apple A18 and A18 Pro, and an upward revision of iPhone 16 production from 120 million units to 95-96 million units. Highwee Electronics (01415) surged by over 8 points today, BYD Electronics (00285) by over 6 points, and June's golden stock Sunny Optical (02382) by over 2 points.

Other consumer sectors continue to be sluggish, with Maotai (600519.SH) lacking confidence. The company is actively seeking change. On June 12, Maotai Group Chairman Zhang Deqin conducted market research in Guangdong and organized a channel partner symposium in Shenzhen. On June 16, Guizhou Maotai's official WeChat account disclosed Zhang Deqin's latest activities, showing that from June 13 to 14, Zhang Deqin led a team to conduct market research in Hong Kong, further clarifying the internationalization strategy and strengthening confidence in internationalization. Maotai's internationalization path feels difficult, not to mention the current challenging environment. Even in good times, it is difficult for Maotai to promote overseas, requiring a large amount of money and continuous marketing to cultivate awareness of Maotai. The key lies in domestic distributors, many of whom have ceased operations, which is quite troublesome. Even promotions like 618 are becoming less effective, with only concerts still attracting buyers. The stock of Superstar Legend (06683), associated with Zhou Tong, surged by over 5 points and hit a new high.

The pharmaceutical sector also saw some excitement, with Ascentage Pharma (06855) receiving investment from Japanese pharmaceutical giant Takeda Pharma, leading to a direct surge of over 17 points. Haohai Bio (06826) with reserves also performed well.

Stocks with strong overseas logic are also being sought after, such as the June golden stocks Hai Tian International (01882) and BYD Company (01211), as well as the high dividend-paying Huachen China (01114). The company announced on June 14, 2024, that each ordinary share will receive HKD 4.3. The announcement also stated that the special dividend is expected to be distributed in cash to shareholders listed on the company's register by July 9, 2024 (Tuesday), around July 25, 2024.

The Mainland and Hong Kong mutual recognition mechanism has been implemented for nearly 9 years, and related regulations are undergoing their first revision. The proposed revisions aim to optimize in two aspects, including relaxing the limit of onshore sales proportion of mutual recognition funds from 50% to 80%, and allowing Hong Kong mutual recognition funds to transfer investment management functions to overseas asset management institutions within the same group As of the end of March 2024, the China Securities Regulatory Commission has registered a total of 39 northbound mutual recognition funds, with a total net asset value of approximately RMB 25.1 billion; the Securities and Futures Commission of Hong Kong has approved a total of 44 southbound mutual recognition funds, involving 23 mainland fund managers, 25 of which have been publicly sold in Hong Kong with a total net asset value of approximately RMB 0.75 billion. Currently, northbound mutual recognition fund products are diversified, while southbound mutual recognition fund products are mainly equity-oriented. The current scale is relatively small, but a hot market may bring more incremental growth.

[Sector Focus]

NVIDIA's GB200 servers are expected to ramp up in the second half of the year, significantly boosting the demand for GPU board assemblies. The demand for high-speed transmission in AI servers indicates that 20-30 layer HDI boards will become the new favorite in the market. As PCBs are the core components of electronic products, the development of AI and smart driving brings new demand, with market forecasts from Prismark predicting that the server PCB output value is expected to reach USD 12.5 billion in 2026, with a compound annual growth rate of up to 9.87% from 2021 to 2026.

Key stocks in the Hong Kong market: Jiantao Multilayer Board (01888), Jiantao Group (00148).

[Stock Analysis]

Haitian International (01882): Overseas market growth strong, May orders up over 40%

As a leading company in the domestic injection molding machine industry, Haitian International has benefited from the policy of equipment replacement. In 2023, the company's revenue was RMB 13.069 billion, a year-on-year increase of 6.2%; net profit was RMB 2.492 billion, a year-on-year growth of 10%.

Analysis: In 2023, the company's continued investment and layout both domestically and internationally over the years played a key role, achieving growth against the trend, with a continuous increase in global market share. The company's domestic sales remained flat year-on-year; in overseas markets, the company saw significant year-on-year growth in key markets such as Europe, North America, and Southeast Asia, with overseas sales reaching RMB 5.152 billion, a year-on-year increase of 17.3%. Thanks to the support of the automotive industry chain, the gradual recovery of demand in civil and daily necessities industries, and the company's continuous product iteration and innovation efforts, all series of injection molding machine products achieved varying degrees of month-on-month growth.

Benefiting from the recovery of downstream industries in China and the pull from overseas markets, the company's automotive orders in Q1 2024 continued the upward trend from the second half of last year, with strong growth momentum. Orders in January and February increased by double digits year-on-year, with accelerated growth in March and April, increasing by around 40% and 50% year-on-year, respectively. May orders still achieved a significant growth of over 40%, with orders in the first five months of this year also increasing by over 30%. Currently, the construction of new factories both domestically and overseas is progressing as planned, with the basic construction of the company's South China headquarters in China completed and some factories starting trial operations; overseas new factories, such as the Chennai factory in India, are expected to be completed and put into operation this year, and the Phase I factory in Serbia is also expected to start operations in 2025.

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