KGI Asia Commentary

2023.01.03 09:00

Hang Seng Index rose 40 points on Friday

On the last trading day of 2022, the Hang Seng Index rose 40 points to 19,781. The market turnover was HK$87bn. Junshi Biotech (1877)'s drug VV116 was accused by a medical journal of being as effective as the covid-19 vaccine developed by Pfizer. The stock price rose 20.6% to HK$48.5.

U.S. December Chicago PMI rebounds to 22.9 but remains in contraction zone

The U.S. Chicago PMI in December ended a three-month losing streak, rising from 37.2 to 44.9, far better than market consensus of 40. Below 50 still indicated that the U.S. manufacturing industry was under contraction. Manufacturing is suffering from slowing demand amid a weakening global economy and grappling with a backlog of unfilled orders from the pandemic. In terms of US market, the three major US indexes all fell across the board. The Dow Jones Industrial Average fell 73 points to 33,147 points, down 0.22%. The S&P 500 fell 9 points, or 0.25%, to 3,839, and the Nasdaq Composite lost 11 points, or 0.11%, to 10,466.

The December PMI in the Mainland fell MoM, and the January PMI may not rebound

After the outbreak of the epidemic in December, Chinese economy continued to weaken. The surge in the number of infections caused the manufacturing industry to face more severe supply chain disruptions and suspension of production. Dec PMI was 47.0, lower than market consensus of 48.0. It recorded a new low since March 2020. The non-manufacturing business activity index dropped even more significantly, to 41.6, down 5.1 percentage points from the previous month. With the exponential rise in the number of infected cases across the country and the early lunar New Year at the end of January this year, there is a greater chance that the PMI figures will be still under pressure in January.

Hong Kong Stock Connect had a net inflow of HK$2.01bn last Friday, of which Tencent Holdings (700) had the largest net inflow of HK$763mn; followed by China Mobile (0941). Hang Seng China Enterprises (2828) recorded the largest net outflow of HK$287mn; followed by China Telecom (0728).

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Chow Tai Fook
01929

The country has once again relaxed the control requirements, and the tourism market is expected to recover again. Investors can consider the Companies that have stronger fundamentals, which include Chow Tai Fook. With the rise of the rural economy in the Mainland, the Group consider that there is still a huge room for opening stores in Tier III and below cities and towns. Therefore, in recent years, the Group expanded its business territory through regional distributors and franchisees, while introducing various supporting policies to help franchisees reduce cost and increase their revenue. The Group added a net of 581 POS in Mainland China during the quarter, including 595 net POS openings (70 self-operated stores and 525 franchised stores). As at 30 Sep 2022, 75.3% of the POS in the Mainland were in franchised format. With its retail expansion strategy leveraging franchisees’ local knowledge, RSV of the franchised portion increased by 29.2% year-on-year and its contribution to the RSV increased to 75% (1Q22: 57.6%; 2Q22: 63.8%) in the Mainland during the quarter. The worst time of the epidemic has passed. In fact, the group’s same-store sales in the mainland, Hong Kong and Macau have returned to positive growth since June. With the relaxation of epidemic prevention and control and the gradual normalization of society, it is believed that the group will quickly expand its POS network. Together with the gradual recovery of same-store sales growth in various regions, the Group has strong potential growth in the long run. Target price: $18.6; Stop- Loss price: $14.6

Wen Kit Kenny is a SFC licensed person accredited to KGI Group to carry on regulated activities (for details, please refer to:https://apps.sfc.hk/publicregWeb/indi/AJF244/details). He and/or his associate do not have any financial interest in the recommended issuer or new listing applicant.

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