ChinaOutlook Higher Ground

1、China 2011 Outlook Higher GroundStrategyStrategy ChinaNOMURA INTERNATIONAL (HK) LIMITEDChina 2011 OutlookHigher GroundHenry Wu, CFA+852 2252 2122henry.wunomura January 2011Any authors named on this report are research analysts unless otherwise indicated. See the important disclosures and analyst cer

2、tifications on pages 35 to 39.Strategy ChinaPositive outlook on China 2011Forecast both MSCEI China and HSCEI to offer 20% upside in 2011Implied PE (x)Historical average PE (x)Historical range (past 5 yrs)% diff. vs targetTargetCurrent index levelUpside potential20112012TrailingForwardHighLowHighLow

3、MSCI China 8 3 6 725% 14.4 12.1 1 4.6 12.6 104.18 2 7.23-20%205%HSCEI 1 6,000 1 2,69226% 13.6 11.4 1 3.5 11.7 20,400 4 ,990-22%221%Note: Pricing as of 31 December 2010, historical average is for the period from January 2002 2010Source: Bloomberg, Nomura researchNomura China coverage 13x earnings, 21

4、% EPS growth and 20% ROE for 2011F MkPerformanceEPS growth %ROEPE (x)PB (x)t capUSD bn1M3MYTD20092010E2011E2012E20092010E2011E2012E20092010E2011E2012E20092010E2011E2012EGaming, Hotels & Leisure 4 6.44%28%110%13%389%18%31%29%38%33%29% 5 9.9 23.9 20.5 15.6 9 .9 9.3 6.1 4.6Health Care & Pharmaceuticals

5、 1 0.0-6%-10%98%59%33%25%24%20%20%20%22% 3 8.2 27.5 21.7 17.2 5 .6 4.5 4.0 3.5Media & Internet 1 08.9-2%-1%43%21%48%42%29%41%42%39%34% 7 4.9 39.5 26.2 19.9 25.2 14.9 9 .1 6.1Transport/Logistics 8 9.0-1%6%29%-53%9364%11%-13%5%22%16%14% 2 6.5 15.3 13.6 9 .7 4.1 2.0 1.7 1.2Industrials 1 51.0-3%4%23%68%

6、26%19%16%16%22%23%22% 2 3.2 17.0 12.3 10.1 3 .1 3.1 2.5 2.0Oil & Gas/Chemicals 456.36%15%20%-9%40%20%16%14%19%19%20% 1 7.4 12.3 10.1 8 .7 2.5 2.1 1.9 1.6Consumer Related 1 26.6-4%-7%15%128%29%29%28%22%24%24%25% 3 5.7 30.2 23.4 18.6 7 .1 5.9 4.9 4.1Telecoms 2 92.41%-3%9%4%3%8%7%19%17%17%16% 1 5.7 16.

7、6 14.0 11.9 2 .3 2.1 1.9 1.7Solar 1 3.77%-3%2%-99%11600%15%11%-1%9%10%9% 4 .2 9.6 8.5 11.2 0 .8 1.9 1.5 1.3Conglomerates 1 .42%-2%0%380%-71%86%123%22%4%6%12% 8 .7 28.5 16.0 7 .1 0.7 0.7 0.7 0.7Financials 1 ,182.8-3%2%-2%37%13%23%27%20%20%20%22% 1 6.7 13.5 10.8 8 .4 2.9 2.4 1.9 1.6Basic Materials 1 4

8、1.41%0%-10%18%16%14%7%15%18%18%16% 2 5.1 15.0 12.5 10.9 2 .7 2.4 2.0 1.7Property 6 0.31%-2%-11%64%61%33%20%12%15%17%17% 1 8.1 17.8 13.2 11.2 1 .8 2.2 1.5 1.4Power & Utilities 6 3.9-1%-8%-12%56%16%15%13%12%12%12%12% 2 4.8 17.1 14.3 13.0 2 .4 1.8 1.5 1.4Technology 2 1.2-8%-20%-28%120%20%18%15%13%17%19

9、%18% 1 4.0 27.2 17.9 14.9 4 .2 3.7 3.1 2.5China - Total 2,765.30%3%9%16%24%21%19%18%20%20%21% 2 1.9 16.3 12.8 10.4 4 .0 3.1 2.4 2.0Note: Pricing as of 31 December 2010Source: Bloomberg, Nomura research2?Nomura International (Hong Kong) LimitedStrategy ChinaSector allocationsOverweight on Consumer, F

10、inancial, Property, Media & Internet, Oil & Gas sectorsSector weightingNomura commentPotential catalystsInvestment risksConsumerOverweightFavour F&B and department storesUpstream price weakness due to price controlsInflationFinancialOverweightFavour banks and life insuranceInterest rate hikeMacro ti

11、ghteningMedia & internetOverweightPositive on on-line gamingNew game launchDelay of new game launchOil & OverweightPositive on oil and petrochemicalRising oil prices, oil pricing mechanism changes, and Government regulatory risks and resource Gas/Chemicalsnatural gas price hikestaxPropertyOverweight

12、Positive on property developers with sound balance sheet and Transaction volume pickupUnfavourable polices include a property niche exposuresgain tax, LAT, and price wars in the sectorGaming, Hotels & NeutraFavourable supply demand dynamics, strong earning visibility and More land approved on Cotai;

13、 foreign labour issue Commission war in junket operation; policy lcertainty. Supply capped at 13% for the next three years (7% for 2011); demand to be driven by high margin mass market business which was banking on structural change from Leisureinfrastructure upgrades (18% for 2011)resolved; strong

14、gaming numbersrisk: visa restrictionHealthcareNeutraVolume will drive sector earnings growthGrowing income to drive healthcare consumptionProduct price cut; regulatory riskslIndustrialNeutraFavour railway equipment/infrastructure, cautious on autoGrowing investment in railway infrastructure and Rail

15、way infrastructure investment is lsensitive to government policy changes, equipmentauto sales growth slowdownPower & utilitiesNeutraPositive on water and gas, Neutral on power12th FYP implementation; natural gas supply Interest rate hikelshortageTelecomNeutraPositive on China Unicom, and telecom equ

16、ipmentMobile data usage, revenue and 3G take-up may Irrational tariff competition and change in lsurprise on upside, network convergenceregulatory environment.TransportationNeutraPositive on Jiangsu Expressway and Cosco PacificRmb appreciation, tariff hikeRailway competitionlBasic materialsUnderweig

17、htFavour coal and cement; negative on steel Fixed asset investment growthPrice controls, property sector slowdownSolarUnderweightIndustry oversupply in 2011F will favour companies with better Continued policy support and faster-than-expected Weaker demand from new centres, further utility adoption o

18、f solar are potential key catalysts for cost control. Pure-play makers unable to increase integration are demand, which could soak up the excess supply, subsidy cuts, faster than expected ASP although we caution competition could change with likely to underperform. Prefer Trina, Yingli and Suntechne

19、w stronger playersdeclineSource: Nomura research3?Nomura International (Hong Kong) LimitedStrategy ChinaTop picksStocks to watch: valuation snapshotEPS - NomuraEPS Growth (%)EPS - ConsensusPE (x) - NomuraRoE - Nomura (%)Net debt/equity - Nomura (%)Ticker20092010E2011E20092010E2011E2010E2011E20092010

20、E2011E20092010E2011E20092010E2011EAgile Properties3383 HK 0 .48 1.01 1.27 ( 67.2) 110.4 2 5.7 0 .79 0.97 20.0 9 .5 7.6 13.8 36.0 20.9 4 2.3 53.0 56.1Agricultural Bank of China1288 HK 0 .25 0.32 0.38n.a. 2 8.0 18.8 0 .30 0.37 14.2 10.9 8 .5 20.5 21.1 21.3n.a.n.a.n.a.China Everbright International257

21、HK 0 .11 0.16 0.21 1 .9 45.5 31.3 0 .15 0.20 40.7 26.8 20.8 10.1 12.3 14.2 2 3.6 41.0 60.8China Life Insurance2628 HK 1 .16 1.23 1.38 5 4.7 6 .0 12.2 1 .21 1.45 25.2 23.3 20.0 17.1 16.3 17.0n.a.n.a.n.a.China Mengniu Dairy2319 HK 0 .68 0.70 1.03 (216.4) 2 .9 47.1 0 .76 0.97 28.5 27.2 17.7 17.1 13.5 1

22、7.5net cashnet cashnet cashChina Railway Construction Corp1186 HK 0 .53 0.37 0.82 6 8.1 (30.2) 121.6 0 .51 0.78 14.4 20.9 9 .4 13.1 8 .3 1 6.8net cashnet cashnet cashGome Electrical Appliances493 HK 0 .09 0.13 0.16 2 3.5 44.4 23.1 0 .12 0.14 29.4 19.5 15.8 13.8 16.2 16.3net cashnet cashnet cashPerfe

23、ct World *PWRD US 3 .06 2.81 3.58 7 1.3 (8.2) 27.4 2 .71 3.05 7.7 8.4 6.6 52.3 32.8 29.1net cashnet cashnet cashSinopec386 HK 0 .71 0.87 1.00 1 15.5 2 2.5 14.9 0 .80 0.86 9.0 7.3 6.4 17.6 18.6 18.6 5 5.8 49.0 42.5ZTE Corp763 HK 0 .89 1.01 1.29 4 1.1 13.5 27.7 1 .08 1.32 27.9 23.3 17.3 15.8 16.1 18.0

24、net cashnet cashnet cashNote: Pricing as of 31 December 2010 Source: Bloomberg, Nomura researchStock performanceMarket capNomuraConsensusNomuraShare performance (%)2-yearTickerPriceUS$bnRatingBuysHoldsSellsBuy %TPUpside to TP1M3MYTDbetaAgile Properties3383 HK 1 1.4 5 .1Buy 2 1 5 1 77.8 1 5.736.9% 6

25、.9 19.9 (4.4) 1 .8Agricultural Bank of China1288 HK 3 .9 163.0Buy 1 3 1 8 - 41.9 4 .720.5% (1.0) 15.1n.a.n.a.China Everbright International257 HK 4 .1 1.9Buy 1 2 1 - 92.3 6 .149.5% 5.6 24.0 8 .5 0.8China Life Insurance2628 HK 3 1.8 115.5Buy 1 5 2 0 2 40.5 4 0.026.0% (1.8) 12.3 (13.0) 0 .9China Mengn

26、iu Dairy2319 HK 2 0.6 4 .6Buy 2 3 5 2 76.7 3 2.055.3% (0.2) 3 .0 (20.2) 0 .8China Railway Construction Corp1186 HK 9 .4 12.6Buy 1 2 8 3 52.2 1 1.826.1% (4.9) (7.1) (7.3) 0 .6Gome Electrical Appliances493 HK 2 .8 5.4Buy 1 3 3 1 76.5 4 .353.6% 17.2 29.7 8 .5 0.6Perfect World *PWRD US 2 3.7 1 .2Buy 1 3

27、 6 3 59.1 3 7.056.4% (24.1) ( 5.2) (39.9)n.a.Sinopec386 HK 7 .4 83.0Buy 2 1 8 1 70.0 9 .629.0% (1.1) 17.4 4 .6 0.9ZTE Corp763 HK 3 0.9 11.4Buy 1 9 9 2 63.3 3 6.016.5% (0.9) (1.2) (10.8) 0 .8Note: Pricing as of 31 December 2010; Ratings and Price Targets are as of the date of the most recently publis

28、hed report(/.Nomura4) rather than the date of this documentSource: Bloomberg, Nomura research4?Nomura International (Hong Kong) LimitedStrategy ChinaFinancial and property sectorsJanuary return of MSCI China and HSCEI indexMSCI financial relative performance against indexMSCI China price (RHS)MSCI C

29、hina Financial index relative to index performanceHSCEI IndexMSCI China Index15%3%740%705%-3%66-5%-6%62-15%-9%58-25%-12%54-15%50-35%Source: Bloomberg, Nomura researchSource: Bloomberg, Nomura researchProperty price vs food CPI and SHSZ300 indexProperty volume vs food CPIPY=100Transactions Volume in

30、11 cities (LHS)China Food CPI (RHS) Property Price Index: 70 City: BldgTurnaround of property price 200%25%1256000China Food CPIhappened same time to CPI SHSZ300 Index (RHS)150%20%surge and market rally1205000100%15%115400050%10%11030000%5%1052000-50%0%1001000-100%-5%950Source: WIND, CEIC, Bloomberg

31、, Nomura researchSource: WIND, CEIC, Bloomberg, Nomura research7?Nomura International (Hong Kong) LimitedOct-05Jan-94Feb-06Jan-95Jun-06Jan-96Oct-06Jan-97Feb-07Jan-98Jun-07Jan-99Oct-07Jan-00Feb-08Jan-01Jun-08Jan-02Jan-03Oct-08Jan-04Feb-09Jan-05Jun-09Jan-06Oct-09Jan-07Feb-10Jan-08Jun-10Jan-09Oct-10Jan

32、-10Jul-09Jan-08Aug-09Mar-08Sep-09May-08Oct-09Jul-08Nov-09Sep-08Dec-09Nov-08Jan-10Jan-09Feb-10Mar-09Mar-10May-09Apr-10Jul-09May-10Sep-09Jun-10Nov-09Jul-10Jan-10Aug-10Mar-10Sep-10May-10Oct-10Jul-10Nov-10Sep-10Strategy ChinaSector outlook 2011F earnings growth drivers SECTOR Sub-sector Volume Price Ups

33、ide risks Downside risks Basic Materials Cement 1,940mnt Up 0-3% y-y 1. Rapid FAI growth; 2. Favourable government 1. Rapid increase in local cement capacities leading policies (such as building materials subsidies etc.); to oversupply; 2. Slowing FAI growth; 3. Property 3. Big drop in raw material

34、costs development slowing down (+11% y-y) Basic Materials Steel 685mnt (+6% y-y) RMB5306/t 1. Big drop in raw material costs; 2. Favourable 1. Deteriorating supply-demand balance; 2. Big government policies; 3. Stronger ASP hikes in raw material costs; 3 Property development slowing down (up 3-5%) B

35、asic Materials Coal We estimate volume will We estimate coal ASP will Higher-than-expected contract price and spot price 1) Higher-than-expected cost hikes, mainly driven rise by 3%; around 40% increase by 6% in 2011 for coal, driven by: 1) stronger-than-expected coal-by policy-related cost increase

36、; 2) Weaker than of EPS growth driven by fired power generation; 2) tightened transportation expected coal demand growth due to lower GDP volume caused by bad weather; and 3) higher-than-growth or power / steel industry production growth; expected global coal prices and 3) Higher coal imports booste

37、d by a strengthening RMB Consumer Related Department store 16%, including new GFA Average SSS in mid-teens Better-than-expected SSS on healthy underlying Higher-than-expected operating expense, more growth and acquisition consumption, margin expansion, store acquisition intensive competition Consume

38、r Related F & B Average volume growth ASP growth of 4% y-y Product price hikes, EPS upgrades by the Street, Larger-than-expected cost hikes, fierce competition, of 22% y-y M&A, positive updates on the macro side (ie, food safety issues minimum wage increase and urbanisation) Consumer Related Foot &

39、Sportswear 11%, including Lining: 8%, including footwear Better-than-expected SSS, margin expansion Greater-than-expected slowdown in order book (for +760 stores pa; Belle: SSS in high teens; sportswear), margin compression on extensive +1,200 stores pa; Ports: sportswear SSS in mid-promotion activi

40、ties and rising labour costs +30 stores pa high single digits Consumer Related Supermarket 10%, including Wumart: Low-single digit SSS, in Better-than-expected SSS on CPI inflation, margin Rising competition and margin compression +65 stores pa; Lianhua: line with the CPI expansion +165 stores pa Co

41、nsumer Related Consumer Ctrip: volume +30% y-y; Ctrip ASP flat; EDU ASP EDU: faster-than-expected enrollment growth; Ctrip: EDU: margin compression, rising competition; Ctrip: services & EDU: enrolment +20% +single digit higher-than-expected volume growth in air tickets commission rate decline, slow

42、down in volume distribution y-y; Gome: weighted % y-y and hotel rooms; Gome: better-than-expected SSS growth, rising competition; Gome: lower-than-sales area +12.5% y-y and margin expansion expected SSS and margin compression Financials Banking Forecast RMB8trn new Four symmetric times - Smaller-tha

43、n-expected equity amount raised - A more severe-than-expected macro tightening loan interest rate hike with total could result in a sharp rise in bad debt 100bps - Strong NIM rebound amid an interest rte hiking - A slowing economy would have negative cycle implications for loan growth - Synergies ac

44、hieved after integration with Ping An Bank (SZDB) - Better expense control that lowers cost/income ratio (SZDB) Source: Nomura research8?Nomura International (Hong Kong) LimitedStrategy ChinaSector outlook (contd) 2011F earnings growth drivers SECTOR Sub-sector Volume Price Upside risks Downside ris

45、ks Financials Insurance We think volume should Margins should expand in Under a rising rate environment, we expect life Poor returns from the A-share market would affect remain relatively strong in 2011 as: 1) assets reprice insurers to have wider yield spread and thus, higher sentiment on insurers

46、in general 2011 as Chinas faster than liabilities (eg, Value of New Business growth. insurance penetration negotiated deposits can remains low and demand reprice immediately while for insurance should crediting rate for continue to increase: 1) participating policies as welfare of citizens announced

47、 annually); 2) Better-than-expected and sustained combined ratio Intense competition leading to a continued squeeze continues to improve; new business margin for the P&C sector would improve valuations for in NB margins for life insurers and 2) on the back of the should increase but the P&C insurers

48、 rising rate environment magnitude is impossible to quantify as it will depend on the type of products sold and the ultimate crediting rate used, which Strong A-share market to spur better sentiment for Worse-than-expected combined ratio in 2H10 from can be affected by the insurance stocks intensify

49、ing competition market environment Gaming, Hotels & Leisure Gaming Earnings to be driven If infrastructure upgrades attract more people than Project delays more by volume expected; since liquidity remains abundant in the system, VIP revenue could continue to surprise on the upside Health Care & Heal

50、thcare Volume growth will be the Sector ASP will remain Policy risks such as drug price cuts and tightening Pharmaceuticals key driver, as a result of under pressure regulations of production process growing demand and new product launches Industrials Auto - CV 7% 2% Stronger sales due to stronger F

51、AI Higher material costs will further weigh on margins Industrials Auto - PV 16% -3% Stronger-than-expected sales growth Higher material costs will weigh on margins Stronger high-end car sales that enhance the product mix Regulation changes may curb auto sales growth in large cities, which will hurt

52、 product mix Industrials Capital goods- NA NA Construction machinery Industrials Capital goods - NA 40% Revision up of railway plan in 12-5 Shift in government policy and price pressure from Railway equipment MoR IndustrialsInfrastructure-N/A 14% Better-than-expected recovery of ports machinery Shif

53、t in government policy and risks related to Ports overseas projects Industrials Infrastructure - N/A 20% Upward revision to railway plan in 12FYP Shift in government policy and risks related to Railway & overseas projects Highway Media & Internet E-Commerce Membership growth will Growth mainly from

54、ARPU, Better-than-forecast growth trend in VAS Negative Net Adds of membership be minimal driven by GMV (gross contribution to revenue merchandise value) Media & Internet Internet Growth of paying users About half of the growth will Ramp-up in ad spending Faster-than-expected slowdown in online or n

55、umber of ads sold will come from growth of ARPU advertising/marketing contribute the other half or ads pricing of the overall growth Media & Internet Online gaming New game launches will About 30% driven by Faster-than-expected growth of existing games, Further delay in new game launches increase th

56、e number of ARPU growth especially ARPU paying users Media & Internet Outdoor media Most firms running near ARPU to drive growth over Ramp-up in ad spending Faster-than-expected slowdown in outdoor ads capacity ARPU should utilisations be bigger driver Source: Nomura research9?Nomura International (

57、Hong Kong) LimitedStrategy ChinaSector outlook (contd) 2011F earnings growth drivers SECTOR Sub-sector Volume Price Upside risks Downside risks Oil & Gas/Chemicals Fertilizer Expect sales volume Fertilizer retail price Increase in fertilizer export tariff to curtail exports; growth in excess of 10%

58、increases will be more higher-than-expected natural gas price hikes, significant than ex-factory natural disasters price rises Oil & Gas/Chemicals Oil & Gas Volume increase of 5-Crude oil prices + 20%, Government regulatory risks including resource tax, 10% natural gas price +10-oil price volatiliti

59、es, and chemical industry downturn 15% , Power & Utilities China equipment Increase in EPS will be For wind equipment, a 30% Orders from overseas should expand faster than Further decline in ASP or increase in raw materials mainly attributable to increase shipment to forecast, given increased recogn

60、ition of the prices, such as steel, could lead to margin potential increase in 12GW is expected over competitive quality and relatively low price of contraction for power equipment manufacturers sales volumes, 2011F, in our 6view, largely Chinese-manufactured power equipment particularly relating to