Dim Sum Express

A-Share Market

    Investment Strategy: 2015A-share earnings preview

    The median of full-year earnings growth expected by ChiNext companies is at 25.6%, compared with24.5% in 9M15and 22.3% in 1H15. Quarterly earnings rose by as much as 50% QoQ in 4Q15, muchstronger than the seasonal level and roughly comparable to the 4Q14level, likely meaning that theconsolidation of newly acquired assets remained strong in 4Q15. Given that industrial profit growthfell from -1.7% in 9M15to -2.3% YoY in 2015, we expect A-share ex-financial earnings growth tohave deteriorated from -14% in 9M15to -15% in 2015. This would mean a decline in cumulative Ashareex-financial earnings for the fifth consecutive quarter.

    Environmental: 2015sector earnings preview

    45of the 59A-share listed environmental companies have issued a 2015profit alert, forecastingmedian net profit growth of 43% YoY during the year, higher than the 25.6% figure for companies onthe ChiNext board and representing a growth acceleration in the third consecutive year. Theenvironmental sector ranked high among other sectors with forecasted 2015earnings growth, justbehind agriculture (58% YoY), and above both TMT (36%) and the service industry (25%). On abreakdown by market cap, large-cap companies (market cap above Rmb10bn) expect earningsgrowth of 51%, compared with 28% for mid-cap (Rmb5-10bn) and -21% for small-cap companies(below Rmb5bn).

    Hong Kong Market

    Investment Strategy: Risks remain high despite likely rebound

    While we would not be surprised to see a market rebound in the short term, we are not convincedthat now is the right time to rush in. Valuation comparisons to previous crises indicate that downsiderisk is not yet over, and we may be just two-thirds of the way through the current down-cycle. Webelieve investors require more clarity on a broad range of factors before there can be anyfundamental change in their skeptical view on the market. As such, we do not consider the latestrebound to be a change in market trend.

    Lenovo (992HK, Accumulate): Return to profit expected with Dec quarter results

    Lenovo will report 4Q15results this Wed. We expect the company to show it has become profitableagain, following the big loss due to one-off provisions for business realignment in the previous quarter(reduction in its workforce of about 3,200employees). We estimate a 12% YoY decline in opex forthe quarter after the cost reduction measures. Going forward, we expect the progress in theturnaround of its loss-making mobile business, the outlook for its core PC business, and the impactof Rmb depreciation to come under market scrutiny.