Dim Sum Express

A-Share Market

    General Aviation: Industry development to speed up during 13th FYP on strengthenedpolicy supportThe State Council has recently issued a set of guidelines on the development of general aviation,exceeding market expectations with actionable policy targets regarding accelerated airportconstruction, the opening up of low-altitude airspace and enhanced flight safety. We have a positiveoutlook on the general aviation industry in China, expecting the issuance of this latest policydocument to speed up industry development during the 13th FYP. Looking down the industry chain,we believe that relevant infrastructure development will likely be the first to kick off, with aircraftmanufacturing and downstream services also to post considerable growth potential.

    Non-Ferrous: Coordinated output reduction to support molybdenum pricesMolybdenum prices are likely to rebound further in the near term as nine key domestic miners haveagreed to lower output by 10% this year. However, this output cut only represents 35% of the supplyoverhang recorded in 2015, meaning industry supply-demand is yet to show any fundamentalimprovements. In addition, with new capacity brought online in Chile and Peru last year, we expectthe supply of cheap by-product molybdenum to increase, potentially putting pressure on thecontinued rebound in the metal’s prices. As such, upcoming changes in molybdenum prices willhinge upon demand in the steel sector downstream, while the potential launch of commercial reservebuilding would be good news.

    Hong Kong Market

    Country Garden (2007 HK, Hold): Key thoughts on the Forest City project in MalaysiaThe company’s Forest City project in Malaysia is being targeted at Chinese buyers looking to investin affordable overseas properties, in our view. Buyers can benefit from a low down-payment ratio of10%, and will be granted a 10-year Malaysian residence permit (but not a passport). There will alsobe a special exit channel through customs from Malaysia to Singapore. However, due to the limitedlink to the Singapore economy and the project’s distance from China (4-6 hour flight), it is difficult tomeasure long-term demand for the project. We maintain our Hold rating.

    CSPC Pharm (1093 HK, under review): 1Q16 net profit beats, still driven by innovative drugsCPSC Pharm reported revenue/net profit growth of 7.6%/26.3%, vs. consensus of 9.5%/19.3%.

    While a breakdown of the innovative drug business is not available, we believe its growth was led byNBP and Oulaining which benefited as their injection forms became newly included in provincialNDRLs for local government-led tenders. Generics up 6.3%, beating industry’s 5% growth despitethe government’s reform measures for cost control and more reasonable usage of medicalresources. We continue to favor CSPC Pharm given its ability to launch new products in anincreasingly difficult pricing environment.

    Le Saunda (738 HK, Hold): FY16 results in lineNet profit dropped 36% YoY in FY16, in line with profit warning guidance for a 35% decline. Coreprofit was down 28% YoY. Revenue declined 4% YoY, led by an 8% SSS decline but partly offsetby 25% growth in e-commerce sales and 5% growth in self-owned stores. GM dropped 1.2pp to66%, mainly due to the bigger discounts given to clear current winter and off-season inventory. Thecompany declared a final and special dividend, giving a full-year FY16 dividend payout ratio of73.8%, higher than FY15’s 59.5%. Maintain Hold.