Strategic viewpoint

In terms of the index, all the major stock indexes fell this week, with the Hang Seng Index falling 3.35% and the National Index falling 2.92%, which is much weaker than the mainland stock index. In addition, the Hong Kong Stock Exchange, southward capital this week ended nearly five months of continuous inflow trend, the first time there was a net outflow.

On the domestic side, from the economic data in August, the economy is still in a weak pattern, investment and consumption are both lower, and the timing of the economic bottom is still unclear. On the CPI side, oil and pork prices have risen under the influence of Saudi oil attacks and African classical swine fever, raising concerns about further inflation in the future. We expect the momentum of policy easing to remain unchanged and will continue into the fourth quarter. It is worth noting that there is still uncertainty in the trade negotiations between China and the United States in October, and if no significant progress is made, the market is still likely to dip further. In addition, the State Council issued the outline for Building a Traffic Power this week. The two main items involved in the outline are the construction of sound transport infrastructure and the research and development of complete and controllable transport equipment, while the development of modern logistics is a key feature. It can be seen that infrastructure investment is still one of the main supports to promote China's economic growth.

Looking to the future, we recommend that from the automotive sector with the possibility of trend reversal, under the background of various policies to stimulate automobile consumption, the weak pattern of automobile sales in the future is expected to be broken. In addition, the direction of technology stocks remains unchanged, and investors are advised to pay attention to 5G and related stocks in the semiconductor sector. On the whole, it is still a strategic time for long-term capital distribution in the Hong Kong stock market. Investors are advised to choose more deterministic varieties such as stable performance, low valuation, high dividend and so on.

Market review

Hong Kong stocksThis week, the Hang Seng Index fell 917.02 points, or 3.35%, to close at 26435.67 points, with a total weekly turnover of HK $373.929 billion. The number of Hang Seng state-owned enterprises fell 312.10 points, or 2.92%, to 10375.65 points.

A-share aspectThis week, the Shanghai Composite Index fell 0.82% to close at 3006.45 points, the Shenzhen Composite Index fell 0.39% to close at 9881.25 points, and the gem Index fell 0.32% to 1705.05 points.

1. Market trends

1.1 impact of major news

(1) important economic data: domestically, China's industrial added value increased by 4.4% in August compared with the same period last year, with an expected value of 5.4% and a previous value of 4.8%. China's total retail sales of consumer goods rose 7.5% in August from a year earlier, with an expected 7.9%, compared with a previous value of 7.6%. From January to August, China's fixed asset investment (excluding farmers) increased by 5.5% compared with the same period last year, with a previous value of 5.7%. Hong Kong's composite CPI rose 3.5 per cent in August from a year earlier and is expected to rise 3.1 per cent and 3.3 per cent. The overall employment situation in China was stable in August. The unemployment rate in the national urban survey was 5.2 percent, down 0.1 percentage points from the previous month. From January to August, 9.84 million new jobs were created in cities and towns across the country, completing 89.5 percent of the annual plan. The HKMA cut interest rates by 25 basis points to 2.25 per cent, while HSBC cut the Hong Kong dollar deposit rate from 0.25 per cent to 0.1 per cent, leaving the best lending rate unchanged at 5.125 per cent. Internationally, the Fed announced that it would cut its benchmark interest rate by 25 basis points to a target range of 1.75% to 2%, in line with widespread market expectations. This is the second time that the Fed has cut interest rates since December 2008. In addition, the Fed cut the overnight reverse repo rate by 30 basis points to 1.7 per cent and the excess reserve rate by 30 basis points to 1.8 per cent.

(2) the central bank decided to comprehensively reduce the deposit reserve ratio of financial institutions by 0.5 percentage points on September 16 (excluding financial companies, financial leasing companies and auto financing companies). In addition, in order to increase support for small, micro and private enterprises, the deposit reserve ratio of urban commercial banks operating only in provincial administrative areas will be reduced by 1 percentage point, which will be implemented twice on October 15 and November 15, each time by 0.5 percentage point.

(3) Ning Jizhe of the National Development and Reform Commission: China fully has the conditions, ability, and confidence to deal with various risks and challenges, keep the economy running within a reasonable range, and achieve the main expected goals of economic and social development for the whole year.

(4) in the infrastructure industry, the CPC Central Committee and the State Council have issued the outline for the Construction of a Traffic Power, which proposes to basically build a transportation power by 2035. The outline proposes that it is necessary to promote the construction of major corridors and hubs in the central region, comprehensively promote the construction of "four good rural roads", strengthen the construction of facilities such as charging, hydrogenation, gas filling, and bus stations, and strengthen the research and development of intelligent networks. we will speed up the construction of key "public transit" projects such as port collection and distribution railways, logistics parks, and railway special lines for large industrial and mining enterprises, vigorously develop intelligent transportation, and promote the application of Beidou satellite navigation system.

(5) with regard to the new energy vehicle industry, Minister of Industry and Information Technology Miao Wei: we should unswervingly adhere to the national strategy of developing new energy vehicles, promote the accelerated integration of automobiles with energy, transportation, information and communications industries, and promote the development of intelligent network-connected vehicles; it is necessary to scientifically guide the transformation and upgrading of traditional fuel vehicles.

(6) in terms of the 5G industry chain, Miao Wei said that it will not be able to formally put into an independent 5G network on a large scale until next year; 80% of the real application scenarios of 5G should be used in the industrial Internet field.

(7) in the pork industry, the Ministry of Commerce: a total of 10000 tons of central pork reserves have been put into the market to increase pork market supply; in early September, 2400 tons of central beef reserves and 1900 tons of mutton have been put into the market; in the next step, we will continue to pay close attention to the changes in supply, demand and prices in the pork market, and together with relevant departments, we will continue to put in central pork reserves in a timely manner to ensure the supply of pork market.

(8) in the artificial intelligence industry, Huawei released the overall computing strategy for the first time, thus opening a new nautical era for the computing industry. At the same time, Huawei launched the world's fastest AI training cluster, Atlas 900, to speed up the intelligent process of scientific research and business innovation.

1.2 Corporate dynamics

Shenzhou International Group (02313.HK)

On September 20, Shenzhou International Group announced that the controlling shareholder had made a large reduction: Fugao Group, held by the major shareholder Xierong and the management, entered into a bulk trading agreement on September 20, 2019, placing 27.97975 million shares and 3.72025 million shares respectively, with a cumulative placement of 31.7 million shares. the price per share is HK $102a (5.7% discount to the previous day's closing price), with a total capital of HK $3.2 billion, which is expected to be completed on September 24, 2019, after the placement is completed. Xierong and Fugao's issued shares of Shenzhou International Group fell to about 44.76 per cent and 5.04 per cent respectively.

We believe that the rights issue and reduction by Shenzhou International Group's controlling shareholders will affect investor sentiment and cause stock price volatility in the short term, but it will have little impact on the company's fundamentals and medium-term business in the long run. Shenzhou International Group is currently benefiting from the strong growth of major customers. Since the opening of the plant in Vietnam, the negative factors of capacity constraints have been eliminated, automation will bring considerable benefits, and factories in Vietnam and Colombia have grown faster than expected. Excluding the impact of this shareholder reduction, we are still optimistic about the development of Shenzhou International Group in the second half of the year.

Cofco Meat Food (HK.01610)

Cofco Meat is a meat industry chain company backed by Cofco, with a vertically integrated business model covering the entire pork industry value chain in China, including feed production, pig breeding, slaughtering, production, distribution and sales of fresh pork and meat products, as well as import and sales of frozen meat products.

The upstream pig farming business produced 2.55 million pigs in 2018, ranking fourth in the industry; the middle reaches has a slaughtering capacity of 2 million heads; and the downstream meat business has two well-known brands: Jiajakang and Wanwei. The company is mainly based on self-breeding mode, supporting pig breeding, feed, hardware and other facilities to ensure high efficiency and low cost.

At present, pork is in a cyclical upward phase, and Cofco Meat, as one of the most important operators in China's pork market, will receive a strong boost to its performance and share price. This week, Cofco meat rose as much as 16.39%.

Prior to this, Cofco Meat released its 2019 semi-annual report at the end of August, which reversed losses due to losses in pig farming and high growth in meat import business. We believe that we should not only focus on poor medium-term performance, but also focus on the high potential that Cofco meat profits are expected to improve significantly in the later period, supported by pig prices.

two。 Market data analysis

2.1 list of major indices

In terms of valuation, this week, the Hang Seng Index PE reached 10.31, slightly below-1 standard deviation; Hang Seng state-owned enterprises PE to 8.25, higher than-1 standard deviation. The PB of Hang Seng Index is 1.17, slightly lower than-1 standard deviation, and the PB of Hang Seng state-owned enterprises is 1.09, higher than-1 standard deviation.

2.2 Overview of industry data

The top three stocks in the Hang Seng Index this week were AAC Technologies Holdings Inc. 11.84 per cent, CNOOC Limited 5.71 per cent and Sunny Optical Technology 0.25 per cent. The top three stocks that fell were Geely Automobile-7.79%, Zhongzhou International-7.64% and Techtronic Industries-7.22%.

As for the Hong Kong stock industry, the two industries that maintained growth were 3.06% of information technology and 1.05% of energy. In addition, in terms of valuation, the optional consumer sector remains at the top of the list, followed by daily consumption and health care, just like last week.

2.3 Market sentiment

This week, the turnover of the Hang Seng Index was HK $373.9 billion, roughly the same as last week's turnover of HK $371.6 billion. The proportion of short selling in the whole market reached 16.29%, down from 17.35% last week.The top three short sellers in the sector were consumer services II, banks, cars and auto parts, at 25.07%, 23.97% and 18.47%, respectively.

This week, the Hang Seng AH share premium index was 129.93, continuing to rise from last week. In terms of peripheral market sentiment, the VIX index closed at 15.32 on Friday, and the market panic was relatively stable.

3. Analysis of capital flow between the two places

In terms of capital flows, this week, the cumulative net outflow of southbound capital transactions reached 179 million yuan (RMB), of which the net outflow of Hong Kong stocks in Shanghai stock market was 718 million yuan (RMB), and the net inflow of Hong Kong stocks in Shenzhen stock market was 539 million yuan (RMB).

In terms of individual stocks on the board of Hong Kong stocks.From the perspective of the degree of activity of southward capital buying and selling, this week, the sectors such as finance, information technology, health care, and optional consumption were more actively traded, with the top three net buyers being Sunny Optical Technology, Semiconductor Manufacturing International Corporation and Industrial and Commercial Bank of China respectively. The top three net sellers were China Merchants Bank, Tencent and Hong Kong Exchanges and Clearing.

4. Overview of key new shares

Budweiser Brewing Company APAC Limited (HK.01876)

According to the prospectus, Budweiser Brewing Company APAC Limited Holdings Limited is part of ABInBevGroup. In 2018, Budweiser Brewing Company APAC Limited was one of the most profitable Asia-based beer companies in terms of normalised earnings before interest, tax, depreciation and amortisation. Budweiser Brewing Company APAC Limited produces, imports, promotes, distributes and sells more than 50 owned or licensed combinations of beer brands, including global brands Budweiser, time and Corona, as well as multinational and local brands such as Fujia, Carey and Harbin.

In terms of industry, according to GlobalData, as of 2018, the Asia-Pacific region is the largest beer consumption market in the world in terms of consumption and value, and is also one of the regions with the fastest growth rate of beer consumption in the world. The Asia-Pacific region accounted for 37 per cent of global beer consumption in 2018 and is expected to contribute 47 per cent of global beer consumption growth between 2018 and 2023. Beer accounts for the largest consumption share of alcoholic beverages in the Asia-Pacific region ("alcoholic beverage market share") and is expected to remain relatively stable from 2018 to 2023.

In terms of competition, according to GlobalData, Budweiser Brewing Company APAC Limited ranked first in terms of beer sales in China in 2018 and in the fast-growing high-end and ultra-high-end categories in terms of beer sales and beer sales, and ranked first in South Korea in terms of beer sales and beer sales. Ranked in the top three in terms of beer sales and beer sales in India, and ranked first in the fast-growing high-end and ultra-high-end categories in terms of beer sales and beer sales; in Vietnam, it ranked in the top three in the high-end and ultra-high-end categories in terms of beer sales and beer sales.

Financially, in 2017 and 2018, Budweiser Brewing Company APAC Limited's income was US $6099 million and US $6,740 million respectively, representing an endogenous growth of 7.4%. Per 100 liters of income increased by 4.9%, mainly driven by the gradual shift of the product portfolio to the high-end category; normalized earnings before interest, tax, demolition and amortization were US $1652 million and US $1994 million, respectively, representing an endogenous growth of 16.9%. Budweiser Brewing Company APAC Limited's net profit in 2017 and 2018 was US $572 million and US $959 million respectively.

In the three months ended March 31, 2018 and 2019, Budweiser Brewing Company APAC Limited's income was US $1584 million and US $1606 million, an endogenous growth of 7.2%, and net profit was US $213m and US $240m, respectively.

In terms of valuation, it is assumed that the offering price per share is HK $28.50 (the median of the indicative offering price range) and the over-allotment option has not been exercised, after deducting the underwriting fees and estimated expenses relating to the global offering, it is estimated that the Group will receive a total net income of approximately HK $34983.8 million from the Global offering.

In terms of the use of the funds, 1) repay in full the debt owed to Mexbrew Investment SARL under the Korean debt receivable and 2) subsequently repay part of the debt to AB InBev Investment Holding Company Limited under the shareholder loan.

5. Risk hint

Devaluation of the RMB, lower-than-expected economy, policy risks, global economic downturn.