Strategic viewpoint

This week, the biggest impact on the Hong Kong stock market is the major move of "full circulation" of H shares. The Securities Regulatory Commission (CSRC) announced on Friday (November 15) that with the approval of the State Council, the CSRC is now comprehensively promoting the reform of "full circulation" of H shares. CSRC website published the "H-share companies in the territory of unlisted shares application" full circulation "business guidelines" (Securities Regulatory Commission notice (2019) No. 22), H-share "full circulation" application materials catalogue and audit attention points. Qualified H-share companies and companies that intend to apply for initial public offering of H-shares may apply for "full circulation" in accordance with the law. This time, the comprehensive landing of H-share "full circulation" will not only greatly improve the ecology of H-share market in the future, but also inject new impetus into Hong Kong stock market. Previously, due to the particularity of H shares, it is divided into foreign shares that can be circulated in Hong Kong Exchanges and Clearing and domestic shares that cannot be circulated, which makes it impossible for the shares held by major shareholders to be reduced or pledged in the secondary market. To some extent, investors do not have to worry about the pressure on the stock price caused by the reduction of the holdings of major shareholders, but this has greatly dampened the enthusiasm of major shareholders to manage the market capitalization of listed companies.

After realizing the "full circulation" of H shares, in the short term, the tradable shares in the market will increase to a certain extent or lead to the pressure of major shareholders to reduce their holdings, but in the long run, it will greatly enhance the voice of major shareholders in the Hong Kong stock market. it will not only help to enhance the level of corporate governance, but also help to improve the liquidity of the Hong Kong stock market and achieve more effective pricing. In addition, it will also play a positive role for the entire Hong Kong stock market. After solving this problem, it will activate the activity of the market, and it is bound to attract more mainland enterprises to list in Hong Kong in the future. We believe that in the current environment of relative undervaluation of Hong Kong stocks, the possibility of large-scale reduction by major shareholders is very slim. on the contrary, this will increase the business motivation of the enterprise, enhance the enterprise value, and make the enterprise value return. On the other hand, to some extent, this measure also completes the allocation of domestic shareholders' realized funds, meets the needs of shareholders' funds allocation abroad, and strengthens the pricing and settlement function of RMB in overseas financial markets. at the same time, further improve the liquidity of RMB in the offshore market.

In terms of monetary policy, this week the central bank released the report on the implementation of China's Monetary Policy in the third quarter of 2019, which mentioned that it will continue to implement a prudent monetary policy, maintain stability, grasp the strength and rhythm of the policy, and strengthen countercyclical adjustment. we will strengthen structural adjustment, properly deal with the short-term downward pressure on the economy, and resolutely refrain from "flooding". Keep the growth rate of broad money M2 and social financing scale in line with the nominal GDP growth rate. We should pay attention to the guidance of expectations, prevent the divergence of inflation expectations, and keep the overall price level stable. It is worth noting that the report mentions increased uncertainties in the price situation, but remains generally manageable, and stresses that there is no basis for sustained inflation or deflation.

Market review

Hong Kong stocksThis week, the Hang Seng Index fell 1328.48 points, or 4.79%, to close at 26326.66 points, with a total weekly turnover of HK $371.2 billion. The number of Hang Seng state-owned enterprises fell 457.50 points, or 4.20%, to close at 10424.80 points.

AStock aspectThis week, the Shanghai Composite Index fell 2.46% to close at 2891.34 points, the Shenzhen Composite Index fell 2.50% to close at 9647.99 points, and the gem Index fell 2.13% to 1674.78 points.

Market trends

1.1 impact of major news

(1) Major economic data: the total volume of retail sales of consumer goods in China increased by 7.2% in nominal terms in October compared with the same period last year, and is expected to be 7.9%, with a previous value of 7.8%. In October, the added value of industries above scale increased by 4.7% compared with the same period last year, with an expected value of 5.3%, with a previous value of 5.8%. From January to October, fixed asset investment (excluding farmers) increased by 5.2% compared with the same period last year, and is expected to be 5.4%, with a previous value of 5.4%. The unemployment rate in the national urban survey fell to 5.1% in October from 5.2% in September.

(2) leaders of the State Council presided over a forum of economic situation experts and entrepreneurs, emphasizing the need to maintain macro-policy stability and make more effective use of counter-cyclical adjustment tools for macro-policies. We will improve fiscal, monetary, employment and regional policies, timely and appropriate regulation and control, improve the mechanism of policy coordination, transmission and implementation, and enhance effectiveness and sustainability. We will strengthen support for the real economy, especially small and private enterprises, and boost market confidence. We will optimize the use of local government special debts, encourage more social funds to be invested in areas such as making up for deficiencies and benefiting people's livelihood, expand effective investment, and enhance the endogenous driving force for development. We will improve the policy system of giving priority to employment, continue to do a good job in supporting enterprises to stabilize jobs and expand employment space, strengthen employment services for key groups, and maintain overall employment stability.

(3) the people's Bank of China issued a report on the implementation of China's monetary policy in the third quarter of 2019, emphasizing the implementation of a prudent monetary policy, strengthening counter-cyclical regulation, and maintaining reasonable and abundant liquidity and reasonable growth in the scale of social financing. and give full play to the role of monetary and credit policies in promoting economic restructuring and better serve the real economy.

(4) in terms of the automobile industry, the China Automobile Association: in October, the production and sales of passenger vehicles completed 1.938 million and 1.928 million respectively, down 3.2% and 5.8% respectively from the same period last year; in October, the production and sales of new energy vehicles completed 95000 and 75000 respectively, down 35.4% and 45.6% respectively from the same period last year. Cui Dongshu, Secretary General of the Federation of passengers: the downturn in sales of new energy passenger cars is mainly due to the sharp rise in sales costs caused by the decline of subsidies at the end of June, the sluggish consumer demand for cars, and the disturbance of the shortage of six plug-in in superimposed countries. at present, the new energy market is still in a continuous adjustment period after the recession.

(5) in the pork industry, leaders of the State Council said that it is necessary to take more measures to stabilize agricultural production, speed up the resumption of pig production, abolish unreasonable restrictions on raising, adopt multiple measures to ensure market supply, and curb the excessively rapid rise in the prices of some products.

(6) with regard to the e-commerce industry, the State Administration of Taxation and other four departments have made it clear that the income rate of cross-border e-commerce enterprises is determined in accordance with 4%, and those who meet the preferential policy conditions for small and low-profit enterprises can enjoy the preferential policy of income tax, which will be implemented from January 1, 2020.

(7) in the dairy industry, the Ministry of Agriculture and villages: from January to September, the national output of fresh milk increased by 5.2% compared with the same period last year; in 2019, the local government allocated about 2 billion yuan to support the expansion of dairy cows, dairy processing and dairy consumption cultivation, and promote the revitalization of the dairy industry.

(8) with regard to the import and export market, the General Administration of Customs and the Ministry of Agriculture and Village announced that the restrictions on the import of poultry from the United States will be lifted from now on, and the import of poultry from the United States that meets the requirements of Chinese laws and regulations will be allowed. The relevant responsible persons of the two departments said that after China lifted the restrictions on the import of poultry in the United States, it will further expand the source market of poultry imports in China and effectively meet the market demand.

1.2 Corporate dynamics

AAC Technologies Holdings Inc. (HK.02018)

AAC Technologies Holdings Inc., a provider of smart device solutions, announced its results for the nine months ended September 30, 2019. In the first nine months of 2019, the company's revenue was 12.579 billion yuan, down 5% from the same period last year, and the net profit was 1.465 billion yuan. Year-on-year decline of 47%; earnings per share of 1.21 yuan, down 46% from the same period last year. In the third quarter of 2019, the company's revenue was 5.012 billion yuan, up 3% from the same period last year and 31% from the same period last year; net profit was 695 million yuan, down 29% from the same period last year, up 106% from the previous year; and earnings per share was 0.58 yuan, down 28% from the same period last year and 107% from the previous year.

Judging from the data, although AAC Technologies Holdings Inc. 's performance in the first nine months was poor compared with last year, the company's share price may have bottomed out and rebounded in the third quarter from a decline to an increase in year-on-year revenue growth, a slowdown in profit growth and a rise in month-on-month data. In August, we said in our research report, "AAC Technologies Holdings Inc. has fallen by about 77% in the past half a year, which is at a low value; if future performance is boosted, the stock price is likely to pick up." "

From an industry point of view, the recovery of the smartphone market will have a greater impact on AAC Technologies Holdings Inc. 's future performance. The strong sales of Apple Inc iPhone 11 and the successive releases of Android flagship phones have contributed to the stabilization and recovery of the company's acoustics business and touch motor business.

In addition, AAC Technologies Holdings Inc. announced on November 15 that the company plans to issue dollar-denominated bonds only to professional investors, and that the net proceeds from the proposed bond issue will be used for existing debt refinancing and group business development. As of September 30, 2019, the group had paper cash of 2.9 billion yuan and a net asset-liability ratio of 10.5%. Based on this, we judge that bond issuance is only a reasonable financing means for management, which may affect EBITDA in the short term and have little impact on the company in the long run.

To sum up, we believe that AAC Technologies Holdings Inc. 's share price still has room to rise, and investors can pay attention to the recovery of the company's growth rate; at the same time, we should also note that the company's optical business is facing fierce competition from peers, and if downstream demand falls, beware of the company's performance risks.

Lenovo Group Limited (HK.00992)

On November 15th, Lenovo held Tech World Innovation and Technology Conference and unveiled a number of highly innovative and imaginative consumer terminal hardware, including a return to the classic Motorola RAZR with a unique folding screen design, the debut of the world's first 5G PC, and the world's first folding screen notebook, the ThinkPad X1.

During the Singles' Day holiday this year, Lenovo's sales of the whole network reached an all-time high of 4.2 billion yuan. On the JD.com platform, Lenovo computer won the top six lists of computer digital, and continued to dominate the list of notebooks, light books, game books, desktops, game desktops and all-in-one computers. In the frivolous list, Lenovo brand notebooks and ThinkPad notebooks occupy the top two. Device+ has also entered a period of rapid growth, with sales of SIoT hardware equipment growing by 735% and value-added services growing by 45% year-on-year. And up to now, Lenovo's registered members have exceeded 90 million and the number of monthly active users has exceeded 12 million.

It is worth noting that Lenovo's mobile phone business has been profitable and growing month-on-month over the past four quarters. Different from BABA, Tencent and China Telecom Corporation, Lenovo does not do cloud computing service providers. Lenovo's cloud computing is mainly on the device side, which can meet the requirements of customers' personalized customization, and does not compete with BABA, Tencent and China Telecom Corporation.

Market data analysis

2.1 list of major indices

In terms of valuation, this week, the Hang Seng Index PE rose to 10.29, higher than the-1 standard deviation, while the Hang Seng state-owned enterprise PE reached 8.22, higher than the-1 standard deviation. The PB of Hang Seng Index is 1.15, slightly lower than-1 standard deviation, while the PB of Hang Seng state-owned enterprises is 1.09, higher than-1 standard deviation.

Main index comparison

2.2 Overview of industry data

Among the components of the Hang Seng Index this week, the best performers were CSPC Pharmaceutical-0.72%, AAC Technologies Holdings Inc.-0.78% and China Mengniu Dairy-1.99%. The worst performers were Sun Hung Kai Properties-11.02%, Swire AG-10.76% and Wharf Real Estate Investment-9.58%.

As for the Hong Kong stock industry, the best performing industries were health care, communications services and consumer goods, with decreases of-2.70%,-3.19% and-3.70%, respectively. In addition, in terms of valuation, the optional consumer sector remains at the top of the list, followed by daily consumption and health care.

2.3 Market sentiment

This week, the turnover of the Hang Seng Index was HK $371.2 billion, down from HK $411.3 billion last week. The proportion of short selling in the whole market reached 17.68%.The top three short sellers in the sector are banks, consumer services Ⅱ and telecommunications services Ⅱ, which are 30.22%, 21.56% and 19.81%, respectively.

This week, the Hang Seng AH share premium index was 129.16, up slightly from last week.In terms of peripheral market sentiment, the VIX index did not change much this week, closing at 12.05 on Friday, while market panic remained low.

Analysis of capital flow between the two places

In terms of capital flow, this week, southbound capital turnover net inflow of 8.54 billion yuan (RMB), compared with last week's 2.701 billion yuan (RMB) capital inflow level increased sharply. Of this total, the net inflow of Hong Kong stocks in Shanghai was 4.922 billion yuan (RMB), much higher than last week's net inflow of 344 million yuan (RMB), while the net inflow of Hong Kong stocks in Shenzhen was 3.618 billion yuan (RMB), up significantly from last week's net inflow of 2.357 billion 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, health care and information technology were more actively traded. The top three stocks with net purchases were Meituan comments-W, Industrial and Commercial Bank of China and China Construction Bank Corporation, and the top three net sellers were China Merchants Bank, Sunac China and Sino Biopharmaceutical.

An overview of key new shares

BABA-SW (HK.09988)

BABA submitted an application for listing on the Hong Kong Stock Exchange on November 13. It has been revealed that BABA's offering includes 500m common shares, as well as an over-allotment option that can issue up to 75 million new common shares. The offering, which will include an international offering and a Hong Kong public offering, is expected to be priced as early as November 20.

BABA handed over his Q2 financial report for fiscal 2020 (corresponding to Q3 in 2019) before the US stock market opened on November 1. Revenue reached 119 billion, up 40% from the same period last year. Nonmuri GAAP net profit rose 40% year-on-year to 32.7 billion, setting another quarterly high. In terms of business, the core business revenue was 101.2 billion, up 40% from the same period last year, and the growth rate continued to slow on the basis of a large base; cloud computing revenue was 9.2 billion, up 64% from the same period last year; large entertainment revenue was 7.2 billion, and innovative business revenue was 1.2 billion, all moderate growth over the same period last year.

BABA's annual active consumers grew by 20 million last quarter, and about 70 per cent of the new users came from less developed areas. This quarter, the index increased by 19 million, and the growth rate slowed slightly compared with the previous quarter. In terms of GMV, Tmall's physical GMV as a growth rate of 26%, although it is still significantly higher than the online physical retail growth rate of about 21% in the same period, there is still a relatively obvious slowdown, which is also in sharp contrast to the accelerated growth of GMV in the last quarter.

Generally speaking, BABA's mature ecology and absolutely leading e-commerce scale make it have a very wide moat. The strategic layout of new retail, entertainment, finance, payment, logistics and other infrastructure continues to consolidate BABA's long-term competitiveness in the core business ecology and science and technology areas, ensuring long-term growth space.

According to the prospectus, BABA will be listed in Hong Kong as a company with different voting structures. Prior to this, XIAOMI Group and Meituan Dianping listed on the Hong Kong Stock Exchange with a "different voting rights" structure and were officially included in the Hong Kong Stock Connect on October 28th, 2019. According to BABA's company quality and transaction scale, BABA is likely to be included in the Hong Kong Stock Connect in the future.

Based on the indicative offering price of HK $188.00 per offer share of the Hong Kong Public offer and the International offer, after deducting the estimated underwriting fee and the estimated offer fee payable, it is estimated that the over-allotment option has not been exercised, the net funds raised from the global offering is approximately HK $93.542 billion; assuming the over-allotment options are fully exercised, the net funds raised from the global offering is approximately HK $107.605 billion.

In terms of the use of funds, BABA plans to use the proceeds to drive user growth and participation, help enterprises achieve digital upgrading, improve operational efficiency, and continuous innovation.

Risk hint

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