Source: Broker China
Author: Chen Ming

In recent days, the target prices of some large companies have been intensively raised by foreign investment. Among them, J.P. Morgan's latest report raised the Hong Kong stock target price of internet giant Meituan from HK$140 to HK$200, while Citi will $MEITUAN-W (03690.HK)$ The target price will be raised from HK$192 to HK$203; Bank of America Securities will$NONGFU SPRING (09633.HK)$The target price was raised sharply from HK$29.5 to HK$40, and the rating was raised from “neutral” to “buy”.

Additionally, DBS raised Tencent's target price from HK$537 to HK$577, and J.P. Morgan Chase will$NetEase (NTES.US)$The target price will be raised from HK$170 to HK$185, and UBS will$GOLDWIND (02208.HK)$The target price of Hong Kong stocks was raised from HK$6 to HK$9.5, and Morgan Stanley raised$FUYAO GLASS (03606.HK)$The target price is HK$45, and Yamato will $BYD COMPANY (01211.HK)$ The target price for Hong Kong stocks rose from HK$376 to HK$431.

In terms of economic data, the November Caixin China Manufacturing Purchasing Managers' Index (PMI) released on December 2 recorded 51.5, up from 1.2 percentage points in October, and has been in the expansion range for two consecutive months. Earlier, the manufacturing PMI for November, as announced by the National Bureau of Statistics, rebounded 0.2 percentage points to 50.3, and was also higher than the boom and bust line for two consecutive months.

The above data boosted capital market sentiment. In the secondary market, the A-share and Hong Kong stock markets rose together on the 2nd. By the close, all three A-share indices had risen by more than 1%. Next, how will the market be interpreted?

Intensive increase

On December 2, J.P. Morgan Chase published a report stating that Meituan is one of the best performing stocks in China this year, and still believes that its stock price has room to rise within 6 to 12 months, mainly due to the continuous increase in the degree of monetization and the continuous improvement of revenue recovery in the store and hotel business.

Earlier, Meituan announced its third-quarter results for the end of September. According to the data, Meituan's third-quarter revenue was 93.58 billion yuan, up 22.4% year on year, and the market estimate was 92 billion yuan; core local commercial revenue for the third quarter was 69.37 billion yuan, up 20.2% year on year, which also exceeded market expectations; new business revenue was 24.2 billion yuan, up 28.9% year on year, and the market estimated 23.3 billion yuan.

In the third quarter, Meituan's net profit was RMB 12.86 billion, up 258% year on year, and the market estimated RMB 9.41 billion; adjusted net profit was RMB 12.83 billion, up 124% year on year, and the market estimated RMB 11.66 billion. Regarding the balance of growth and profit that the outside world is concerned about, Meituan CEO Wang Xing said, “We have always believed that growth is a top priority. We also focus on high-quality growth and profitability, and we will pay attention to maintaining a healthy ecosystem. Our goal is to achieve high-quality growth, meet our strategic goals, and ensure profitable sustainable growth every year.”

J.P. Morgan notes that Meituan's profitability is still strong. It is predicted that adjusted earnings per share will increase 33% next year. The bank's forecast is 9% higher than the market forecast, and it is also one of the fastest growing companies in the bank's coverage. According to J.P. Morgan Chase, Meituan is one of the highest quality consumer goods and internet companies in China. It maintains an “plus” rating, and the target price has increased from HK$140 to HK$200.

Citi has also been raised $MEITUAN-W (03690.HK)$ Target price. According to Citigroup's latest research report, Meituan's third quarter results were steady, and total revenue and adjusted net profit for the period were higher than market expectations. The related performance was mainly due to higher than expected core local commercial operating profit growth and narrower loss performance than expected. Looking ahead to the fourth quarter, the latest stimulus measures may support consumer demand. The bank also believes that due to Meituan's strong execution and continuous innovation in products and operating strategies, its growth prospects will remain unchanged while maintaining macro-control and balanced growth. Citi raised Meituan's target price from HK$192 to HK$203, maintaining a “buy” rating.

Bank of America Securities's latest report will $NONGFU SPRING (09633.HK)$ The target price was raised sharply from HK$29.5 to HK$40, and the investment rating was raised from “neutral” to “buy”. Bank of America Securities predicts that the negative impact of the public opinion storm is weakening. It is expected that Nongfu Spring's sales will increase by 10% and 15% respectively this year and next two years, and the aquatic products market share may return to 2023 levels in the next one to two years. At the same time, “Oriental Leaf” is leading the sugar-free tea sector, and there is huge room for growth in tea products.

Bank of America Securities pointed out that Nongfu Springs has resilient profit margins. The net profit margin is predicted to reach 27.7% and 27.8% this year and next two years, slightly lower than last year's 28.3%, but it is better than market expectations. Risk factor expectations are mostly reflected in stock price performance. The bank expects that the price war in the industry will continue next year, but the competitive landscape will not deteriorate again compared to this year. I believe the market situation will stabilize.

DBS recently raised $TENCENT (00700.HK)$ The target price of Hong Kong stocks. DBS analysts Sachin Mittal and Andy Yu said in the report that Tencent's game revenue growth may accelerate this year, driven by faster monetization of top games and new games such as the “Dungeon and Warrior” mobile game. They said that Tencent's international gaming business currently accounts for 30% of its total game revenue. By 2023-2026, the compound annual growth rate of this business may reach 12%, which is growing rapidly. A high-margin revenue stream, such as video account ads, may support its gross margin growth. DBS expects Tencent's advertising revenue to grow at a CAGR of 15% from 2023 to 2026. DBS maintained its “buy” rating on Tencent shares and raised its target price from HK$537 to HK$577.

General J.P. Morgan $NTES-S (09999.HK)$ The target price was raised from HK$170 to HK$185, maintaining the “Overweight” rating. In response to the strong performance of the game business, J.P. Morgan continues to rank NetEase as the preferred stock in the digital entertainment sector. It is expected that the return of Blizzard games and contributions from new games such as the “Marvel Clash” global edition, “16 Voices of Yan Yun”, and “Fragpunk” will accelerate the year-on-year increase in online game revenue from 5% this year to 8% in 2025. Expecting faster game revenue and strong shareholder returns can support NetEase's valuation to be re-valued within the next 6 to 12 months. The adjusted earnings forecast per share for next year will be raised by 5% to $57.6.

UBS will be $GOLDWIND (02208.HK)$ The target price for Hong Kong stocks was raised from HK$6 to HK$9.5, and the rating remained “buy”. The bank pointed out that Goldwind Technology is best positioned because it has the most diversified business, has overseas orders from various regions, and focuses on attractive markets, with the highest backlog of overseas orders and export visibility. UBS is optimistic about the future of Chinese turbine original equipment manufacturers. It believes that the Middle East, Africa, and ASEAN are the most favorable markets for Chinese turbine manufacturers. UBS said that the preferences for turbine manufacturers are Goldwind Technology, Mingyang Intelligence, and Sany Heavy Energy in order.

Yamato published a research report and will $BYD COMPANY (01211.HK)$ The target price for Hong Kong stocks was raised from HK$376 to HK$431, maintaining the “buy” rating. Yamato pointed out that the sales volume of BYD's DMi4 and DMi5 models brought surprise to the market. At the beginning of the year, the company stated that it is committed to developing autonomous driving, and its strategy is to introduce autonomous driving functions into mass-market models priced at 0.1 million to 0.2 million yuan. The bank expects BYD to launch intelligent features in the Ocean series and Dynasty series starting in 2025, further consolidating its leading position in mass market segments. The bank expects that between 2025 and 2026, BYD's car sales in mainland China will reach 4.4 million to 4.8 million vehicles, breaking the 4.2 million vehicle sales record set by Volkswagen in 2019.

Morgan Stanley raised $FUYAO GLASS (03606.HK)$ Target price. The bank pointed out that since Fuyao Glass's market share increased faster than expected and adopted value-added products, it raised Fuyao Glass's 2024-2026 net profit forecast by 3%-12% to reflect stronger revenue growth and profit margin expansion. Morgan Stanley raised the target price of Fuyao Glass by 13% from HK$40 to HK$45, maintaining the “in sync with the market” rating.

The economy is improving, and institutions are optimistic

The November Caixin China Manufacturing Purchasing Managers' Index (PMI) released on December 2 recorded 51.5, up from 1.2 percentage points in October, and has been in the expansion range for two consecutive months. Earlier, the manufacturing PMI for November, as announced by the National Bureau of Statistics, rebounded 0.2 percentage points to 50.3, and was also higher than the boom and bust line for two consecutive months.

On the 2nd, Nomura Securities reported strong economic activity in China in November due to the continued recovery in new home sales and automobile and e-commerce sales. CITIC Securities also said a few days ago that against the backdrop of the recent intensified introduction of a package of incremental policies and the gradual emergence of the effects of the existing inventory policies, the manufacturing PMI recorded 50.3% in November, an increase of 0.2 percentage points over the previous month, and 0.3 percentage points higher than the seasonal average for the past five years. Considering the recent active and continuous introduction of incremental policies, especially policies and measures to promote consumption, it is judged that both sides of the manufacturing industry will improve more clearly. At the same time, it is recommended that the December Central Economic Work Conference set the tone for next year's macroeconomic policy.

CICC pointed out that since late September, China's policies have clearly been strengthened. Various ministries and departments have introduced a number of steady growth policies in areas such as reducing local government debt, stopping and stabilizing the real estate market, and benefiting people's livelihood and promoting consumption, and investor policy expectations have improved markedly. Combined with the current macroeconomic environment at home and abroad, insufficient effective domestic demand is still the main contradiction. Overseas pressure may increase marginally or push countercyclical policies to be further strengthened. In particular, expectations for increased fiscal strength are still strong. The Politburo meeting of the Central Committee and the Central Economic Work Conference, which may be held in December, are expected to continue to set the tone ahead of schedule, guide next year's economic work, and help boost investor confidence.

CICC said that at the moment, the “twists and turns” period of nearly two months for A-shares may be over. Approaching the important year-end policy window, positive factors are expected to help A-shares usher in a “year-end and New Year market.” At the allocation level, although the current small to medium market style has twists and turns, it is expected to be relatively dominant. Although stronger policy expectations at the end of the year are relatively favorable to the larger market style, performance may be biased. At the industry level, it is recommended to start from fundamentals and combine a good supply and demand pattern to lay out booming industries, such as high-end manufacturing of lithium batteries and military industries, and technological hardware such as semiconductors, consumer electronics, and communication equipment. In addition, resilient external demand sectors such as power grid equipment, commercial vehicles, and white goods are also worth paying attention to.

Looking ahead to December, CITIC Securities believes that the Central Economic Work Conference is expected to once again boost institutional financial confidence; economic data is expected to rise steadily in the fourth quarter, and price signals in the real estate sector will improve partially; the impact of negative external expectations has been gradually digested, and the RMB is expected to stabilize; and institutional capital, active capital, and retail capital are expected to resonate in December to drive the market's New Year's Eve market. The increase in institutional expectations in December and the entry of insurance funds into the market may change the current trend of weak institutions and strong active capital in terms of pricing capacity in the market. In terms of allocation, it is also necessary to gradually switch to excellent performance growth and domestic demand consumption.

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