Stock Picks Post-Political Powwow in China

Main reference: Story in Changjiang Commercial Times

THE LEGISLATIVE gathering in Beijing wraps up this Sunday.

Market watchers say there are several stocks to watch after all the speeches are delivered.

With all the talk about the newly-installed government’s renewed fervor for cleaning up China’s air and water, environment-themed plays have been getting a lot of market attention lately.

Great Wall's SUV   Photo: CompanyBut concurrent with the ongoing National People’s Congress is the final surge of full year 2012 reporting season for A-share listed enterprises as well as first quarter reports that are just around the corner.

Therefore, late-reporting firms expected to announce stronger-than-expected 2012 earnings as well as those listcos seen having healthy January-March periods are also garnering positive investor attention.

In short, following the end of the legislative gathering, three sectors in particular are expected to see their representative counters outperform the market: autos, utilities and textiles.

Autos

Many brokerages are revving up support for listed automakers and commercial vehicle plays, considering their shares of reasonable value and poised for more upside.

Haitong Securities is recommending Zhengzhou Yutong Bus Co (SH: 600066), Great Wall Motor Co (SHA: 601633) and Changan Auto (SZA: 000625)

The brokerage expects first quarter automobile sales to rise over 10% year-on-year.

It said that taking a long-term view of the sector, the car-to-population ownership rate is still far below level in industrialized countries and considers this raw statistic alone and suggesting even faster sales rates down the road.

And with the new government in Beijing making continuous declarations of ongoing support for the country’s decades-old shift to the cities by millions of economic migrants, car ownership will only become a more reasonably-achieved dream for China’s growing middle class.

Add to all this the fact that urban transportation and inter-city highway networks are constantly being upgraded or expanded, the goal of owning a car of one’s own will become increasingly commonplace.

The unfulfilled dream of more and more Chinese of car ownership is good news for automakers like BYD.    Photo: CompanyAnxin Securities said it expects full-year 2013 auto sales growth to grow around 10%, higher than last year’s rate, adding that January-March orders to outpace market expectations.

The brokerage also points to three factors behind its bullish auto sector take.

A recent survey commissioned by the country’s central bank found the desire for car ownership at levels not seen since 1999.

Second, macroeconomic policy is seen as being not averse to easing or at least stable credit availability going forward, thus making car loan conditions more attractive.

Finally, December auto sales figures reveal that dealers have been having relative success in offloading their accumulated inventories, thus making room for new models to fill up showrooms.

Utilities

Brokerages generally expect Chinese power plays to outperform the market in the near term.

Sinolink Securities is upbeat on Huaneng Power International (SHA: 600011), Huadian Energy Co (SHA: 600726) and GD Power Development (SHA: 600795).

Weak thermal coal prices, stable electricity tariffs and a gradual increase in electricity usage so far this year all point to better power sector performance in 2013.

China shares recent performance    Source: Yahoo

Some thermal power plays are expecting first quarter sales to surge by between 200-300% year-on-year, and see this trend continuing for the first half of the year.

Many of the annual reports and guidance from sector plays suggest that 2012 may represent an industry-wide rebound.

Guangdong Baolihua New Energy (SZA: 000690) has already released its 2012 results, with net profit surging over 165%.

Meanwhile, Huaneng Power International is guiding for bottom line growth of over 340% for last year, while peer power play Datang International Power (SHA: 601991) expects net profit to have risen up to 615%.

Sinolink added that utilities shares are not only displaying strong sales, but their share prices are still reasonable valued.

The brokerage is keen on Guangdong Baolihua, Shenergy Co Ltd (SHA: 600642) and Shanghai Electric Power (SHA: 600021).

Textiles

Although textile and apparel plays are not expected to report breakout sales figures for 2012, market watchers say low cotton prices and the 32% year-on-year rise in Chinese textile exports in the January-February period all point to better times to come.

GF Securities is upbeat on Luolai Home Textile Co (SZA: 002293) and Shenzhen Fuanna Bedding and Furnishing Co (SZA: 002327).

See also:

Four Hot China Share Themes Worth Watching