Investment Daily Note

Oil prices hit five-year low; three major US indices lower

Global stock markets moved wildly yesterday. All three major US stock indices fell on extended slides of oil prices pulling energy stocks lower. Dow closed at 17,533, down 268 points. S&P 500 closed at 2,026, down 34 points. NASDAQ closed at 4,686, down 82 points. ADRs fell in the US market, with their closing prices effectively putting HSI down 373 points, closing at 23,151. On news that the Organization of the Petroleum Exporting Countries (OPEC) expected a reduced demand for crude oil next year, oil prices slipped to the lowest in five years. New York crude oil futures closed at US$ 60.94/bbl, down US$ 2.47. New York gold futures settled at US$ 1,229/oz, off US$ 3.

HSI turned around; new economy stocks rebounded

The Hang Seng Index opened 43 points lower pulled by the retreat in US stocks, which fell to 23,345 at lowest and then erased early losses led by the Mainland market, closing at 23,524, up 38 points. The HSCEI settled at 11,372, up 39 points. The market turnover was HK$ 109.9bn. Tencent (700.HK, HK$ 115.50) edged down 0.3% despite market uptrend after its Chairman Ma Huateng cut holding in the company. Stalling pharmaceutical and environmental protection and new energy stocks rebounded yesterday. Sihuan Pharm (460.HK, HK$ 5.27), BJ Ent Water (371.HK, HK$ 5.04) and Singyes Solar (750.HK, HK$ 11.44) surged 8.7%, 9.3% and 11.1% respectively. Also making a comeback was the Macau casino sector. Galaxy Ent (27.HK, HK$ 47.90) and Sands China (1928.HK, HK$ 40.30) added 3.2% and 1.1%, and the former was the top gainer among HSI constituents. A-share ETFs continued to be boosted. X iShares A50 China (2823.HK, HK$ 11.90) and CSOP A50 ETF-R (2822.HK, HK$ 12.16) gained 5.5% and 5.6% with an aggregate turnover of HK$ 14.77bn, representing 13.4% of total turnover yesterday.

Potential launch of “Ten Measures” sets a good chance to enter Tianjin Capital

Tianjin Capital Env (1065.HK, HK$ 5.37) is principally engaged in the processing of sewage water and management of related facilities. The company is based in Tianjin City and has presence in other regions like Hangzhou. Leveraging on the central government’s commitment in waste reduction and pollution prevention over recent years, Tianjin Capital possesses competitive edges as Tianjin City is among the core cities to combat pollution. The company has posted decent results this year. As of end-September, revenue and net profit for the first three quarters grew 2.7% and 20.6% YoY to RMB1.33bn and RMB250mn respectively.

China has been attaching strenuous efforts to resolving water pollution problem over the years. Active promotion of urbanisation also creates higher demand for sewage treatment across the country. There is news flow that the Action Plan on Prevention and Control of Water Pollution (“Ten Measures to Improve Water Quality”/ “Ten Measures”) has been passed by respective ministries and commissions, and may be issued within the month once approval is granted. The primary objective of the “Ten Measures” is to control the lowest-quality Class V water by the year of 2017 instead of the scheduled 2020, showing the state government’s eagerness to solve the water pollution problem. The “Ten Measures” are expected to involve a total investment value of RMB2,000bn, favourable to the medium to long-term development of the sewage treatment industry.

Recent weakness in environmental protection stocks has largely weighed on the performance of Tianjin Capital. But taking into account the decent results achieved by the company and the huge business potential arising from the sector-friendly state policies, price correction is seen as a good chance for investors to buy on dips. Estimated P/E of Tianjin Capital is 20.5X, a discount compared with the 26.6X of BJ Ent Water and 28.1X of CT Environmental (1363.HK, HK$ 7.59) and hence presenting better upside potential. Investors are recommended to buy at HK$ 5.30, with the target price set at HK$ 5.90 and stop loss at HK$ 4.82.

Disclaimer

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