EVENTDRIVENINVESTMENTSTRATEGYEARNINGSPREANNOUNCEMENTSANALYSIS0125

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1、Portfolio & Quant StrategyJanuary 25, 2013A-share MarketRESEARCHChao WANGSFC CE Ref: ASXQiusuo LIJian LIUEvent-Driven Investment Strategy2012 Earnings Preannouncements AnalysisInvestment highlightsThe A-share main boards recent round of annual results announcements signals the start ofthe 2012 e

2、arnings season. In this report, we will analyze 2012 results based on earningspreannouncements and preliminary earnings estimates of listed companies.2012 earnings preannouncement analysis: The proportions of listed companiespreannouncing good news and 50% earnings growth increased, suggesting the n

3、umber ofcompanies that record sequential earnings improvement amid economic recovery has beenrising, raising good expectations for upcoming annual results announcements. Significantsector divergence: 1) in healthcare, electronics, F&B and nonferrous metals, the proportionof preannounced 50% earn

4、ings growth increased, and the percentage ofpreannounced 50% earnings declines was flat or dropped; 2) agriculture, commercialtrade and branded apparel reported a lower proportion of preannounced 50% earningsgrowth and a flat or higher percentage of preannounced 50% earnings decline; 3)construction,

5、 building materials and machinery saw a structural divergence due todiscrepancies in policy support and property investment exposure.Preliminary earnings estimate analysis: net profit growth in 2012 continued to pick up.Implications for stock investmentHigh likelihood of sequential pickup in 2012 re

6、sults lends support to the stockmarket. The probability of sequential 2012 earnings rise has increased as proportions ofcompanies preannouncing good news and 50% earnings growth have reboundedsequentially and preliminary estimates indicate earnings growth was at the positiveterritory. If 2012 result

7、s recover as expected, earnings of listed companies could havereached its nadir in 3Q12 and the stock market will benefit from a recovery offundamentals.Sector view: Favor healthcare in the medium/long term; watch thematic investmentopportunities with nonferrous metals and agriculture in the medium/

8、short term. A)Industries that could post persistent earnings growth: among healthcare, electronics, F&Band nonferrous metals that have a good chance of reporting sequential earnings recovery,we suggest investors focus on healthcares medium-/long-term investment opportunities.B) Cyclicals with se

9、quential earnings rise: we like nonferrous metals in the medium/shortterm and believe it will perform well on the market rally and receive a boost from 2012results. C) Catch-up of laggards that were hurt by poor earnings forecasts: We preferagriculture in the medium/short term. The agriculture secto

10、r did not significantly benefitfrom economic recovery and has been underperforming the market on poor earningsexpectations. We believe some agricultural stocks, especially those benefiting fromagricultural modernization, could catch up due to persistent underperformance andeuphoric sentiment to be f

11、ueled by the upcoming NPC & CPPCC sessions. Our stockselections based on CICC sector analysts forecasts are shown in the following figures.Please read carefully the important disclosures at the end of this reportPE PB(12, %)(%)(12, %)Chg (%)PE PBPEPB(12, %)ChgCICC Research: January 25, 2013Favor

12、 nonferrous metal stocks with earnings recovery in the short/medium termCodeNameCICCratingWarning typeExpected growth（12，%）1W YTDPchgChg (%)2011P/E P/B2012E 2013E 2011Short term (before the Spring Festival)600362.SHJiangxi Copper Company LimitedACCUM(3.57) 13.2412.8516.4114.552.14000060.SZShenzhen Z

13、hongjin Lingnan Nonfemet Company LimitedACCUM(4.18)9.5019.4035.8526.353.48600497.SH Yunnan Chihong Zinc&Germanium Co.,Ltd.ACCUM(2.25) 10.5652.2156.9043.025.15Medium term (after the Spring Festival)600549.SHXiamen Tungsten Co.,LtdACCUM(3.59) 33.6426.3744.0229.447.82600111.SHInner Mongolia Baotou

14、Steel Rare-Earth(Group) Hi-Tech Co.,Ltd ACCUM(2.63) 91.5024.9836.8529.5915.42002340.SZShenzhen Green Eco-Manufacture Hi-Tech Co.,Ltd.ACCUM Slight growth30.00(3.35) 25.4358.2844.0929.373.25Source: Wind, CICC ResearchFavor agricultural stocks that may catch up and benefit from the upcoming NPC & C

15、PPCC sessions in theshort/medium termCodeNameCICCratingWarning typeExpected growth（12，%）Pchg (%)1W YTD2011P/E P/B2012E 2013E 2011Short and medium term（before NPC and CPPCC）000998.SZYuan Longping High-tech Agriculture Co.,LtdBUY4.6230.9769.9537.2632.168.69002041.SZShandong Denghai Seeds Co.,LtdBUYSli

16、ght growth30.003.52(9.16) 39.2335.0828.368.06Source: Wind, CICC ResearchFavor healthcare stocks with steady earnings growth in the medium/long termCodeNameCICCratingWarning typeExpected growth（12，%）Pchg (%)1W YTD2011P/E2012E2013EP/B2011Portfolio with sustainable earnings stability600276.SH000963.SZ6

17、00085.SH600535.SH000513.SZJiangsu Hengrui Medicine Co.,Ltd.Huadong Medicine Co.,Ltd.Beijing Tongrentang Co.,LtdTasly Pharmaceutical Group Co., Ltd.Livzon Pharmaceutical Group Inc.BUYBUYACCUMACCUMACCUM1.82(2.11)0.451.790.0017.5039.7445.0839.4268.9944.2242.3359.9848.5927.9035.6832.8846.7939.2522.0328.

18、6126.2237.4530.3518.069.1810.567.568.243.53000538.SZ Yunnan Baiyao Group Co., Ltd.ACCUM2.5039.6342.3133.2126.599.22Portfolio with sound business strategies600521.SH002422.SZ002262.SZ600587.SH600557.SHZhejiang Huahai Pharmaceutical Co.,LtdSichuan Kelun Pharmaceutical Co., Ltd.Jiangsu Nhwa Pharmaceuti

19、cal Co.,LtdShinva Medical Instrument Co.,Ltd.Jiangsu Kanion Pharmaceutical Co.,Ltd.BUYACCUMACCUMBUYACCUMGrowthSlight growthSlight growth60.0030.0050.00(2.62)0.121.800.5311.1426.2148.6752.8316.2763.4734.7531.9064.0352.7254.5424.2728.0046.5135.7541.5519.0221.3933.4125.8130.184.933.9312.247.176.93Sourc

20、e: Wind, CICC ResearchPlease read carefully the important disclosures at the end of this report2CICC Research: January 25, 2013ContentsAnalysis of 2012 earnings preannouncements . 4FiguresFavor nonferrous metal stocks with earnings recovery in the short/medium term .2Favor agricultural stocks that m

21、ay catch up and benefit from the upcoming NPC & CPPCC sessions in theshort/medium term .2Favor healthcare stocks with steady earnings growth in the medium/long term .2Figure 1: Timing distribution of 2012 earnings preannouncements.4Figure 2: Proportions of listed companies releasing 2012 earning

22、s preannouncements.4Figure 3: Proportion of listed companies preannouncing 50% earnings growth and good news is recovering .5Figure 4: 2012 earnings preannouncements breakdown .5Figure 5: Preannounced earnings growth movements for 2012 .5Figure 6: Sequential proportion change of companies preannounc

23、ing 50% earnings growth as a percentage oftotal sector constituents 3Q12 to 2012.6Figure 7: Sequential share movements of companies preannouncing 50% earnings decline as a percentage oftotal sector constituents from 3Q12 to 2012 .6Figure 8: Infrastructure investments slowed modestly, but real estate

24、 investments rebounded in 4Q12 .7Figure 9: Manufacturing investments slowed to a low level by historical norm .7Figure 10: 2012 earnings preannouncements by sector .7Figure 11: Net profit growth of listed companies releasing preliminary earnings estimates.8Figure 12: Favor healthcare stocks with ste

25、ady earnings growth in the medium/long term.9Figure 13: Favor nonferrous metal stocks with earnings recovery in the short/medium term.9Figure 14: Favor agricultural stocks that could catch up and benefit from the upcoming NPC & CPPCC sessions inthe short/medium term .10Please read carefully the

26、important disclosures at the end of this report310-1510-2210-2911-0511-1211-1911-2612-0312-1012-1712-2412-3101-0701-1401-2101-2802-0402-1102-1802-2503-0403-1103-1803-2504-0104-0804-1504-2204-292005CICC Research: January 25, 2013Analysis of 2012 earnings preannouncementsThe A-share main boards recent

27、 round of annual results announcements signals the start ofthe 2012 earnings season. In this report, we will analyze the 2012 results of A-share listedcompanies based on their earnings preannouncements and preliminary earnings estimates.(I) Earnings preannouncements analysisProportions of companies

28、preannouncing good news and 50% earnings growth bothincreasedA total of 1,143 A-share listed companies have released 2012 earnings preannouncements sofar, with 313 on the main board (22.1% of constituents), 700 on the SME board (99.9%), and130 on ChiNext (36.6%). All listed companies on the SME boar

29、d had released 2012 earningsguidance by end-October 2012, and the second round of peak preannouncements started inmid-January 2013.Figure 1: Time distribution of 2012 earningspreannouncementsTime distribution of earning pre-announcementFigure 2: Proportions of listed companies releasing2012 earnings

30、 preannouncements1,80020062007120%Main boardSMEChiNext1,60020081,40020092010201110089.1100.096.395.998.1 98.2 99.91,20020128078.41,000800600604046.549.758.655.460.254.341.847.336.64002002018.022.1002005-122006-122007-122008-122009-122010-122011-122012-12Source: Wind, CICC ResearchSource: Wind, CICC

31、ResearchBased on earnings preannouncements now available (50% decline, first loss, continued loss,slight decline, slight growth, turning profitable, continued profit; 50% growth, anduncertainties), 654 companies released good news (slight growth, turning profitable,continued profit, and 50% growth),

32、 representing 57.72%, lower than 2011s 67.08%, butslightly higher than 3Q12s 51.05%. The share of companies preannouncing 50% earningsgrowth was 16.50%, marking the second straight quarterly redound of this figure. We believethe number of companies achieving record sequential earnings improvement am

33、id economicrecovery has been rising, raising expectations for upcoming annual results announcements.Please read carefully the important disclosures at the end of this report42005-12 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12=200CICC Research: January 25, 2013Figure 3: Proportion of list

34、ed companies preannouncing 50% earnings growth and good news recovering2H123Q121H121Q122H113Q111H111Q11UncertainSlight declineSlight growthTurning profitableInitial lossesContinued losses-makingContinued profit-makingDeclineGrowthPreannouncing good newsTotal1.1%15.2%25.1%4.6%8.8%1.6%11.6%15.5%16.5%5

35、7.7%100.0%0.5%18.4%26.8%2.8%10.0%5.5%7.9%14.6%13.6%51.0%100.0%0.7%16.4%26.3%3.6%10.5%6.8%9.2%13.6%12.9%52.0%100.0%0.0%8.0%22.0%4.8%14.5%12.5%3.3%16.2%18.7%48.8%100.0%0.4%11.1%27.9%4.8%7.1%2.6%7.5%11.7%26.8%67.1%100.0%0.4%7.6%24.7%5.5%4.5%7.7%9.8%7.9%31.9%72.0%100.0%1.0%6.1%24.0%5.2%5.9%9.4%7.8%6.8%3

36、3.8%70.8%100.0%0.0%0.7%1.7%8.2%10.9%18.4%0.0%8.7%51.2%61.2%100.0%Source: Wind, CICC ResearchThat said, investors should note that: 1) although the number of companiespreannouncing 50% earnings growth and other good news increased sequentially, thefigure remained relatively low compared to the past e

37、ight years (Figure 4). Thecompanies preannouncing good news represented 57.72%, the second lowest figure in thepast eight years (only higher than that in 2008), and the share of companiespreannouncing 50% earnings growth has not exceeded 20% even after the two-quarterrebound, and sits at the lowest

38、level since 2005, suggesting corporate earnings remainedrelatively weak in spite of some improvements.Figure 4: 2012 earnings preannouncementsbreakdownFigure 5: Preannounced earnings growth movementsfor 201210090%Grow thContinued180160Largest magnitude of net profit change170807060profit-makingTurni

39、ngprofitableSlight grow th140120100931138212410050403020UncertainSlight declineContinued80604020462158695840181247100Source: Wind, CICC Researchlosses-makingInitial lossesDecline0Source: Wind, CICC ResearchThe share of listed companies preannouncing 50% earnings declines also increased:This figure n

40、ow stands at 15.5%, 2.9ppt and 3.6ppt higher than in 3Q12 and 1H12,respectively. This indicates earnings of some listed companies are worsening in spite of theeconomic recovery. This is consistent with the CICC macro teams view: Chinas recovery ofgrowth momentum is not yet on a solid footing. We wil

41、l analyze this situation thoroughly.Significant sector divergenceIn order to find which sectors should benefit more from the economic recovery, and whichremain sluggish, we compare sequential share movements of companiespreannouncing 50% earnings growth/decline as a percentage of each sectors totalc

42、onstituents for 2012 with that for 3Q12. As illustrated in Figures 6 & 7, the industriesdiverged sharply.Please read carefully the important disclosures at the end of this report5CommercialtradeChemicalindustryPharmaceuticalbiotechnologyFerrousmetalsFoodtourismFinancialservicesComplexTextile&

43、;apparelTransportationMachinery&equipmentRealestateInformationequipmentInformationservicesMiningHouseholdappliancesBuildingmaterialsDeliverydeviceUtilitiesLightmanufacturingNon-ferrousmetalsAgriculture,forestry,animalElectronicFood&beveragePharmaceuticalbiotechnologyFerrousmetalsFoodtourismC

44、ommercialtradeChemicalindustryFinancialservicesComplexTextile&apparelRealestateTransportationMiningInformationequipmentLightmanufacturingNon-ferrousmetalsInformationservicesElectronicDeliverydeviceUtilitiesMachinery&equipmentHouseholdappliancesAgriculture,forestry,animalBuildingmaterialsCICC

45、 Research: January 25, 2013Figure 6: Sequential proportion change of companies preannouncing 50% earnings growth as a percentage oftotal sector constituents 3Q12 to 20123.0%2.0%2.0%2.4%2.5%1.0%0.5%0.5%0.7%0.8%1.0%1.0%1.1%0.1%0.0%-1.0%-2.0%-1.5% -1.5% -1.3%-1.1% -1.0%-0.8%-0.5% -0.5% -0.4%-0.3% -0.3%

46、-3.0%-4.0%-3.3%Source: Wind, CICC Research In healthcare, electronics, F&B and nonferrous metals, the proportion ofcompanies preannouncing 50% earnings growth increased, while that ofcompanies preannouncing 50% earnings declines stayed flat or declined from3Q12 to 2012. Healthcare, electronics a

47、nd F&B continued to benefit from Chinaseconomic restructuring, changes in demographic structure, and the economic recovery,while nonferrous metals was mainly helped by broad-based price growth in 4Q12.Figure 7: Sequential share movements of companies preannouncing 50% earnings decline as a perce

48、ntage oftotal sector constituents from 3Q12 to 20124.0%3.0%2.0%2.1%2.8%2.0%1.0%0.0%0.1%0.2%0.5%0.8%1.0%1.2%1.4%0.0%-1.0%-2.0%-2.0%-1.7%-1.3%-1.0% -1.0%-0.6% -0.6%-0.4% -0.2% -0.2%-3.0%-3.0%-4.0%Source: Wind, CICC Research Agriculture, commercial trade and textiles & apparel reported a lower prop

49、ortionof preannounced 50% earnings growth and a flat or higher percentage ofpreannounced 50% earnings declines from 3Q12 to 2012: Agriculture posted thesharpest declines, with the share of companies preannouncing 50% earnings growthdown by 3.3%, and that of companies preannouncing 50% earnings decli

50、nes up 2%.CICC agriculture analysts suspended stock recommendations in SeptemberOctober2012 amid the sluggish earnings performance. The economic recovery is not that helpful:Seed producers suffer overcapacity; animal rearing remains in a downcycle; aquaticproducts have mediocre demand; and edible oi

51、l is suffering from declining internationaloilseeds prices and soft demand. As the 4Q12 economic recovery was mainly driven byinvestment and domestic consumption, the earnings of commercial trade and textiles &apparel also declined broadly.Please read carefully the important disclosures at the e

52、nd of this report6ChemicalindustryComprehensiveFerrousmetalsFinancialservicesDeliveryequipmentTransportationMachineryandequipmentNon-ferrousmetalsElectronicTextileandApparelBuildingmaterialsInformationequipmentCommercialtradeFoodtourismRealestateMedicalandbiologicalInformationservicesMiningHousehold

53、appliancesUtilitiesLightmanufacturingAnimalhusbandryandFoodandBeverage%1CICC Research: January 25, 2013Figure 8: Infrastructure investments slowed modestly,but real estate investments rebounded in 4Q12Figure 9: Manufacturing investments slowed to a lowlevel by historical normReal estate investmentIn

54、frastructure investmentYoY, %Manufacturing investmentYoY, %45604050354030302010025201510200720082009201020112012200720082009201020112012Source: Wind, CICC ResearchSource: Wind, CICC Research Construction, building materials and machinery saw a structural divergence due todiscrepancies in policy supp

55、ort and property investment exposure. The share ofcompanies preannouncing 50% earnings growth increased and that of companiespreannouncing 50% earnings declines also expanded. This structural divergence mainlyreflects that growth was primarily driven by the earlier acceleration in government-ledinfr

56、astructure investment and later recovery of real estate investment1. The companieswhich can directly benefit from government-led infrastructure investment and therecovery of real estate investments posted earnings growth, while the earnings of othersremained sluggish. As shown in Figures 8 & 9,

57、infrastructure investment slowed in 4Q12,but YoY growth of manufacturing investment declined throughout 2012. Financial services had a lower share of companies preannouncing 50% earningsgrowth/declines mainly due to the fact that earnings of securities firms have notrecovered: Figure 10 shows that F

58、&B and healthcare have much more companiespreannouncing 50% earnings growth than preannouncing 50% earnings declines, inline with our previous analysis. The financial services industry has the lowest share ofcompanies preannouncing 50% earnings growth/declines, mainly because banks canhardly gro

59、w at 50% given their high bases, and securities firms face huge challengesamid the continued market sluggishness and suspension of IPO.Figure 10: 2012 earnings preannouncements by sector250200150100500Pre-increasing numberPre-decreasing numberProportion of pre-increasing（RHS）1009080706050403020100So

60、urce: Wind, CICC ResearchMacroeconomy Weekly #224: China Economy Makes Soft Landing, January 21, 2013 (Peng Wensheng, Lin Tun, Zhao Yang)Please read carefully the important disclosures at the end of this report7CICC Research: January 25, 2013(II) Analysis of preliminary earnings estimatesAccording t

61、o the existing rules of the Shanghai and Shenzhen stock exchanges, companies onthe SME board are required to release earnings preannouncements, and those on the mainboard and ChiNext should do so if any of the following situations occur: 1) making losses;2) 50% earnings increase/decline YoY (EPS Rmb

62、0.05); or 3) turning profitable. However,the listed companies should release preliminary earnings estimates only when their earningsresults are leaked ahead of schedule or their stock/derivative prices have unusual movementsdue to earnings rumors. Therefore, much fewer listed companies are releasing

63、 preliminaryearnings estimates than issuing earnings preannouncements.Figure 11: Net profit growth of listed companies releasing preliminary earnings estimatesCompanies releasing preliminary earnings estimatesTotal A-share30%20100-10-14.2621.1410.05-14.861.0723.31-20-24.15-30-40-29.692011Q12011Q2201

64、1Q32011Q42012Q12012Q22012Q32012Q4Source: Wind, CICC ResearchSo far, 66 listed companies have released preliminary earnings estimates. Although thisnumber is small and their earnings have a weak correlation with the earnings performance ofall A-share constituents, it must to some extent reflect that

65、the earnings of listed companiesare recovering. As shown in Figure 11, the earnings growth of companies releasingpreliminary estimates continued to recover in 2012. So far, growth in net profits of thecompanies releasing preliminary 2012 earnings estimates is at 23.31%, which is consistentwith the s

66、ituation reflected by earnings preannouncements.Implications for stock investment The broader market: high likelihood of sequential pickup in 2012 results lendingsupport to stock market The probability of sequential 2012 earnings improvements hasincreased because the proportions of companies preannouncing good news and 50%earnings growth have rebounded sequentially and 2012 earnings growth was 23.31%based on preliminary earnings estimates. If 2012 results recover as expected, earnings oflisted companies could have reached their nadir in 3Q12 and the broader market shouldben