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9 Stocks You Should Own In China In 2018 (Part 3)

Following the part two of our three-part series, here are the last three of the nine stocks that UOBKH thinks you should add to your China portfolio.

7. Gree Electric – Overweight house appliances sector

gree electric
gree electric

Gree Electric (Gree) is the largest player in China’s air conditioner market with a market share of 37 percent in 2016, according to Euromonitor. Apart from maintaining its success in the air conditioner market, Gree has been looking for new areas of growth and exploring diversification opportunities. The company is actively looking for M&A opportunities having tried to move into new energy vehicles by attempting to buy Zhuhai Yinlong.

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Among appliances players, Gree is the only company that has paid meaningful dividends, supported by Rmb85 billion of net cash on its balance sheet as of 1H17. UOBKH notes that the company has been consistently increasing its dividend payout ratio, raising it from 41 percent in 2012 to 70 percent in 2016.

HOLD, TP Rmb49

8. Shenzhen Airport – Overweight On Airports

Shenzhen Airport is the holding company of Shenzhen Bao’an International Airport, the fifth-largest airport in China.

Early this year, Hainan Airlines proposed the launch of five international long-haul routes from Shenzhen Bao’an International Airport, including routes to Europe, the US and Russia. UOBKH foresees this development to boost Shenzhen Bao’an International Airport’s international passenger throughput growth to more than 30 percent in 2018. Given that international routes command twice higher landing fees and passenger service fees, Shenzhen Bao’an International Airport’s operating margin could expand to 33 percent by 2019.

In addition to higher international passenger throughput, non-aeronautical revenue will also be boosted by the upward revision in the duty-free rental at the arrival hall duty-free store since August 2017. There is also potential upward reversion in the rental rate for its second and largest duty-free store at the international departure hall as the renewal of operating agreement nears.

BUY, TP Rmb10.60

9. Zijin Mining – Overweight materials sector

Over the past five years, Zijin Mining has evolved from a gold producer into an internationally-diversified miner. Right now, Zijin has developed an extensive product portfolio of gold, copper, zinc and lead worldwide. With gold production gradually declining, copper was the biggest growth driver for Zijin in 2017, followed by zinc and lead.

UOBKH has a positive outlook on copper for the next 2 to 3 years on the back of several supply and demand factors. UOBKH notes that underinvestment, mine grade declines and elevated strike risks have all led to supply constraints. On the demand side, traditional consumption and rising adoption of electric vehicles would drive demand for copper. UOBKH also foresees regulatory changes posing upside risk to copper prices. Tighter regulations on small mines and the ban on scrap copper imports should benefit larger copper companies like Zijin.

HOLD, TP HK$3.86

This is the last article for the three part series.