Shanghai Comp Hang Seng Diverge

sh hk upd

The Shanghai Composite, down over 3.86% for the week, managed an anemic rise today while the Hang Seng fell but was slightly positive for the week.  In Hong Kong, the malaise was widespread with 90% of its constituents down.

For the HSCEI, down 1.38%, resource stocks including Anhui Conch, 914 hk,   CNBM, 3323 hk  , China Shenhua, 1088 hk,  were particularly hard hit possibly on the news that infrastructure construction giant, China Communications Construction Company, 1800 hk, down 5.04%, first quarter contracts indicated a much weaker 2016 than projected. First quarter contracts were reported at: RMB107.884 billion, an annual increase of 2.2%. On an annualized basis this would mean it would fall short of its annual full-year new contract target amount (RMB650-700 billion), by about 218 to 268 billion rmb.  Putting this company into perspective, it’s market cap converted to dollars is about 26.4 billion vs. New York Stock Exchange listed Fluor, FLR at 7.57 billion.  It is an SOE which also employs about 110,000 people vs. Fluor’s 38,000. (As an aside, check out an amazing company video.)  Oddly enough, China Communications Construction, 601800 SH,  fell only .172% in Shanghai.

Autos:

As mentioned yesterday, BAIC, 1958 hk, down 6.27%, disappointed with declining net profits. Credit Suisse took down the price target from 5.3 to 5.1, keeping it at underperform as the Hyundai JV profit contribution was weaker than expected.  It also noted that
BAIC changed the accounting treatment on new energy vehicle’s (NEV) government subsidy in 1Q16, shifting from “Other income” to “Revenue”. As a result, the company’s gross margin rose to 5% in 1Q16.

As shown in earlier filings, for the first quarter total volume sold was down by 4.3% with the largest decline and segment, the JV Beijing Hyundai, dropping the most.  This is despite the fact that the company was projecting better performance here thanks to the PRC passing a 50% consumption tax decline for vehicles with a displacement of 1.6L or below from October 2015 through December of 2016.  With auto sales highly variable by month, March alone showed some improvement.

baic sales

Cement Capacity Continues to Defy Government

Following in the footsteps of smaller Asia Resources, 743 HK, China Resources, 1313 HK, reported a stunning first quarter loss 17.3 million rmb from a profit of 632 million rmb the prior year.  This was despite an increase in product sold which was unable to offset the decline in material prices of 26% (Asia Resources reported a decline in price per ton of 22%).

cement 1q charts

While both companies are small compared to Anhui Conch, 914 hk, or CNBM, 3323 hk, they show a disturbing trend of increasing production and sales despite obviously lower demand, in conflict with the constant assurances of the PRC to tackle the overcapacity problem of which cement is a major component.

cement capacity

Source: HK Filings. Asia Cement materials reported as: Cement, Clinker and Slag.  China Resources material reported as Cement, Clinker and Concrete.

Other News:

The PBOC, CSRC, CBRC and CIRC jointly announced that they support iron and coal enterprises to expand exports of iron and coal and to issue corporate bonds for debt restructuring.

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