l We have upgraded S-chips from MARKET WEIGHT to OVERWEIGHT primarily on
attractive valuations. Compared with China domestic A-shares and
H-shares, S-chips have been trading at deep discounts after a severe
correction in 2H07. We believe investors' concerns over China's economic
slowdown have been overdone. It is time for smart money to move around.
l Beijing is finding it challenging to strike a balance between raging
inflation and an economic slowdown. The weak US dollar and skyrocketing
commodity prices add fuel to the fire. Thanks to its closed financial
system and strong domestic consumption, China will be able to ride out
this difficult period. We still believe China could achieve 10% GDP
growth and CPI growth of below 5.5%. A hard landing and hyperinflation
are unlikely to take place in China.
l We like two themes at this juncture, both of which are defensive in
nature and supported by the government. The first theme is consumer
plays and the other is agriculture-related companies. Companies in these
industries are likely to achieve fast-paced growth.
l For S-chips Corporate Day, we present you with nine companies that
are leaders in their respective industries. Though they undergo cyclical
growth, they have solid fundamentals and are growing rapidly. There is
no doubt a few of them will eventually become respectable global
enterprises.
Forward Target
Price PE Price
(S$) (x) (S$)
China Animal
Healthcare 0.16 n.a. n.a.
China Energy 0.38 n.a. n.a.
China XLX Fertiliser 0.505 6.9 1.84
China Sky 0.825 4.6 2.16
COSCO Corp (S) 2.97 14.8 7.00
China Hongxing 0.425 12.5 1.07
Li Heng Chemical 0.52 n.a. n.a.
Synear Food 0.395 5.8 1.20
Yangzijiang
Shipbuilding 0.785 n.a. n.a.
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