6th October, 2008

Weekly Outlook:

Looking ahead this week, HSI is expected to open lower in line with US. A steep drop in US jobs data has deepen worries over an economic recession and overshadowing the passage of the $700B rescue plan. The Dow down 158 pts to 10325, retreated from early gains. Players are concern a fallout in Asia after Europe also seen bearing the brunt of the crisis. In HK, the market will also focus on new policy coming from mainland after the holiday. Technically, HSI is likely to trade between 17000/18000 this week.

Weekly Recommendation:

China Railway (390)

Analysis: The 17th National Congress and China Economic Conference will be held after National Holiday. The subject of the conferences is expected to maintain robust growth of mainland economy instead of curbing inflation. Apart from the monetary policies, it is expected that fiscal policies will be strengthened. Infrastructure expenditure will be raised. In fact, the growth of mainland rail infrastructure is faster than fixed asset investment. China Railway (390)¡¦s market share in China rail sector is 45% and the share will further increase due to the development of railway infrastructure. It is likely to have profit CAGR over 50% in coming 3 years. Target at $6.5, stop loss at $5.

China Overseas (688)

Analysis: More cities is expected to follow the move that Nanjing provides cash subsidiaries for homebuyers. Moreover, relaxation of monetary policy is expected to be announced in the upcoming National conference during 9-12 Oct in China. Property transfer tax is likely to reduce in order to stabilize the mainland property market. China Overseas is one of the top picks among the peers according to its strength in property sales and strong financial status. It completed GFA of 1.4m sq m in the first half of 2008, more than 50% of the target sales of GFA 2.7m sq m. This is better than the peers of average 30%. Gross profit margin sustained at 47.9%. Net gearing ratio is only 42.9%, lower than the peers. Target at $12, stop loss at $8.5.