Post reporting season key China picks :: Macquarie Research,

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Post reporting season key China picks
Event
 With the reporting season now complete, we focus on the stocks where we
have seen the biggest changes to our earnings estimates and views.
 With macro conditions still uncertain, we have focused on the defensive areas
of the market because we think they provide investors with more certainty as
we head into the back of this year and into the next year.
 Key picks post reporting season: China Coal, Shenhua, Fushan, Anhui
Conch, CR Cement, Sinoma, Jiangxi Copper and Minmetals.
Impact
 The Coal and Cement sectors delivered strong results with upgrades
flowing though. The Steel sector remains very difficult to analyse given the
low margins that are being achieved but we have focused more on Price to
Book valuations. Other Base Metal companies generally delivered good
results but there is a little more uncertainty related to the outlook at this stage.
 Stocks where we changed our view: We made a number of
recommendation changes:
Upgraded China Coal and Fushan in the coal sector to Outperforms.
Both stocks delivered strong earnings. China Coal is now a key shorterterm
pick.
Upgraded CR Cement to an Outperform given very strong results and
good growth outlook.
Upgraded Shougang Concord to Outperform given a reasonable result
but also given the valuation support.
Upgraded Sinofert from Underperform to Neutral given valuation and
cost management initiatives.
 Stocks where we saw large earnings movements: We also made a
number of larger earnings changes:
Earnings upgrades: Cement - Sinoma, Shanshui, CR Cement. Steel -
Shougang Concord. Fertilisers – Sinofert and China BlueChem.
Earnings downgrades: Coal – Hidili. Cement – BBMG. Base Metals –
Chalco. Paper - Chenming
Outlook
 With markets still very uncertain, we stick with our more defensive play
on the Commodities space. Growth concerns in Europe and the US are
less relevant than in previous cycles given the importance of China but they
do have a larger impact on sentiment. Bulk commodities have proven to be
very strong with Coal prices and Iron Ore prices actually up over the past few
weeks. Base Metals prices are harder to predict and in some cases we see
further potential downside. Cement prices appear stable while Steel prices as
usual are very hard to forecast. Coal and Cement remain our favourite picks
in HK/China and we continue to push the key names.