2015-05-19

Stocks Poised To Benefit From SOE Reform

Beijing sets economic reform priorities for 2015
China's State Council, the cabinet, on Monday unveiled this year's priorities for further economic reforms.

The reforms — to streamline administration and deregulate power to lower levels, promote the yuan's convertibility under the capital account, and launch a trial scheme to connect the Shenzhen and Hong Kong stock exchanges — aim to add new impetus to the country's development, the State Council said in a statement on the government website.

iFeng: 国企改革首提“1+15”体系 相关概念股有望爆发



As economic reform chessboard is an important piece, this piece of state-owned enterprises "bones" of progress is expected. State Council Development and Reform Commission recently approved and transmitted "on the deepening economic reform in 2015 the views of focus" (the "Opinion"), issued a new signal - owned enterprise reform from last year's fourth work for the second task was upgraded this year show its weight increase in economic Reform.

According Shangzheng Bao news, the experts said, "opinions" the biggest bright spot is to improve the characteristics of SOE reform related systems significantly, "1 + 15" system department official debut referred to therein; at the same time, on the "development of structural adjustment of the central enterprises and restructuring program "This new formulation worthy of attention, the role of capital market integration in the central enterprises will become more evident, can foresee the future, or will the emergence of the central enterprises mergers and acquisitions wave.

申万宏 source recently released research report, said the top-level design of SOE reform, although delayed, but "1 + N" clear direction, improve efficiency, and enhance the vitality is an important goal, which is the merger of the important role of the central enterprises, the combination can optimize the allocation of resources resolve duplication, excessive competition and other issues, and does not involve loss of state assets, reform resistance is relatively small, so imperative.

Shenwan Hong source pointed out that the north-south vehicle merger of the central enterprises to enhance the combined space and expectations. Poor economic shipbuilding shipping, coal major nonferrous metals, as well as the expected strong military reform, restructuring the real estate needs industry will become the main battlefield of the central enterprises to merge. Devaluation of China Ocean [ -1.92% funding research report ] and CSCL [ 0.11% funds research report ] , China Shipping Development [ 4.96% funds research report ] ; cycle products industry key recommendation COSL [ 0.16% funds research report ] , eighty-one Steel [ -0.72% funding research report ] , Taishan Petroleum [ 0.45% funds research report ] .

Guotai JunanWe believe that the central enterprises reform is key direction of SOE reform in 2015, the central enterprises pilot fast forward. Prediction central enterprises reform will follow "a competitive industry - non-competitive industry," and "having some experience in reform - reform does not have the experience," two paths start. Where competitive industries, with advanced experience in the reform of central enterprises Group will become the vanguard of reform. Guotai Junan has long emphasized the central rate of the pilot group of six advantage in the reform policies, which the Chinese medicine [ 0.10% funds research report ] Group and the China Building Material [ -0.57% ] Group of mixed-ownership reform has been identified SASAC respectively. In two Group companies represented, the central enterprises reform's listed companies will achieve a breakthrough in the reform of state-owned assets management system, and other mixed-ownership. Recommend: Medicines [ 3.66% funds research report ] / Medicines consistent [ -2.87% funding research report ] / SDIC new set of [ 3.78 percent funds research report ] / Chinese rock / BNBM [0.00% funds research report ] .


In addition, Guotai Junan that with the integration of central enterprises to accelerate reform, construction, machinery and equipment, shipbuilding, iron and steel metallurgy nonferrous metals, telecommunications equipment and other central enterprises first to benefit. As an important part of the top-level design of SOE reform, the development of the negative list is a breakthrough. SASAC relevant statements from the point of view, an important industry related to national security and national economy may be limiting areas not open to the market in this round of reform. Other than the negative list, industry concentration is not high, the core competitiveness and international trade of large enterprises there is a certain gap, there is a vicious competition or serious overcapacity in export-oriented industry, the central enterprises may appear larger re-integration. 112 central enterprises, construction ( Chinese pay to build [ -1.75% funding research report ] Group, to build the group, etc.), machinery and equipment ( China XD [ -1.18% funding research report ] Group, Dongfang Electric [ 1.61% funds research Daily ] field group, etc.), shipbuilding (CSIC, etc.), non-ferrous metallurgical (Metallurgical Group, China Minmetals, etc.), telecommunications equipment may be the first to benefit. Related companies include: China Communications Construction, Gezhouba [ 0.17% funds research report ] , China's Western Electric, Dongfang Electric, China Heavy Industries [ -2.23% funding research report ] , China COSCO, Sinotrans Air Transportation Development [ 2.43% funds research report ] , China Metallurgical [ -4.47% funding research report ] , Minmetals Rare Earth , Datang Telecom.

China Inc. goes private -- one mediocre piece at a time
The reform efforts also align with a liberalization last year of investment rules in the financial sector, which set the Chinese insurance industry up to participate in ownership changes among SOEs.
Among China's biggest, centrally owned SOEs the ball has started rolling.

Along with the China Resources Enterprise deal, in the past few months Citic Group Corp. injected $37 billion of assets into the Hong Kong-listed Citic Ltd. -- Citic Ltd. later agreed to sell a 20% stake to Japan's Itochu Corp. and Thailand's Charoen Pokphand Group; China Petroleum & Chemical Corp., or Sinopec, sold a 30% stake in its petrol retailing unit Sinopec Marketing Co. Ltd. to a consortium of 25 investors for 107 billion renminbi ($17.2 billion); and rolling stock manufacturers CSR Corp. and CNR Corp. in April received government clearance to merge to create CRRC Corp.

The Chinese government has reportedly considered various potential oil sector mergers, including the creation of a "super-major" though the fusion of China National Petroleum Corp., the parent of PetroChina, with China Petrochemical Corp., the company behind Sinopec. The prospect of that combination was rebuffed by both companies in late April and the Wall Street Journal reported on May 4 that oil industry executives and even government advisers were "pushing back" against proposals for oil mega-mergers.

And in an encouraging sign for foreign investors, in late April local news outlets reported that investors including Switzerland's UBS AG, Singapore's Temasek Holdings Pte Ltd. and France's BNP Paribas SA are poised to buy a 10% stake in Postal Savings Bank of China - a unit of government-owned China Post Group ahead of a potential $25 billion IPO next year. (It is unclear if a deal has been finalized).
But anyone expecting a foreign-investor free-for-all among centrally owned SOEs will be disappointed. Strategic sectors like power and telecoms are widely presumed to remain largely off-limits and advisers suggest would-be acquirers cast their net wider. "The general perception is that the next step of privatizations will probably be at the provincial or local level," said CMS' Glueck.

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