Current investment tips:
I. Fundamentals: the economic recovery is based on the recovery of people / goods flow. (1) Follow up repair of human mobility: to B is better than to C; The principle that rigid demand is better than optional demand. Referring to 2020 experience, To B and demand industries with relatively strong certainty will recover faster or faster, including air and hotel (business travel), Baijiu (consumer scenario recovery), medical services (Ophthalmology, dentistry and other hospitals), medical beauty, takeaway platform (demand determination). The recovery of optional demand at the to C end may be disturbed by more obvious income expectations. Under the expectation of strong infectivity of the mutant virus, the demand for aggregated consumption, including tourism, catering, department stores and film and television cinemas, may still be suppressed. In addition, the post cycle optional consumption of home appliances and some household appliances also has the characteristics of offline experiential services. The absolute improvement of the boom still needs to wait for a significant recovery on the demand side of the real estate. (2) Logistics recovery: in the future, if the manufacturing industry returns to work and production (but this should be based on the gradual recovery of people’s flow), the logistics will get through, pay attention to the recovery of the current damaged to b-end industry Siasun Robot&Automation Co.Ltd(300024) , auto parts and components, and also pay attention to the driving effect of semiconductor manufacturers on the prosperity after preparing goods for Apple’s new machines in the second half of the year in June. From the perspective of Shanghai’s manufacturing structure, the automobile and semiconductor industry chain is particularly important. This short-term closure is also expected to have a certain negative impact. The total output value of automobile and electronic industry chain accounts for 30% of the total output value of industries above Designated Size in Shanghai, and six key development industries account for nearly 70% (these six industries are: electronic information product manufacturing industry, automobile manufacturing industry, petrochemical and fine chemical manufacturing industry, high-quality steel manufacturing industry, complete equipment manufacturing industry and biomedical manufacturing industry). The importance of these industries can also be seen in the market value / profit of listed companies. We sorted out the proportion of the market value and profits of Listed Companies in various industries in Shanghai (registered in Shanghai) in the country. In terms of profits, the profits of Shanghai’s automobile industry accounted for about 39% of the profits of the national automobile industry, ranking first. In terms of market value, the market value of Shanghai’s electronics and transportation industries accounted for 22% of the market value of the National Electronics and transportation industries. At present, in terms of policy, since April, the state / Shanghai Municipality has also launched a number of policy relief, and the Shanghai Ministry of industry and information technology has also made efforts to ensure the resumption of key industries, corresponding to semiconductor, automobile, medicine, equipment (machinery / military industry / high-end materials) and other industries.
The negative impact of two key manufacturing industries, automobile and semiconductor, is that semiconductor industry is more affected by the layout of Shanghai’s local industry. The foundry industry, assembly and automobile production are more affected. The two quarter results will inevitably be affected by the short term stoppage and shutdown. China’s Taiwan semiconductor industry index has dropped 7% in March 25th, reflecting the worries of Taiwan manufacturers in China on the supply chain disruption in the Yangtze River Delta region.
In terms of automobiles, the retail sales of passenger car market in March was 1.579 million, a year-on-year decrease of 10.5%, which changed the continuous high growth trend since the second half of 2021. Combined with high-frequency data (automobile insurance volume), automobile sales have declined continuously since March, and the total sales of major brands in Qingming week fell by 44% year-on-year. With the addition of some new energy vehicles, the price rise tide + disposable income disturbance started in March, and the expected growth rate of vehicle sales may need to be reduced. After the resumption of work and production, the supply side auto parts are expected to recover faster.
Two, valuation and fundamentals matching: from the perspective of dynamic valuation and PEG, PEG valuation in some industries is still more expensive, such as medical devices, flavoring fermented products, biological products, non Baijiu and so on. Although the peg of some offline service consumption is low, if we use the degree of profit recovery + valuation assumption to simply calculate the market value space of damaged industries, some industries have been priced by the market (express, scenic spots, hotels, etc.).
III. market transaction characteristics: the safety of some consumer sectors gradually appeared in the second quarter. After reviewing the repair of the market risk appetite of the epidemic in 2020, from April 3, 2020 to July 10, 2020, social service, medical beauty, food and beverage, commercial retail, medicine, electronics ( Semiconductor Manufacturing International Corporation(688981) listing Catalysis) and media achieved strong excess returns. After March 25, 2022, the offline service consumption industry took the lead in adjusting. Recently, it has stabilized and rebounded, and some hard core technology tracks continue to callback. In the follow-up, if the epidemic situation gradually improves, and considering the withdrawal range of various industries in the early stage, the safety of some consumer sectors (medicine, medical beauty, food and beverage, social service) gradually appears in the second quarter.
IV. conclusion & long-term thinking on the future scenario: at this stage, we are still optimistic about the demand for resilient medicine, medical beauty and agriculture under the idea of dilemma reversal + Post epidemic recovery. With the gradual improvement of the epidemic situation and the victory of major cities after the outbreak (neutral assumption in mid and late May), it is expected that the important tail risks of China’s fundamentals will be eliminated and the market risk appetite will be significantly revised. Considering the current trend of the basic industries and the current adjustment, we believe that the top note of consumption plus growth will be restored. Concerned about the gem index and military industry (the reverse cycle is not affected by the epidemic, the cost plus will not be affected by the upward trend of oil prices, but highly correlated with risk preference), and consumption core assets such as medicine, semiconductor and baijiu. Assuming that the infectivity of the mutant strain is still strong and there will be a regional epidemic in the future, we believe that the industries that may benefit in the long term include: household medical devices (such as oxygen generator) and community group purchase platform; Household large volume freezers may need to be added / replaced, and prefabricated dishes may have impulse demand. Risk tip: 22h1 middle and downstream industries are still under cost side pressure, and corporate profits are expected to continue to decline to 22q4.
