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Tough times near term but medium-term view intact
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June 27, 2012
China Strategy
A-Share 2H2012 Strategy: Tough times
near term but medium-term view intact
Equity Research
Earnings risk heightened near term but policy supports Hanfeng Wang, Ph.D, CFA
medium-term upside +86(10)6627-3318 hanfeng.wang@ghsl.cn
Beijing Gao Hua Securities Company Limited
While our framework of policy cycle driving the A-share market cycle
(introduced in Ongoing policy tailwind, March 12, 2012) is still well-founded, Helen Zhu
the near-term market may continue to be bumpy as we believe the effect of +852-2978-0048 helen.zhu@gs.com
policy easing has not yet been fully felt and the near-term earnings risks are Goldman Sachs (Asia) L.L.C.
rising, given weak demand has led to high de-stocking pressure and
Timothy Moe, CFA
weakening profit margins. We cut our top-down earnings forecast for CSI300
+852-2978-1328 timothy.moe@gs.com
to 3.6%/11.4% 2012E/2013E (vs. 7.4%/16.6% previously) based on lowered Goldman Sachs (Asia) L.L.C.
margin assumption, and lower our year-end index target accordingly from
3,100 to 2,950 (by -5%, target valuation multiple unchanged). Our new index Christopher Eoyang
target still suggests c.15% upside for the rest of the year. +65-6889-1199 christopher.eoyang@gs.com
Goldman Sachs (Singapore) Pte
Elevated levels of selling due to shares being unlocked in 2H2012 Ben Bei
We expect the amount of shares being unlocked to double in 2H2012 vs. +852-2978-1220 ben.bei@gs.com
Goldman Sachs (Asia) L.L.C.
1H2012. Specifically for companies on the SME/GEM board of the SSE, the size
will triple vs. 1H2012. Historically, shares being unlocked often lead to elevated Chenjie Liu
levels of selling by major shareholders, which would cap market valuation +86(10)6627-3324 chenjie.liu@ghsl.cn
expansion. As such, large caps with already low valuation would face lower Beijing Gao Hua Securities Company Limited
risk vs. what small-mid caps face with higher de-rating risk given their
relatively high valuation and higher portion of shares being unlocked.
Seeking earnings improvement amid overall earnings risk
Our sector earnings analysis suggests a sub-set of sectors should benefit due
to cost savings from weakening upstream material prices and easing financial
conditions, despite the overall earnings risks. We reshuffle our sector
preferences partly based on the conclusions of our earnings analysis. We
upgrade the health care sector to OW from neutral, utilities/construction to
neutral from UW, but downgrade coal to UW from neutral, retailing to neutral
from OW. Overall we like property, non-bank financials, building materials, and
selective consumers (healthcare, home appliance, auto).
Unlocking of shares will increase substantially in 2H2012
5000 Value of unlocked shares_overall (ex. SME&GEM)
(Rmb 100 mn)
4500 Value of unlocked shares_SME&GEM
Total average
4000
3500
3000
2500
2000
1500
1000
500
0
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Research estimates
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors
should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors
should consider this report as only a single factor in making their investment decision. For Reg AC certification and other
important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by
non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S. This report is intended for
distribution to GS institutional clients only.
The Goldman Sachs Group, Inc. Global Investment Research
June 27, 2012 China
Table of contents
Executive summary: Tough times but will get better 2
Revising earnings forecasts/index targets, target valuation multiple unchanged 3
Sector preference revisions: Looking for stable growth amid earnings downside risks 13
Key Issue: Impact of share reductions 24
Disclosure Appendix 33
Executive summary: Tough times but will get better
In this 2H strategy outlook report, we discuss two topics that are important to 2H2012 A-
share investment views- market/ earnings outlook and the impact of share sale by major
shareholders. Based on our analysis and resulting conclusions, we review our earnings
forecast/index targets and revise our sector preferences:
1) Market/sector earnings outlook amid easing input cost pressures/financial
conditions: We examine the impact to earnings given the cost savings due to lower
financing costs and broad-based decline in upstream material prices, and how such
impact would differentiate based on the sector;
2) The impact of share sales by major shareholders. The amount of shares to be
unlocked in the second half of the year will double from the size in 1H2012. From July
2012, we expect to enter the fourth peak period of shares unlocking since 2006,
according to our estimates based on the schedule of shares to be unlocked.
Bumpy near-term path but upside remains in the medium-term: China’s policy
changes are playing out gradually and we feel our framework of policy cycle vs. A-share
market cycle introduced in our 2Q strategy (Ongoing policy tailwind, March 12, 2012) is still
well-founded and supports our medium-term positive view. However, the market continues
to be choppy in the near-term on the back of heightened earnings risk with earnings
season around the corner. Moreover, policy changes implemented so far have not been
absorbed across the overall economy with the developments in EU also adding to near-
term volatility.
Earnings: Destocking pressure leads to lower margin and earnings. We trim our
top-down earnings forecast for CSI300 to 3.6%/11.4% 2012E/2013E from 7.4%/16.6%
respectively, mainly based on lower margin assumptions and we keep the target valuation
multiple unchanged.
We expect steps towards interest rate liberalization announced by PBoC to hurt financial
sector earnings. On the other hand, margin compression is still the major theme for the
non-financial sectors as the upstream sectors’ earnings loss from declining upstream
materials prices could not fully translate into earnings gains by mid-downstream sectors.
This is mainly because mid/downstream sectors are usually fragmented in China and lack
pricing power especially under the present environment of overall weak-demand and low
rate of capacity utilization. Easing financial conditions should be positive but so far its
impact is minimal.
However a sub-set of sectors should benefit amid this environment of softening material
prices and financing cost. Our scorecard analysis indicates that utilities/construction
/airlines/consumer durables should benefit the most while healthcare, media, hotel &
tourism, food & beverage, etc, see the least impact.
Goldman Sachs Global Investment Research 2
June 27, 2012 China
Liquidity/valuation and index targets: We lower our index targets purely based on
lowered earnings and we keep our year-end index target P/E unchanged at 11.5x as we
believe ongoing policy changes should continue to support gradual liquidity improvement
and a moderate valuation expansion.
Our new 3m (end-3Q)/6m(year-end)/12m (mid of 2013) are 2,700/2,950/3,050 vs. 2,950
3,100/3,200 previously, respectively, which implies about 15% upside for the rest of the
year and about 22% upside in the next 12 months, consistent with our medium-term
constructive market views.
Sector preferences: We upgrade several sectors with stable/improving earnings outlook
while downgrade others with less favorable earnings prospect amid the current earnings
uncertainties, incorporating the conclusions from our sector earnings analysis. Specifically,
we upgrade the utilities sector to neutral from underweight (UW) while downgrading its
upstream sector, the coal sector to UW from neutral. We upgrade the healthcare sector to
overweight (OW) while we downgrade retail to neutral. We also upgrade the construction
sector to neutral from UW. Overall, we like property, non-banking financials, building
materials, and selective consumer like auto, home appliances, but dislike coal, steel,
chemical and telecom, etc.
Key issue: Impact of share reduction by major shareholders. An important
development in 2H2012 in the A-share market is that from July 2012, the amount of shares
coming out of their lock-up period is significant versus 1H2012. As major shareholders
would be able to sell their shares after the lock-up ends, we consider how major
shareholders have reacted to this in the past and how such reductions in shareholdings by
major shareholders affected stock performance. Historically, major shareholders of
companies on the SME/GEM board (Small- and Medium- Enterprises (SME) and Growth
Enterprise Market (GEM) boards on the Shenzhen Stock Exchange) have reduced their
shares more aggressively than the companies on the main board. Net share reductions
have a negative impact on stock price performance and are also linked to relatively weak
earnings performance.
The increased pressure from shares being unlocked in 2H2012 would cap the room of
potential valuation expansion. We believe the large caps would face less de-rating risk
given the already low valuation (around 10x 12-m forward PE for CSI300 vs. historical
average of 18x+), but substantial valuation expansion should also be less likely. The small-
mid caps would face much higher de-rating risk in 2H2012 given its high valuation (SME
composite index 18x 12-m forward PE based on Wind consensus earnings forecast), and
valuation premium over large caps, as we believe the substantially increased share-
unlocking in 2H2012 should lead to elevated shares reduction by major shareholders of
SME/GEM companies.
We screen a list of small-mid caps with the largest share-unlocking pressure in 2H2012 in
Exhibit 62.
Revising earnings forecasts/index targets, target valuation multiple
unchanged
In this section we examine earnings with a special focus on the impact of cost savings on
overall earnings amid softening input costs and easing financing conditions, and also the
impact on financial earnings from the unexpected step towards interest rate liberalization
announced by PBoC earlier in June.
Goldman Sachs Global Investment Research 3
June 27, 2012 China
We revise our earnings forecast and fine-tune our index targets accordingly based on our
latest earnings forecast and our views on market liquidity and valuation.
The impact of cost savings overall and on sector earnings
The prices of many upstream materials have been weak ytd, as indicated by the PPI raw
material price index (Exhibit 1), and financial cost pressure has also been easing since
China started to fine-tune the monetary policy late last year. Below, we analyze how this
environment affects our overall/sector earnings.
Margins still under pressure: Overall margin compression should still be the major
theme despite cost savings from declining upstream material prices and lower financial
cost, as we believe:
1) Upstream sectors’ earnings (mainly material related sectors) account for a large part of
A-share non-financial earnings (Exhibit 4), and the earnings loss of the upstream
sectors due to the declining material prices have not fully translated into the earnings
gain in the mid/downstream sectors. This is mainly because mid/downstream sectors
in China (often consumer/services related sectors) are fragmented and the competition
within the sectors often leads to price wars, especially given the relatively weak final
demand and declining overall capacity utilization rate. Historically, contraction of
margins for the upstream sectors does not translate into margin expansion for the
mid/downstream sectors (Exhibit 5).
2) Relative weak demand is a dominating factor, and it has led to declining capacity
utilization rate and rising destocking pressure for the industrial sectors (Exhibit 3). The
capacity utilization index compiled by PBoC (a utilization rate index rather than the
absolute utilization rate) based on a survey of 5,000 industrial enterprises suggests that
the overall utilization rate of the manufacturing sector is still declining (Exhibit 2). We
do not expect a significant margin recovery in the next several quarters unless we see
an immediate and strong economic recovery. Our China economists expect only a
modest recovery in the overall economic activities in 3Q/4Q (GDP yoy forecast
7.9%/8.0%/8.1% for Q2/Q3/Q4 2012), even after taking potential policy changes into
account.
3) Historically, the A-share non-financial sector profit margin correlates with the
Corporate Goods Price Index compiled by PBoC (Exhibit 9). For some periods, the two
may diverge but overall their trends look similar. Recent readings of the index suggest
that A-share profit margin is still under pressure.
4) Impact of lowered financial cost on earnings is positive but only very limited: All
else being equal, our analysis indicates each 25bps borrowing cost savings would
enhance the non-financial earnings by 1.2ppt.
Lower financing costs would generate a dual positive effect on earnings for the non-
financial companies by:
(1) Saving financing expenses directly and,
(2) Boosting the overall demand due to the lower financing costs.
While the latter’s effect on earnings is difficult to quantify and should be minimal given
the small magnitude of the interest rate change, the first effect can be roughly
estimated on a theoretical basis. The financial expense ratio (defined as the financial
expense as % of revenue) for A-share non-financial sectors has been averaging around
1.2% in recent years (Exhibit 7), net profit was around 6%, and average borrowing cost
(defined as the financial expense as % of the borrowings) of the non-financial
companies has been around 4.2% in recent years (Exhibit 8). This was lower than the
Goldman Sachs Global Investment Research 4
June 27, 2012 China
average loan yield of the banking sector, as the listed companies often have better
access to competitive financing terms than the unlisted companies. Based on these
assumptions and all else being equal, we estimate that about every 25bps in
borrowing cost savings would lead to 5.9% savings in financial expenses and could
enhance earnings of the non-financial sectors by around 1.2ppt.
However, sector earnings should differentiate: Low-margin mid-downstream sectors
with relatively more resilient demand growth and tighter supply/demand relationships
should benefit more. We have built a sector scorecard to assess which sectors could
benefit more on a relative basis amid this environment of softening material cost pressure
and easing financial conditions. Note that our scorecard only examines the impact from
cost savings on sector earnings rather than analyze our overall sector preferences (which
are the topic of the next section).
We established the five criteria as below and score each sector by each criterion on a scale
of 0-2, and we also take the industry structure and supply/demand relationship into
consideration. Our scorecard is illustrated in Exhibit 12.
Our scorecard indicates that the utilities, construction, airlines and home appliance
sector should be among those that benefit most from easing material costs and financial
conditions, while consumer/services related sectors should see the least impact, including
healthcare, media, hotel & tourism, food &beverage, etc.
Our criteria are set out below:
1) Impact from lowered financing cost: Generally the sector would be awarded a high
score if the sector’s financial leverage is high, or the financial expense ratio is high
(Exhibit 12);
2) Material cost exposures: The sector would be awarded a high score if the ratio of
material-related input costs are high and the materials price decline is significant;
3) Net profit margin: The sector would be awarded a high score if its margins are low as
the earnings sensitivity to cost changes should be high given slim margins (Exhibit 12);
4) Demand growth: The sector would be awarded a high score if demand remained
relatively stable despite the unfavorable macro environment, or demand for the sector
is supported by government policies or less affected by the overall macro environment;
5) Sector structure and demand/supply relationship: The sector would be awarded a high
score if the sector is better-integrated (monopolized), or the supply is relatively tight vs.
demand. We try to assess whether the upstream cost decline could translate into the
earnings gain for the sector by setting this criterion.
Goldman Sachs Global Investment Research 5
June 27, 2012 China
Exhibit 1: The prices of many upstream materials have Exhibit 2: The declining capacity utilization rate
been weak ytd, as suggested by the PPI raw material (compiled by PBoC, note this is an index and does not
price index show absolute level of utilization rate)
20
48
The capacity utilization index (based on survey to 5,000 industrial
(%) PPI:Overall PPI: Raw Materials
enterprises, by PBoC)
46
15
44
10
42
5
40
0 38
36
-5
34
-10
32
-15
30
Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11
Jun-92 Jun-95 Jun-98 Jun-01 Jun-04 Jun-07 Jun-10
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Exhibit 3: The ratio of PMI finished products inventory Exhibit 4: Upstream sectors’ revenue/earnings (mainly
index over PMI new order index suggests high inventory energy & material related sectors) accounts for a large
levels are not matched by new orders, suggesting high part of the A-share non-financial revenue/earnings
destocking pressure
1.80 % PMI finished products inventory/new order 70%
Raw materials related setors as % of A-share overall (ex.
Financials)
1.60 60%
Revenue side Earnings side
2005 2006 2007
2008 2009 2010
1.40 50%
2011 2012
1.20 40%
1.00 30%
0.80 20%
0.60 10%
1 2 3 4 5 6 7 8 9 10 11 12 Jun-95 Jun-97 Jun-99 Jun-01 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Goldman Sachs Global Investment Research 6
June 27, 2012 China
Exhibit 5: Historically the contraction of margins for Exhibit 6: This is also true for China industrial
upstream sectors (energy/basic materials) do not enterprises
translate into margin expansion of the mid/down (based on the NBS data)
stream sectors (consumption/service related sectors) in
the A-share market (based on the data of the listed
companies)
16.0% 5 70
Net Margin_A-share (ex. Financials) EBIT margin_China industrial companies
(%) (%)
14.0% 4
Upstream sectors 60
Mid-stream+Downstream sectors 4
12.0% 50
3
10.0% 40
3
8.0% 30
2
6.0% 20
2
4.0% 10
1 Mid-stream+Downstream industries
Upstream industries (RHS) 0
2.0% 1
0 -10
0.0%
99-02 01-02 03-02 05-02 07-02 09-02 11-02
Jun-95 Jun-97 Jun-99 Jun-01 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Exhibit 7: The financial expense ratio (defined as the Exhibit 8: The average borrowing cost (defined as the
financial expense as % of revenue) for A-share non- financial expense as % of the borrowings) of the non-
financial sectors has been averaging around 1.2% in financial companies has been around 4.2% in recent
recent years years
9.5% Financial Expenses/Financial Liability vs. Rmb lending
Financial Expenses/Revenue
rate (weighted average)
2.7% 8.5% A-share Overall
A-share Overall (ex. Financials) A-share Overall (ex. Financials)
Rmb lending rate (weighted average)
7.5%
2.2%
6.5%
1.7% 5.5%
4.5%
1.2%
3.5%
0.7% 2.5%
Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Goldman Sachs Global Investment Research 7
June 27, 2012 China
Exhibit 9: Historically the A-share non-financial sectors’ Exhibit 10: China macro pre-warning index declined to
net margin correlates with the Corporate Goods Price the 1998-2001 level (it’s a comprehensive index
Index compiled by PBoC reflecting the overall economic condition compiled by
PBoC based on a number of macro/sector variables)
9.0 Corporate Goods Retailing Price Index 10.0 155 18
Net Margin-non-financials (LHS) (%)
China Macro economic prewarning Index
8.0 145
8.0
China GDP growth rate (RHS) 16
135
6.0
7.0
125
4.0 14
6.0 115
2.0
105 12
5.0
0.0
95
4.0 10
-2.0 85
3.0 -4.0 75
8
Mar-03
Jul-03
Mar-04
Jul-04
Mar-05
Jul-05
Mar-06
Jul-06
Mar-07
Jul-07
Mar-08
Jul-08
Mar-09
Jul-09
Mar-10
Jul-10
Mar-11
Jul-11
Mar-12
Nov-03
Nov-04
Nov-05
Nov-06
Nov-07
Nov-08
Nov-09
Nov-10
Nov-11
65
55 6
Jan-92 Jan-95 Jan-98 Jan-01 Jan-04 Jan-07 Jan-10
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Exhibit 11: A-share (ex. Financials) earnings growth vs. industrial enterprises and SOEs’
(YoY,Ytd,%) State Owned & Control Enterprise Earning Growth YTD
140.0
A-share Ex. Financials Earnings Growth
120.0 Industry Enterprise Earning Growth YTD
100.0
80.0
60.0
40.0
20.0
0.0
-20.0
-40.0
-60.0
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Research
Goldman Sachs Global Investment Research 8
June 27, 2012 China
Exhibit 12: A-share Sector scorecard: Sector earnings impact from cost savings due to weak upstream material prices
and lowering financing costs
Demand/supply
Material Demand
relation, and
Benefits from lowered financial related growth Total
Criteria Net profit Margin competition/inte
costs cost stability/pol score
gration within
exposures icy support
the sector
Financial Net profit
Asset/equ-
Sectors expense Score Score margin Score Score Score
ity ratio
ratio (2011)
Utilities 346.6% 7.4% 2 2 5.5% 1 1 2 8
Construction&Other Industrial Services 467.3% 0.8% 2 2 2.8% 2 1 1 8
Airlines 379.9% -0.5% 2 2 6.9% 1 1 2 8
Consumer Durables 261.8% 0.2% 0 2 4.8% 2 2 1 7
Non-ferrous metal & Others 226.3% 1.6% 1 1 4.9% 2 1 1 6
Steel 270.4% 1.3% 1 2 1.2% 2 0 0 5
Oil,gas& petrochemical 192.1% 0.4% 0 2 5.0% 1 1 1 5
Construction Materials & Others 242.2% 3.5% 2 1 9.9% 0 1 1 5
Shipping&Other transportation 208.4% 1.6% 1 1 2.3% 2 0 1 5
Textile&Apparel 194.6% 1.7% 1 1 7.5% 1 1 1 5
Chemical 209.1% 1.6% 1 1 5.3% 1 1 0 4
Capital Goods 247.2% 0.7% 0 1 5.6% 1 1 1 4
Transportation Infratructure 178.4% 4.3% 2 0 20.0% 0 1 1 4
Auto&parts 228.5% 0.4% 0 1 6.5% 1 2 0 4
Property 347.8% 2.1% 1 0 15.8% 0 1 1 3
Retailing 269.8% 0.5% 1 0 3.9% 2 0 0 3
IT&equipment/components 185.3% 0.9% 0 1 6.0% 1 1 0 3
Household & Personal Products 162.8% 1.6% 0 1 6.7% 1 0 0 2
Telecom 217.9% 0.6% 0 0 2.1% 2 0 0 2
Coal 177.4% 1.0% 0 0 15.4% 0 1 0 1
Food&beverage 190.1% 0.6% 0 1 9.2% 0 0 0 1
Hotel &tourism&Others 220.3% 0.9% 0 0 11.1% 0 0 0 0
Media 208.3% 0.4% 0 0 12.4% 0 0 0 0
Health Care 168.3% 1.0% 0 0 9.5% 0 0 0 0
Note: We rank each sector on a scale from 0-2 on the five criteria set out above, with the higher scores implying greater potential benefits from cost
savings.
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Research
Goldman Sachs Global Investment Research 9
June 27, 2012 China
Exhibit 13: A-share non-financial sectors: Net margin vs. financial leverage (asset/equity
ratio)
Looking for sectors that would benefit more from weak upstream material prices and easing
financial costs (based on 2011A financial data)
Leverage level (asset/equity) vs.
net margin by sector
500.0% Construction&Other Industrial Services
450.0%
400.0%
Airlines Property
350.0% UtilitiesConstruction Materials & Others
300.0% Consumer Durables
Steel
250.0% Auto&parts Hotel &tourism&Others
Chemical Media
200.0% Transportation Infratructure
Coal
150.0% Food&beverage
100.0%
Textile&Apparel
50.0%
0.0%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Research
Revising our top-down earnings forecast: We review our top-down earnings forecast
for CSI300 index based on our financial team’s estimates on the impact of the recent
interest rate cut/steps for interest rate liberalization on the financial sector’s earnings and
the recent economic/profit data. Specifically we revise our top-down earnings forecast for
CSI300 index from 7.4%/16.6% 2012E/2013E to 3.6%/11.4% respectively mainly based on:
1) Our 2012E/2013E earnings growth assumptions for the financial sectors are lowered to
12.5%/10.6% from15.5%/16.6% as our financial team believes the earnings of the
banking sector could be down by around 6ppt/12ppt for 2012E/2013E earnings under a
worst case scenario. Banking sector earnings account for more than 90% of the
financial sector earnings and we have assumed half of the impact our financials team
expects to be realized (eventually) under a worse-case;
2) We also revise our top-down 2012E/2013E growth forecast for the non-financial sectors
to -4.0% /11.6% from 0.5%/16.5% respectively as we fine-tune our margin assumptions
for the non-financial sector to 5.1%/5.3% from 5.3%/5.7% 2012E/2013E respectively.
The realized non-financial net margin in 1Q2012 was 5.3%. So far in 2Q2012, we
continue to see sequential margin compression vs. 1Q as indicated by the weakening
prices of upstream materials.
Our top-down 2012E/2013E earnings growth forecasts for CSI300 are lower than Wind
consensus by 7ppt/5ppt, respectively. While earnings for property, construction, utilities
and consumption related sectors including food & beverage, healthcare, consumer
durables, media, etc, should face less risk than other sectors, earnings downside risk still
remains in major sectors such as coal, oil & petrochemical, steel (Exhibit 17).
Goldman Sachs Global Investment Research 10
June 27, 2012 China
Exhibit 14: Our top-down 2012E/2013 earnings growth forecasts for CSI300 Index
Top-down Non-Financial Non-Financial Total Earnings
Estimates Revenue Growth (%) Margin (%) Growth (%)
2012E 9.4 5.1 3.6
2013E 10.6 5.3 11.4
Bottom-up
Estimates
2012E 10.5 5.2 10.2
2013E 11.6 5.5 16.6
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Research estimates
Exhibit 15: CSI300 index top-down revenue model Exhibit 16: CSI300 index top-down net margin model
results results
50 12%
Residual % Residual Net Margin (Estimated)
Revenue Growth (% Actual)
Revenue Growth (% Estimated) 10% Net Margin (Actual) Historical average(Actual)
40 Historical average(% Actual)
8%
30
6%
20
4%
10 2%
0 0%
-2%
-10
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Goldman Sachs Global Investment Research 11
June 27, 2012 China
Exhibit 17: While earnings for property, construction, utilities and consumption-related
sectors including food & beverage, healthcare, consumer durables, media, etc, should
face less risk than other sectors, earnings downside risk still remains in coal, oil &
petrochemicals, steel.
CSI300 Index earnings forecast changes (2012E)_Wind consensus
(1Q2012 to date)
Utilities 3.2%
Food&beverage 2.9%
Construction&Other Industrial Services 1.8%
Auto&parts -0.1%
Banks -0.5%
Transportation Infratructure -0.8%
IT&equipment/components -1.9%
Coal -2.3%
Consumer Durables -2.5%
Overall -2.6%
Steel -3.6%
Oil,gas& petrochemical -4.1%
Media -4.6%
Overall (ex. Financials) -4.7%
Hotel &tourism&Others -5.0%
Shipping&Other transportation -5.3%
Property -5.3%
Securities& Others -5.8%
Retailing -6.2%
Chemical -7.1%
Insurance -8.3%
Health Care -9.3%
Capital Goods -10.0%
Non-ferrous metal & Others -12.2%
Airlines -17.1%
Construction Materials & Others -21.0%
Telecom -21.1%
Textile&Apparel -21.8%
-25% -20% -15% -10% -5% 0% 5%
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Research
Trim year-end index target for CSI300 to 2,950 (potential upside
c.15%) based on lowered earnings forecasts, target valuation
multiple unchanged
We trim our year-end index target for CSI300 index to 2,950 from 3,100 (around 5%) based
on our lowered earnings forecast and we keep our year-end index target P/E unchanged at
11.5x, as we continue to believe that overall market liquidity conditions should gradually
improve in 2H2012 along with the ongoing policy easing, which would support a moderate
valuation expansion.
We lower our 3m/12m index target accordingly, and our updated 3m (end-3Q)/ 6m(year-
end)/12m (mid of 2013) are 2,700/2,950/3,050 respectively, which implies about 15%
potential upside for the rest of the year and 22% upside in the next 12 months (Exhibit 18).
We continue to expect the near-term market should be bumpy as we see limited positive
catalysts. The market could strengthen starting around mid-3Q as by then we expect to see:
1) Some early signs that the cumulative effect of policy loosening is beginning to take
place;
2) 1H2012 earnings/macro data would have been reported and policy makers and the
market should have a clearer picture about how earnings/economy is progressing;
Goldman Sachs Global Investment Research 12
June 27, 2012 China
3) Government policy should continue to be supportive and may even strengthen by mid-
3Q to create a stable social/economic environment for the opening of the 18th National
Congress of the CPC;
4) Clearer message from the development in the Euro-zone than currently .
Risks to our views include: 1) Policy changes are less/slower than we expect; 2) The
pace of economic/earnings recovery are weaker/ later than we expect; 3) The EU issues
evolve into a larger impact than we expect.
Exhibit 18: We lower our 3m/12m index target accordingly, and our updated 3m (end-
3Q)/6m(year-end)/12m (mid of 2013) are 2,700/2,950/3,050 respectively
CSI300 Index Path
3,500.0
3,050 (12-m
3,300.0
target, +22%~)
3,100.0 2950.0
(year-end, +15%~)
2,900.0
2,700.0
2,700.0
(end-Sep., +5.8%)
2,500.0
2,300.0
2,100.0
Jan-11 Jul-11 Jan-12 Jul-12 Jan-13
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Research estimates
Sector preference revisions: Looking for stable growth amid
earnings downside risks
We revise our sector preferences based on our conclusions from our earnings analysis,
recent market developments and sector valuations. We upgrade several sectors with
improving/stable earnings outlook while downgrading others where we expect further
earnings risks.
Specifically:
1) We upgrade the healthcare sector to OW from neutral and downgrade the retail sector
to neutral from OW;
2) We upgrade the utilities sector to neutral and downgrade the its upstream sector, the
coal sector to UW from neutral ;
3) We also upgrade the construction sector to neutral from UW .
Goldman Sachs Global Investment Research 13
June 27, 2012 China
Overall we like property, non-bank financials, some select consumer-related
sectors including auto, home appliance and healthcare, but we dislike telecom,
coal, chemical, and steel.
In Exhibit 19-20, we present a summary of our sector ratings. In Exhibit 21, we illustrate
sector performance ytd with our sector ratings highlighted in different colors.
Upgrade the healthcare sector to OW; downgrade retail sector to
neutral from OW
We upgrade the healthcare sector to OW from neutral as:
1) Policy environment is now becoming incrementally business friendly: In the past two
years, medicine price cuts have been the major theme of the healthcare reform, putting
prolonged pressure on the sector’s margin and earnings growth. However, recently
there have been signs that based on the lessons/experiences of reforms in the past two
years, the policy direction is gradually changing towards supporting sustainable
development of the healthcare sector.
2) We feel earnings downgrade risks should have been largely priced in and the sector’s
valuation has become more reasonable. Consensus earnings forecast indicates that the
sector should see no growth this year, which would be rare vs. the past decade and
suggests current consensus earnings forecasts are conservative (Exhibit 22). The
valuation of the sector has come down to 20.9x 12-m forward PE, which is the lowest
level in the past two years (Exhibit 24);
3) Medium-long term sector growth potential intact. Healthcare-related demand should
be supported by increasing income levels and the aging population in China in the
medium-long term (Exhibit 25).
4) The sector outperformed the market so far in 2Q2012 but ytd its performance is still
largely in line (Exhibit 26). We believe market interest in this sector should gradually
increase amid uncertainties around overall A-share earnings.
Shares unlocking for this sector will increase in 2H2012 (see the next section) and could be
a risk for this sector. However, the unlocking of shares should be mainly from health care
companies from the SME/GEM, thus the impact on CSI300-listed health care companies
should be limited (Exhibit 56).
The retail sector’s performance has been largely in line with the market (Exhibit 27), and we
downgrade the sector to neutral, as we believe:
1) The sector should continue to see headwinds which include rising rental costs, labor
costs, and the increasing competition from on-line shopping (Exhibit 28).
2) Some of the major traditional players (like Suning) within this sector are trying to
develop their own on-line shopping business which would cannibalize their traditional
segment and face strong competition from the incumbent on-line shopping
ventures/channels/outlets. It is still uncertain whether this transition would be
successful or not.
3) Valuation of the sector has come down and is not demanding but a near-term re-
rating is unlikely, in our view, given the problems that the sector is facing (Exhibit 29);
4) Sub-sector performance could differentiate. Supermarkets should feel less impact from
on-line shopping as their locations are often within walking distance of the
communities, while department stores, home appliances retailers, etc should face
more pressure from the development of on-line shopping.
Goldman Sachs Global Investment Research 14
June 27, 2012 China
Upgrade utilities sector to neutral while downgrading the coal
sector from neutral to underweight
We have been underweight on the utilities sector for a while but turn more positive and
upgrade it to neutral, as:
1) The sector has benefited from the weakening thermal coal prices and should continue
to benefit if spot coal prices remain weak, especially given that fuel costs usually
account for 68% of the total operation costs of the IPPs (Exhibit 30) and the sector’s
profit margin is at historical low (Exhibit 31);
2) Electricity tariff rates may be adjusted if the current thermal coal price trend continues
but it would not be imminent, given the utilities sector in China is still a SOE-
dominated sector and vested interests would make the electricity tariff rate adjustment
process long and slow;
3) Mutual funds’ position in the sector has been light, although it turned higher in the
recent quarters (Exhibit 32);
We are neutral on the sector vs. being more positive (and assigning OW) towards the
utilities sector as the sector has rallied in recent weeks and valuations are already trading
at 98.2% premium over the H-share counter-parts (Exhibit 33).
In the meantime, we further downgrade the coal sector to underweight after we
downgraded it to neutral from OW in our May 18 note (Bumpy near-term path, May 18,
2012) because:
1) Earnings downgrade risks remain for this sector as the ytd spot coal prices have been
more sluggish than previously expected, and ytd consensus earnings downgrades in
this sector have been mild (Exhibit 35).
2) Seaborne thermal coal prices are much lower than spot coal prices in China (Exhibit
36), leading to significant import growth ytd (Exhibit 37)and putting further downward
pressure on spot thermal coal prices in China.
The sector has underperformed CSI300 by 5.2 ppt ( Exhibit 38) and we think it should
continue to underperform given the reasons listed above.
Upgrade construction sector to neutral from underweight
We see some positive changes within this sector as below and thus upgrade it to neutral
from UW :
1) Infrastructure investment growth is gradually stabilizing (Exhibit 40), or could even pick
up in the 2H2012, which would help boost demand for the sector;
2) The sector should benefit from the relative weak building material prices like steel,
cement prices, etc. as raw material related cost usually accounts for a high portion of
their total operation costs, and the sector’s net profit margin has been thin (Exhibit 39).
As such, earnings would be very sensitive to a change in material costs;
3) The valuation of the sector is low in terms of P/E valuation (Exhibit 41)
We are neutral on the sector rather than being more positive (and assigning OW) as the
sector has some exposure to residential property construction. We currently see that the
property FAI growth is still coming down rapidly and may continue to remain weak in
2H2012 (Exhibit 40).
Goldman Sachs Global Investment Research 15
June 27, 2012 China
We maintain our other sector ratings and we highlight some of the sector calls
below:
Property: Overweight. We maintain overweight on property sector although some near-
term profit-taking is likely given its significant outperformance ytd and the mutual funds’
position in this sector should be crowded. We suggest buying as we expect the sector to
continue to outperform the market after the near-term consolidation in our view, supported
by recovery in the property transaction volume. Broad-based property price increase
should be a risk to the sector as it should lead to re-tightening of the property policies.
Banks: Neutral. The sector valuation has come down to extremely low levels (5.1x 12-m
forward PE vs. historical average of 12.7x since 2004), and the sector performance should
be relatively resilient amid market volatility given its significant underperformance ytd and
already low valuation. However, the current liquidity condition does not support the sector
for consistent outperformance and the recent step towards interest rate liberalization
would hurt the sector’s earnings outlook this year and probably next year.
Non-bank financials: Overweight: Among financials we like insurance and securities
firms. The latter has outperformed the market significantly ytd and some short-term profit
taking could be possible, especially if 1H2012 earnings looks sluggish. But continuous
reform initiatives to broaden the business scope of the securities firms’ med-term
outperformance of the sector should continue to support the sector’s outperformance.
Machinery: Neutral. Sector valuation is not demanding given that the 12-m forward PE
valuation is 13.5x (vs. historical average of 18.2x since 2004) but demand recovery has not
been seen yet.
Goldman Sachs Global Investment Research 16
June 27, 2012 China
Exhibit 19: A-share sector allocation I (OW and UW): Overall we like property, non-bank financials, some selective
consumer-related sectors including auto, home appliance and healthcare, and we dislike telecom, coal, chemical, and
steel
PE(x) PB(x)
Index
Previous New
Sectors Weighting 2012E 2012E Remarks
rating rating
(%)
Sector valuation is not demanding in our view. Investment yields are not likely to be worse than last
year's, and with the yield on bank wealth management products declining, the premium growth should
Insurance 4.3 OW OW 18.0 2.2
show a turnaround in the coming several quarters. We believe policy environment is becoming
supportive.
Current valuation for the sector is not demanding and already factors in weakness in the property
Property 4.9 OW OW 10.3 1.7 sector. Also, fine-tuning in property tightening policies is ongoing. The sales volume recovery has been
better than expected and might continue to exceed relatively low expectations.
Valuation is not demanding and the sector is the long-term beneficiary of China's deepening financial
Securities& Others 5.6 OW OW 29.7 2.1 reforms, which we expect to be high on the agenda. Policies on product innovation could become
more supportive, in our view.
Valuation of the sector is not demanding and already factors in the near-term earnings risks, in our
Construction
1.7 OW OW 10.6 1.6 view. Demand is gradually recovering and product prices have largely stabilized. Potential policy easing
Materials & Others
should provide further support to demand.
Sales numbers are gradually improving. Fierce competition may erode sector margins but valuation is
Auto&parts 2.0 OW OW 10.7 1.7
still attractive. Policies are becoming more friendly than in the past year.
Valuation is still within a reasonable range and correlation between demand for consumer durables and
Consumer Durables 2.3 OW OW 11.0 1.9 property sales is less than expected; rural penetration improvement/consumption upgrade underpins
demand sustainability. Risk to the sector includes greater-than-expected slowdown in broad sales.
Brand names continue to enjoy secular uptrend in China, and valuation is within a reasonable range.
Textile&Apparel 0.4 OW OW 9.8 1.4
Stable export growth is another earnings driver.
Earnings risks have largely been priced in; sector valuation not demanding. We view the sector as a
Health Care 4.6 Neutral OW 24.0 3.5
long-term beneficiary of China's growing income and aging population.
Sector valuation not demanding but coal demand growth and spot coal prices ytd have been
disappointing. The price gap between seaborne thermal coal prices and spot coal prices in China
Coal 6.7 Neutral UW 11.0 2.0
should lead to increase in coal import, putting further pressure on domestic spot thermal coal prices.
Supply for coke coal should be tighter than thermal coal, trading at premium over thermal coal.
Demand is weakening and earnings risk arises; valuation not attractive given the highly cyclical feature;
Chemical 2.4 UW UW 16.2 2.6
prefer resource-based names.
Valuation is reasonable but sliding demand/competition remains an industry concern; difficult to
Steel 2.3 UW UW 12.8 0.9
improve margins.
China Unicom is trying to gain market share and should hold an advantage over the other two players,
Telecom 1.0 UW UW 30.1 1.2 but earnings growth could be sacrificed. Valuation has turned lower but is not yet attractive. Less
bearish on telecom equipment companies.
OW Sectors 23.6 25.7
Neutral Sectors 65.5 62.0
UW Sectors 11.0 12.4
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Research estimates
Goldman Sachs Global Investment Research 17
June 27, 2012 China
Exhibit 20: A-share sector allocation II (sectors with Neutral rating)
PE(x) PB(x)
Index
Previous New
Sectors Weighting 2012E 2012E Remarks
rating rating
(%)
Valuation is not demanding but the sector is facing increasing pressure from the rapid development of
Retailing 2.6 OW Neutral 15.9 2.7 online shopping in China. Sub-sector performance may vary amid the changing competitive landscape.
We like some leading names in niche markets, such as fresh food retailing.
Earnings have been strong so far, and valuation is not demanding. But the sector is still among the
Food&beverage 7.5 Neutral Neutral 18.3 5.2
most crowded due to its outperformance in 2H2011; bottom-up stock selections is important.
Non-ferrous metal & Although valuations have come down, it is high compared with other cyclical sectors. Demand growth
8.1 Neutral Neutral 25.0 2.9
Others may disappoint as the persistent property tightening in China has led to weaker FAI growth.
Traffic volume growth should be stable and declining oil prices could be a positive catalyst, but
Airlines 1.0 Neutral Neutral 11.7 1.4
valuations appear justified in our view.
Transportation
0.8 Neutral Neutral 12.6 1.3 Earnings growth is stable and low; valuation is reasonably low, but there is a lack of sector catalysts.
Infrastructure
Hotel , Tourism & Valuation is relatively high compared with growth; brand names continue to enjoy secular uptrend in
0.7 Neutral Neutral 17.2 2.8
Others China.
Low growth and high valuation; sector continues to benefit from the government’s supportive policy on
Media 0.4 Neutral Neutral 29.2 2.4 the cultural industry. Bottom-up stock selection is important as companies within this sector tend to
have varying fundamentals.
Worries over asset quality amid slower growth and the impact of the LGFVs remain, although we
believe risks of massive write-off should under control by the Chinese government. Valuation is lower
Banks 17.7 Neutral Neutral 5.5 1.1
than historical trough levels, which is supportive, and the earnings outlook is stable in our view. Small
and mid-sized banks are likely to have higher beta than large banks.
Oil, gas & Unattractive growth profile and earnings risks should remain but the sector has underperformed the
2.2 Neutral Neutral 10.5 1.4
petrochemical market for a while and valuation is not demanding.
The sector fundamentals do not seem to have stabilized yet. Rising labor cost generates demand for
Capital Goods 11.5 Neutral Neutral 15.3 2.2 capital goods as a substitute for labor, which is a mid- to long-term trend in China. Further slowdown in
FAI growth/property FAI remains a concern.
IT & Subsectors with different fundamentals, but overall the earnings downgrade risk remains, and
equipment/componen 2.4 Neutral Neutral 19.3 3.3 valuation is not supportive. There are signs of sector fundamental bottoming out. Some of the names
ts benefit from strong growth in consumer electronics/touch screen mobile phone etc.
Shipping & Other Still neutral as we see unsteady global growth, and China's demand has been weak so far. The industry
1.8 Neutral Neutral 16.5 1.2
transportation over-capacity remains an overhang.
Earnings outlook has improved due to the weakening thermal coal prices. Valuation is not attractive
Utilities 2.2 UW Neutral 15.6 1.8
and earnings growth sustainability of the sector depends on tariff policy.
Valuation is not demanding and easing input cost pressure should improve near-term earnings outlook
Construction & Other
3.1 UW Neutral 8.9 1.3 as the industry margin is generally low. We may turn more bullish if we see a sustainable trend in
Industrial Services margin improvement and recovery in infrastructure/property FAI growth.
OW Sectors 23.6 25.7
Neutral Sectors 65.5 62.0
UW Sectors 11.0 12.4
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Research estimates.
Goldman Sachs Global Investment Research 18
June 27, 2012 China
Exhibit 21: Sector performance ytd with our sector Exhibit 22: Consensus earnings forecasts for the
ratings highlighted in different colors (new sector healthcare sector have already been conservative
ratings)
CSI300 Return by sector (2012YTD)
% Earnings growth for Health Care
OW sector Neutral sector UW sectore 140%
Securities& Others 37.3
120% Wind
Property 26.6
consensus
Non-ferrous metal & Others 22.9
forecast
Consumer Durables 15.7 100%
Food&beverage 14.8
Hotel &tourism&Others 13.2
80%
Insurance 13.2
Construction&Other Industrial Services 11.9
60%
Utilities 10.0
Health Care 9.4
Auto&parts 9.3 40%
SHSZ300 8.8
Retailing 7.5 20%
Capital Goods 6.7
Transportation Infratructure 6.3
0%
Construction Materials & Others 5.2
Textile&Apparel 4.4
-20%
Media 3.5
Coal 2.6
Chemical 1.9 -40%
IT&equipment/components 0.8
Airlines 0.0 -60%
Banks 0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E
Shipping&Other transportation -0.1
Steel -0.6
Oil,gas& petrochemical -3.4
Telecom -22.7
-30 -20 -10 0 10 20 30 40 50
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Exhibit 23: The healthcare sector consensus earnings Exhibit 24: The valuation of the healthcare sector has
forecast is stabilizing (based on Wind consensus come down to 20.9x 12-m forward PE
forecast)
Health Care sector earnings forecast (Wind consensus) 70
(X)
33 Health Care Average
2009 2010 2011 2012
(Rmb bn) 60
28
50
23 40
30
18
Earnings forecast is 20
becoming stable
13 20.9X
10
8
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 0
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Goldman Sachs Global Investment Research 19
June 27, 2012 China
Exhibit 25: The healthcare related demand is supported Exhibit 26: The healthcare sector outperformed the
by the increasing aging population in China in the market so far in 2Q2012 but ytd its performance is still
medium-long term largely in line with the market
500 35% 117
(Mn) Health Care sector index
450 440
31% 30% 112 Health Care sector relative performance (vs. CSI300 Index)
413
400 29%
400 386 28%
107
26%
342 25%
350
23% 102
300 285
20% 20%
248 97
250 17%
221 (June 30, 2011=100)
16%
15% 92
200 178
13%
142 87
150 127 11% 10%
10%
100 82
5%
50
77
0 0%
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 72
Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12
Aged 60+ As % of total population (RHS)
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Exhibit 27: The retail sector’s performance has been Exhibit 28: On-line shopping sales grew more rapidly
largely in line with the market ytd than the traditional retailers’ sales
115 On-line shopping sales
Retailing sector index
On-line shopping sales growth (RHS, %)
110
Retailing sector relative performance (vs. CSI300 Index) Total retail sales of social consumer goods growth (RHS, %)
3000 140%
105 (Rmb bn) 128.8%
120%
2500
100 112.9%
105.2%
100%
95 2000
(June 30, 2011=100) 80%
90 75.3%
1500 67.8%
85 60%
53.1%
1000
80 40%
32.5% 28.3%
28.7% 26.8%
75 500 18.3%
15.5%
16.8% 17.1% 20%
70
0 0%
65 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E
Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: I-Research, Wind, Gao Hua Securities Research, Goldman Sachs Global
Research ECS Research
Goldman Sachs Global Investment Research 20
June 27, 2012 China
Exhibit 29: Valuation of the retailing sector has come down and should not be
demanding (12m-forward PE 14.4x vs. historical average of 23x)
60
Retailing Average
(X)
50
40
30
20
10 14.4X
0
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Research
Exhibit 30: Fuel costs on average have accounted for Exhibit 31: The utilities sector’s profit margin is close to
68% of the total operation cost of the IPPs historical low
25%
73%
Fuel cost as % of total operating cost (IPPs) Average Net Margin_Utilities
Historically average
72%
20%
71%
15%
70%
69%
10%
68%
5%
67%
66% 0%
65%
2007 2008 2009 2010 2011 -5%
Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Goldman Sachs Global Investment Research 21
June 27, 2012 China
Exhibit 32: Fund position of the Utilities sector has been Exhibit 33: Dual-listed names’ A-H premium in Utilities
light (for A-share equity-focused mutual funds) sector: A-share utilities names are far more expensive.
Production and supply of power, gas and water (the mutual
4.0 2,500 350%
fund position)
(%) (Index) Utility sector A-H premium
Production and supply of power, gas and water sector index
(RHS)
3.5 300% Average A/H Premium
2,000
Total-cap weighted A/H premium
3.0
250%
2.5
1,500
200%
2.0
150%
1,000
1.5
100%
1.0
500
50%
0.5
0.0 0 0%
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Exhibit 34: The ytd spot coal prices has been more Exhibit 35: But ytd the consensus earnings downgrade
sluggish than previously expected in the coal sector has been moderate
Coal sector earnings forecast (Wind consensus)
1200 Datong quality mix(5800kcal/kg)
Rmb/t 118
Shanxi quality mix(5500kcal/kg) 2009 2010 2011 2012
1100 (Rmb bn)
1000 Shanxi mix(5000kcal/kg)
108
900
Earnings forecast is
800 98 becoming stable
700
88
600
500
78
400
300 68
200
100 58
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
02‐09 07‐09 12‐09 05‐10 10‐10 03‐11 08‐11 01‐12 06‐12
Source: SXCoal-Port coal price, Gao Hua Securities Research, Goldman Sachs Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Global ECS Research Research
Goldman Sachs Global Investment Research 22
June 27, 2012 China
Exhibit 36: Seaborne thermal coal prices are much lower Exhibit 37: …leading the significant import growth ytd
than spot coal prices in China...
Price differences(Rhs)
1300 350 2400 600
Rmb/t Rmb/t
Domestic thermal CIF 10ths tons Monthly coal import Monthly metallurgical
1200 300 coal import
Australia thermal CIF 2100
500
250
1100 1800
200 400
1000 1500
150
900 1200 300
100
800 900
50 200
700 600
0
100
600 ‐50 300
500 ‐100 0 ‐
03‐10 06‐10 09‐10 12‐10 03‐11 06‐11 09‐11 12‐11 03‐12 06‐12 04‐06 04‐07 04‐08 04‐09 04‐10 04‐11 04‐12
Source: SXCoal-Port coal price, Gao Hua Securities Research, Goldman Sachs Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Global ECS Research Research
Exhibit 38: The coal sector has underperformed CSI300 Exhibit 39: The construction sector’s net profit margin
in 2Q2012 has been thin
104 4.5%
(Oct 1 2011=100)
Coal sector Index Net Margin_Construction
4.0% Historically average
99 Coal sector vs. CSI300 Index
3.5%
94
3.0%
89
2.5%
84
2.0%
79 1.5%
74 1.0%
Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12
Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12
Source: SXCoal-Port coal price, Gao Hua Securities Research, Goldman Sachs Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Global ECS Research Research
Goldman Sachs Global Investment Research 23
June 27, 2012 China
Exhibit 40: Infrastructure investment growth gradually Exhibit 41: Valuation(12-m forward PE) of the
stabilizes construction sector is low
70 Total FAI YTD YoY Construction&Other Industrial Services
25
(%)
Property Investment YTD YoY (X) Average
60 23
Infrastructure investment YTD YoY
21
50
19
40
17
30 15
20 13
11
10
9
0
7
7.9X
-10 5
Feb-04 Feb-06 Feb-08 Feb-10 Feb-12 08-10 09-04 09-10 10-04 10-10 11-04 11-10 12-04
Source: SXCoal-Port coal price, Gao Hua Securities Research, Goldman Sachs Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Global ECS Research Research
Key Issue: Impact of share reductions
An important development in 2H2012 in A-shares is that starting from July 2012, the
amount of shares coming out of their lock up period is significant compared with 1H2012
(Exhibit 42). As major shareholders would be able to sell their shares after the unlocking,
we consider how major shareholders have reacted to shares unlocking in the past and how
such reductions in shareholdings by major shareholders have affected stock performance.
In this section, we examine reductions in shareholdings by major shareholders and market
implication.
Shares unlocking in 2H2012 will be double the size in 1H2012, and size of shares
unlocking from the SME & GEM board should triple (Exhibit 42).
1) Substantial increase in shares unlocking. The total amount of share unlocking in
2H2012 should reach RMB1,029bn (4.3% of total market cap, or 5.6% of the floatable
market cap), among which RMB395bn is from companies listed on the SME & GEM
board (around 10% of the market cap of the SME/GEM companies), and the rest is from
those on the main board (3% of the market cap of main board companies). This would
be the fourth peak period of the shares being unlocked since 2006, although the
average monthly amount of share-unlocking would be less than that over the previous
peak periods. (Exhibit 43).
2) The first wave in shares being unlocked will come in July/August (monthly average of
RMB150bn) and the next bigger one in November/December (monthly average of
RMB240bn).
3) Sectorwise, consumer staples/healthcare and industrials should see the highest
portion of shares being unlocked in 2H2012 (Exhibit 56).
Reduction in shareholdings vs. shares being unlocked. We cannot predict when and
how the shares unlocked would be sold by shareholders. Our analysis of historical trends
Goldman Sachs Global Investment Research 24
June 27, 2012 China
shows that there has been a reduction in shareholdings when a substantial amount of
shares were unlocked and available to be sold (Exhibit 44). This suggests that an increase
in the amount of shares unlocked could lead to the increase of shares reductions by major
shareholders. On average, the volume of net reduction in shareholdings as % of the shares
unlocked in the same month was around 5% in the past 12 months, and the ratio was 13%
for companies from SME/GEM board (Exhibit 45).
Net reduction in shareholdings. We found several trends between those periods where
shares were purchased and sold by major shareholders.
1) Share purchasing by major shareholders often turns more active after prolonged
market decline (Exhibit 46), as we saw in 2005-2006/late 2008-early 2009 periods.
However, the continuing decline in the A-share market since late 2009 has only led to a
moderate increase in share purchasing by major shareholders in A-share market;
2) Share selling by major shareholders often turns more active after a prolonged market
rally but the volume should be higher and less volatile than the share purchasing
(Exhibit 47).
3) Therefore, for most of the time since early 2007, major shareholders in the A-share
market have been reducing their shareholdings on a net basis. The volume of net
reduction in shareholding largely moves inversely with the market (Exhibit 48).
Cumulative amount of net reductions have reached RMB381bn since 2006, or 2.3% of
the cumulative amount of shares unlocked during the period. Note that this is a
somewhat incomplete estimate as it does not include the shares reductions by non-
major shareholders (usually shareholdings less than 5% of a company). The average
monthly net shares reduction was around RMB6.3bn in the past two years(Exhibit 49)
4) Reduction in shareholdings by shareholder: The bulk of net reductions was from
corporate shareholders, which accounts for 82% of the total net reduction in
shareholdings. The net-reductions by company management and non-management
individuals accounts for the remaining 11% and 7% respectively.
5) Major shareholders of the SME/GEM companies are more willing to sell.
SME/GEM net-shares reduction has accounted for around 60% of the total net
reduction in shareholdings in recent months, and was around 45% on average in the
past two years, although total market cap of SME/GEM companies was only around
15% of the total A-share market cap (Exhibit 50), which supports conclusions that the
major shareholders, especially company management of the companies in SME/GEM
board are more likely to sell their shares once unlocked.
6) Net share reductions by company managements of the SME/GEM companies account
for much higher proportion (36.8%) than the company managements of those on the
main board (Exhibit 51), as the SME/GEM companies are private-sector companies and
the company managements are usually the major owners of the companies.
Share purchasing/selling by major shareholders vs. stock price performance on
SME&GEM board: Share purchasing by major shareholders is positive for stock prices.
Our analysis indicates that a stock gains 3% on average in 30 days if the major
shareholders purchase a certain amount of shares of the stock (Exhibit 53). On the contrary,
share selling by major shareholders is negative for stock prices, as in Exhibit 52.
Net-share reductions by major shareholders vs. earnings growth/valuation: On
average the 2010/2011 earnings CAGR of the 50 companies with the least net-share
reduction by major shareholders was 10ppt higher than the 50 companies with largest net
reduction in shareholdings (Exhibit 55). The average P/E valuation for the 50 companies
with the least net reduction in shareholdings by major shareholders was 37.6x while it was
60.7x for the 50 companies with the most net reduction in shareholdings, which suggests
Goldman Sachs Global Investment Research 25
June 27, 2012 China
that major shareholders are more likely to sell their shares after unlocking if the company’s
growth outlook is not favorable, or the company’s valuation is high.
Reduction in shareholdings by major shareholders to cap the room of A-share
market valuation expansion. We believe the increase of unlocked shares in 2H2012
would cap substantial market valuation expansion. Our year-end CSI300 index target P/E
11.5x represents about 10% valuation normalization from current PE 10.4x.The target P/E is
already substantially lower than the average P/E since 2004 as we have taken the impact
from increased shares supply into consideration.
While there is a risk that valuation expansion could be less than we expect due to the
increase of unlocked shares in 2H2012, we believe that, with China’s policy easing
continuing and improving liquidity improving, such a risk should be relatively low.
Bigger risk of small-mid cap de-rating. While the large caps should face less valuation
risks upon the increased shares unlocking in 2H2012 given the already low valuation, we
believe the small-mid caps should face much larger de-rating risks.
1) The SME composite index is now trading at 17.9x. 12-m forward P/E, which represents
a 108% valuation premium over the large caps (CSI100 index) (Exhibit 60);
2) Our analysis suggests that major shareholders of the small-mid caps are more likely to
sell their shares after shares being unlocked, especially if the company’s valuation of is
high;
3) The amount of shares unlocking in the small-mid caps are much higher in terms of the
ratio of the shares unlocked (10% of the market cap of the SME/GEM companies vs.
4.3% for the broad market) and their valuation premium over large caps would narrow.
We thus expect valuation premium of the small-mid caps to gradually narrow to a more
normal level. Our previous analysis (3 questions on small caps’ valuation premium, April 18
2012) indicates that only 60ppt of small-mid caps’ valuation premium could be justified by
earnings growth fundamentals, which suggest the small-mid caps’ valuation should face
around 10%-15% de-rating risk if the valuation premium of the small-mid caps normalize to
a level which earnings growth could support.
In Exhibit 62, we screen a list of the small-mid caps that should have the largest ratio of
share unlocking in 2H2012.
Goldman Sachs Global Investment Research 26
June 27, 2012 China
Exhibit 42: Amount of shares being unlocked should Exhibit 43: The market should come into the fourth peak
increase substantially in 2H2012 for SME&GEM board period of the shares unlocking since 2006 starting from
and overall (ex. SME&GEM) vs. in 1H2012 July 2012
700 5000 Value of unlocked shares_overall (ex. SME&GEM)
Value of unlocked shares (Rmb 100 mn)
(Rmb bn) 634.3
4500 Value of unlocked shares_SME&GEM
600 SME &GEM board
Total average
Overall (ex SME&GEM) 4000
500 3500
394.7 3000
400 378.2
2500
300
2000
200 1500
110.2 1000
100
500
0 0
1H2012 2H2012 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Exhibit 44: Positive correlation: Net reduction in Exhibit 45: …the relationship is more significant for
shareholdings vs. shares being unlocked (overall) SME&GEM board
Share net reduction (Overall) vs. value of unlocking Share net reduction (SME&GEM) vs. value of unlocking
shares (Overall) shares (SME&GEM)
Unlocking market 100 Unlocking market
2,500 caps (Rmb bn)
caps (Rmb bn)
90
2,000 80
70
1,500 60
y = 35.36x + 30.321
50 y = 8.5643x + 6.1986
R² = 0.1872
1,000 R² = 0.3911
40
30
500
Share reduction 20
(Rmb bn)
10 Share reduction
(Rmb bn)
0
-5 0 5 10 15 20 25 0
0 1 2 3 4 5 6 7 8
-500
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Goldman Sachs Global Investment Research 27
June 27, 2012 China
Exhibit 46: Share purchasing by major shareholders Exhibit 47: Share selling by major shareholders often
often turns more active after prolonged market decline turns more active after a prolonged market rally
0.25% Share buying as % of A-share floated market cap 7,000 0.25% Share reduction as % of A-share floated market cap 7,000
SHCOMP Index (RHS) SHCOMP Index (RHS)
6,000 6,000
0.20% 0.20%
5,000 5,000
0.15% 0.15%
4,000 4,000
0.10% 0.10%
3,000 3,000
0.05% 0.05%
2,000 2,000
0.00% 1,000 0.00% 1,000
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Exhibit 48: The volume of net shares reduction by major Exhibit 49: The average monthly net shares reduction
shareholders largely moves inversely with the market was around RMB6.3bn in the past two years
0.30% Net Reduction as % of A-share floated market cap 6,000 5 6,000
(Rmb bn) Net Reduction SHCOMP Index (RHS)
SHCOMP Index (RHS)
0.25% 5,500 5,500
0.20% 0
5,000 5,000
0.15%
4,500 4,500
-5
0.10%
4,000 4,000
0.05%
3,500 -10 3,500
0.00%
3,000 3,000
-0.05%
-15
2,500 2,500
-0.10%
2,000 2,000
-0.15% -20
-0.20% 1,500 1,500
-0.25% 1,000 -25 1,000
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Goldman Sachs Global Investment Research 28
June 27, 2012 China
Exhibit 50: Major shareholders of the SME/GEM Exhibit 51: Net share reductions by managements of the
companies have been more inclined to sell historically SME/GEM companies account for much higher
proportion (36.8%) than the managements of the main
board companies (10.9%)
Net Reduction (Overall) Major share-holders' shares net reduction (SME&GEM
Net Reduction (SME&GEM) board, since Jan 2005)
12 (Rmb bn) 100%
Net Reduction (SME&GEM) as % of overall (RHS)
90%
10 14.3%
80%
8 70%
Non-management
36.8% individuals
60%
6
Corporate
50%
4 Company management
40%
2 30%
48.9%
20%
0
10%
-2 0%
Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Exhibit 52: Share selling is usually negative for stock Exhibit 53: Share purchasing by major shareholders is
prices (estimates based on the data of shares being positive for stock prices (estimates based on the data of
unlocked) shares being unlocked)
100.5 104.0
Stocks relative performance (SME&GEM board) before/after reduction Stocks performance before/after buying (SME&GEM board)
(Reduction day=100) (Buying day=100)
100.0
103.0
99.5
102.0
99.0
101.0
98.5
100.0
98.0
97.5 99.0
97.0
98.0
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Goldman Sachs Global Investment Research 29
June 27, 2012 China
Exhibit 54: Major shareholders are more likely to sell Exhibit 55: Major shareholders are more likely to sell
their shares after unlocking, if the company’s valuation their shares after unlocking, if the company’s growth
is high outlook is less favorable
The average P/E (since 2010) valuation for the 50 companies with The earnings CAGR (since 2010) for the 50 companies with the least
70 the least net-share reduction/ most net-share purchase 35% net-share reduction/ most net-share purchase
(x) (%)
60.7 30.6%
60 30%
50 25%
19.8%
40 37.6 20%
30 15%
20 10%
10 5%
0 0%
Net Buying shares as % of total(Top 50) Net Reduction shares as % of total(Top 50) Net Buying shares as % of total(Top 50) Net Reduction shares as % of total(Top 50)
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Exhibit 56: Shares being unlocked in the healthcare Exhibit 57: Shares being unlocked for CSI300 companies
sector should mainly be from healthcare companieson are much less than those for SME/GEM companies
the SME/GME board
2,500 Value of unlocked shares in CSI300 index 12%
Value of unlocked shares as % of total market caps
(Rmb
(2H2012, Health Care sector) Value of unlocked shares in CSI300 index as % of total market
caps (RHS)
16.0%
10%
14.4% 2,000
14.0%
8%
12.0%
1,500
10.0%
6%
8.0%
1,000
6.0% 4%
4.0%
500
2%
2.0%
0.1%
0.0%
0 0%
SME &GEM boards CSI300 Index
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Goldman Sachs Global Investment Research 30
June 27, 2012 China
Exhibit 58: Historically, net reduction in shareholdings Exhibit 59: Shares being unlocked in 2H2012 would be
were more by major shareholders of companies with mainly from companies with relatively high valuation
relatively high valuation (SME&GEM board) (SME&GEM board)
14 (Rmb bn)
Shares net reduction by PE groups (SME&GEM board) Value of shares unlocked in 2H2012 by PE groups
(SME&GEM board)
(Rmb bn)
12 0-10x 10x-20x
20x-30x 30x-40x 24.9 1.0
51.7
40x-50x 50x+
10
8 >50x
102.1 50.2
40x-50x
6 30x-40x
20x-30x
4 10x-20x
<10x
2
0
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
150.4
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS
Research Research
Exhibit 60: The small-mid caps in A-share are still trading at a very high valuation
premium over large caps
SME Composite 12-m fPE / CSI100 12-m fPE (RHS) 4.0
47 (X)
(X)
SME Composite fPE
CSI100 fPE 3.5
42
3.0
37
2.5
32
27 2.0
22 1.5
17 1.0
17.9X
12 0.5
7 0.0
2006-05 2006-11 2007-05 2007-11 2008-05 2008-11 2009-05 2009-11 2010-05 2010-11 2011-05 2011-11 2012-05
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Research
Goldman Sachs Global Investment Research 31
June 27, 2012 China
Exhibit 61: Sectorwise, consumer staple/healthcare and industrials should see the
highest portion of shares being unlocked in 2H2012 (SME & GEM board)
Value of unlocked shares as % of total market caps (SME &GEM
boards, 2H2012)
Consumer Staple 21.0%
Health Care 14.4%
Industrials 9.8%
Overall (ex. Financials) 9.7%
Overall 9.6%
Consumer Discretionary 8.6%
Telecommunication Services 6.9%
Financials 6.4%
Information Technology 6.1%
Basic Materials 5.6%
Energy 3.5%
Utilities 1.3%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Research estimates
Exhibit 62: A list of the small-mid caps that have the largest ratios of shares unlocking
scheduled in 2H2012
Unlocking
Unlocking Performance
Ticker Name A-share sector shares as % of 2012E PE
day (2012YTD, %)
total (%)
002287.SZ Cheezheng Tibetan Medicine Health Care 2012-8-28 89.9% 8.8% 36.4
002292.SZ Guangdong Alpha Consumer Durables 2012-9-10 75.0% -11.2% 50.1
300023.SZ Bode Energy Equipment Capital Goods 2012-10-30 75.0% 6.3% NM*
002311.SZ Guangdong Haid Group Food&beverage 2012-11-27 75.0% 25.0% 27.3
002313.SZ SUNSEA Telecommunications IT 2012-12-3 75.0% 17.9% 22.6
002317.SZ Guangdong Zhongsheng Household Products 2012-12-11 75.0% 1.9% 22.0
002294.SZ Shenzhen Salubris Health Care 2012-9-10 74.9% 32.5% 22.5
002303.SZ Shenzhen MYS Construction Materials 2012-11-5 74.8% -7.0% 18.9
002327.SZ Shenzhen Fuanna Bedding Textile&Apparel 2012-12-31 74.8% 13.4% 26.6
300002.SZ Beijing Ultrapower Software IT 2012-10-30 72.8% 2.6% 16.5
002305.SZ Wuhan Langold Real Estate Property 2012-11-6 72.2% 19.7% NM*
300015.SZ Aier Eye Hospital Group Health Care 2012-10-30 71.5% -19.2% 36.3
002315.SZ Focus Technology IT 2012-12-10 71.5% -12.4% 22.0
002293.SZ Luolai Home Textile Textile&Apparel 2012-9-10 71.2% 2.7% 22.5
002275.SZ Guilin Sanjin Pharmaceutical Health Care 2012-7-10 71.0% 11.8% 21.8
300032.SZ Jinlong Machinery & Electronic Capital Goods 2012-12-25 70.1% 38.1% 42.6
300011.SZ Beijing Dinghan Technology Capital Goods 2012-10-30 70.1% -0.9% 23.4
002308.SZ Vtron Technologies IT 2012-11-27 69.8% -0.7% 19.0
300012.SZ Centre Testing International Construction 2012-10-30 69.4% 25.5% 32.5
002285.SZ Shenzhen Worldunion Property 2012-8-28 68.4% 40.1% 19.3
Note: * means no WIND consensus PE estimates
Source: Wind, Gao Hua Securities Research, Goldman Sachs Global ECS Research estimates
Goldman Sachs Global Investment Research 32
June 27, 2012 China
Disclosure Appendix
Reg AC
We, Hanfeng Wang, Ph.D, CFA, Helen Zhu, Timothy Moe, CFA, Christopher Eoyang, Ben Bei and Chenjie Liu, hereby certify that all of the views
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Goldman Sachs Global Investment Research 33
June 27, 2012 China
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Goldman Sachs Global Investment Research 34
June 27, 2012 China
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Goldman Sachs Global Investment Research 35
June 27, 2012 China
© 2012 Goldman Sachs.
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Goldman Sachs Global Investment Research 36
