China’s Manufacturing Growth Hits Three-Year Peak

The Caixin China General Manufacturing PMI came in at 51.8 in June, up 0.1 points from the previous month, the eighth straight month in expansionary territory and its highest level since June 2021. This trend was not consistent with the manufacturing PMI released by the National Bureau of Statistics. The manufacturing PMI released by the National Bureau of Statistics was recorded at 49.5 in June, which was same as May’s level. Supply continued to expand, with the production index hitting a two-year high. Demand also rose, keeping the index for total new orders in expansionary territory for the 11th consecutive month. Continued growth in total new orders contributed to an increase in the backlogs of work for the fourth straight month. Demand for consumer and intermediate goods was stronger than that for investment goods. Exports continued to grow, but at the slowest pace in six months, indicating slightly weaker overseas demand. The job market stabilized somewhat. Although the employment index remained in negative territory for 10 consecutive months, the magnitude of the contraction moderated in June.

Prices rose slightly in June. Higher prices of raw materials such as steel, copper and aluminum coupled with rising freight costs pushed up input costs, causing the corresponding gauge to hit its highest in two years. Output prices ticked up, with the indicator entering expansionary territory for the first time this year. In terms of the Hong Kong stock market, the Hang Seng Index may lack upward momentum in the near term. It is expected to fluctuate between16,900-17,900 points.

Dividend investing remains a compelling income opportunity. Investors could pay attention to high-dividend/yield stocks such as communication, energy and utilities.

CLP (0002.HK)’s electricity sales in HK market increased to 7,279 gigawatt hours (GWh) in the first quarter, up 3.7% YoY. As international fuel prices continued to fall from their peak, CLP lowered its monthly Fuel Cost Adjustment to 43.9 cents per unit of electricity in May 2024, driving a further 1.7% reduction in the Average Net Tariff since the beginning of this year. At Black Point Power Station, the new 600 megawatt (MW) D2 gas-fired generation unit went into operation in April after completing construction.

In terms of mainland market, wind energy generation increased compared with the same period last year thanks to contributions from the new Xundian II plant in Yunnan province, while wind resources improved for assets in Shandong. The operations of Australia market’s generation portfolio continued to improve. Generation at Mount Piper Power Station in New South Wales rose from 1Q23, as utilization increased to 47% from 38% a year earlier. CLP declared a quarterly dividend of HK$0.63 per share, the same as 1Q23. The dividend yield for FY23 was 5%. It is recommended to buy at HK$61.50, target at HK$71.50, and stop loss at HK$58.50.

Power Assets (0006.HK)’s net profit in FY23 amounted to HK$6.0 billion, a YoY increase of 6%. United Kingdom market was the Group’s largest market of operation and achieved profit contribution of HK$2.8 billion, up 12% YoY. In terms of HK market, 2023 marked the successful conclusion of the 2019 – 2023 Development Plan of HK Electric. Under the HK$26.6 billion blueprint, three new gas-fired generating units and a joint-venture offshore liquefied natural gas (LNG) terminal were built, enabling HK Electric to increase the proportion of electricity generated from natural gas to around 70% from 2024 onwards. It is also making progress on deployment of smart meters across the territory and around 60% of its customers are now fitted with smart meters.

In Thailand, Ratchaburi Power Plant functioned above expectations in plant performance and operation. In Mainland China, the Jinwan co-generation power plant returned to profitability in 2023 alongside a lower coal cost during the year. The two wind farms in Dali and Laoting jointly avoided 145,200 tonnes of carbon emissions. The Group declared a final dividend of HK$2.04 per share. The full-year dividend stood at HK$2.82 per share, with a dividend yield of 6.7%. It is recommended to buy at HK$41.05, target at HK$47.80, and stop loss at HK$39.35.