Deutsche Bank
Markets Research
Asia
China
Strategy
China Equity
Strategy
Date
24 January 2017
Strategy Update
2016 earnings preview: are you ready
for a pleasant surprise
________________________________________________________________________________________________________________
Deutsche Bank AG/Hong Kong
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST
CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/2016.
Yuliang Chang, CFA
Strategist
(+852 )2203 6195
yuliang.chang@db
Joseph Huo
Strategist
(+852 )2203 6251
joseph.huo@db
We expect 8%/10% EPS growth in 17/18E
DB
forecast
Consensus
forecast
2016ENon-financials3.4%-4.5%
Financials-4.5%-14.8%
MSCI China-0.9%-10.1%
2017ENon-financials11.3%24.4%
Financials5.0%4.1%
MSCI China8.0%14.0%
2018ENon-financials13.2%19.9%
Financials7.0%7.2%
MSCI China10.0%13.9%
DB top-down earnings
forecast vs. consensus
Source: Bloomberg Finance LP, Deutsche Bank Strategy Research
Industrial profits growth shot up to 27M high
2015-2.3
3M167.4
11M169.4
0.8
2.4
4.42610
-5515
Jan-Mar-May
-14Jul-14Sep-14Nov-14Jan-15Mar-15
May
-15Jul-15Sep-15Nov-15Jan-16Mar-16
May
-16Jul-16Sep-16Nov-16
ytd yoy %ytd yoy %Industrial profits growthIndustrial revenue growth
Source: CEIC, Deutsche Bank Strategy Research
MXCN saw earnings upgrades across the board
65
70
75
80
85
90
95
100
105
May
-15Jun-15Jul-15Aug-15Sep-15Oct-15Nov-15Dec-15Jan-16Feb-16Mar-16Apr-16
May
-16Jun-16Jul-16Aug-16Sep-16Oct-16Nov-16Dec-16Jan-17
Rebased 2016E EPSMSCI ChinaCyclicalsDefensivesFinancials
Source: Bloomberg Finance LP, Deutsche Bank Strategy Research
The ongoing cyclical recovery could have notably boosted earnings growth...
Non-financial earnings could have strengthened in 4Q16 as: 1) sales growth
could have rebounded strongly, with nominal GDP shooting up 9.9% in 4Q16
from 7.8%; and 2) earnings acceleration could have outpaced that of sales
with margins expanding amid higher capacity utilization. Indeed, industrial
profits shot up 9.4% in 11M16, the highest read since December 2014; 3) a
high portion of A-shares pre-announced stronger earnings growth in FY16,
similar to 9M16, implying that 4Q16 growth stayed elevated.
Sector-wise, we expect growth to have recovered strongly across cyclicals,
while defensives remained under pressure. Earnings upstream could have
improved significantly in 2H16 on remarkable price hikes and/or volume pick-
ups in commodities, including steel, coal, select non-ferrous metals, paper,
cement and oil; in the mid-stream, capital goods espe
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