Chongqing Fuling Zhacai (SZA: 002507) is a favorite among pickled mustard tuber lovers.
Photo: Company

Translated by Andrew Vanburen from a Chinese-language piece in Chinese Securities Journal

WE ARE ALL looking for guidance in this topsy-turvy market.

We crave a few clues on which sectors are hot, and which are, well ... not so much

So when brokerages go out of their way, and out on a limb of sorts, to predict good things for specific stocks, investors tend to listen.

These five brokerages used the weekend to catch up on some recommendations, and came up with these China shares as most likely to offer pleasant surprises.

Meat and Potatoes

Chongqing Fuling Zhacai (SZA: 002507) produces and distributes pickled mustard tubers, tuber sauce and other appetizers, primarily under the brand named Wu Jiang.

Hua Chuang Securities said the Southwestern-China based firm – a region renowned for its spicy snack foods – is enjoying a rapid expansion in its geographic market share.

“The pickled snackfood sector is both traditional and overcrowded. But Chongqing Fuling has very effectively restructured its internal organization and management to eke out a very respectable market share for itself in a highly competitive industry,” the brokerage said.

It added that the snack maker is beginning to execute a prudent, well thought out plan to expand from a regional power to a national brand name presence.

“Through strategic brand marketing and growing economy of scale, Zhacai will be in a good position to leverage on these two strengths in its goal of becoming a national player.”

The Chongqing-based firm was also boosting its pricing power thanks to its channel improvements, technological upgrades and growing geographic presence.

“Thanks to a strengthening of both assets and ties up and down the production chain, Zhacai has been able to boost both its selling prices and margins.”

Hua Chuang Securities added that it is confident Zhacai can further expand its product offerings going forward so as to avoid overreliance on just a few key items.

Healthy Prospects

China Resources Sanjiu Medical & Pharmaceutical (SZA: 000999), manufacturer of traditional Chinese medicines for the treatment of gastrointestinal ailments and common cold symptoms, has caught the attention of Minsheng Securities for its enthusiastic expansion strategy.

The drugmaker’s interim results showed a 24% top line expansion to 3.3 billion yuan, producing a 27% net profit increase to 520 million.

The brokerage said the bottom line numbers would be much higher if not for the firm’s aggressive M&A and expansion plan.

“The faster growth in the bottom line than overall revenue typically means that operating costs for new acquisitions were more manageable as well as seeing selling margin improvements.”

Not all counters have been dragged down in China

Minsheng said this was a welcome phenomenon for Sanjiu and its shareholders given the firm’s embrace of non-organic means of market expansion.

“The expected continued reductions in upstream chemical costs will also bring margin relief to Sanjiu going forward.”

Minsheng expects Sanjiu to have an EPS performance of 1.01/1.19/1.40 yuan for 2012, 2013 and 2014, respectively.

Clearing the Air

Weifu High-tech (SZA: 000581), an auto parts and diesel engine fuel-injection systems manufacturer, is strongly recommended by Ping An Securities.

The recent ratification of the Euro IV agreement will bring a broad range of opportunities for Weifu’s line of tailpipe emission control products.

Thanks to this new basket of opportunities, Ping An now expects faster growth for Weifu, with EPS at 1.54/2.28/3.21 yuan for the years 2012-2014.

Lower carbon diesel fuel system makers will benefit from the new guidelines.

Green Machine

Shenzhen Green Eco-Manufacture Hi-Tech (SZA: 002340) recently announced that it would acquire a 51% equity stake in Jiangsu Cobalt Nickel for 272 million yuan in cash.

“This will help solidify Shenzhen Green’s upstream and downstream presence,” said Dongxing Securities.

Shenzhen Green recovers and reuses cobalt, nickel resources and electronics as well as the producing and distributing superfine cobalt and nickel powder materials.

Prescription for Success

Beijing Beilu Pharmaceutical (SZA: 300016) get very positive mention from First Capital for its strong recent performance.

Its first half revenue jumped over 43% year-on-year to 127 million yuan, producing an even more impressive net profit spike of over 54% to 30.1 million.

“Its internal restructuring and expansion campaign is clearly paying off,” the brokerage said.

See also:

Five China Sectors About To Get Hot

BUCKING TREND: China Shares Ready For Rebound?

TOUGH TALK: Dissecting China Market Fall, Fate

What’s Depressing P/Es In China?

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