Personal Finance

High-end equipment a good bet

By Li Xiang (China Daily)
Updated: 2011-01-21 14:12

Sector enjoys sufficient capital, favorable policies, analyst says

BEIJING - While the expectation of further monetary tightening may continue to drag down the Chinese stock market, analysts said that emerging sectors such as the high-end manufacturing industry may offer promise in 2011, thanks to favorable government policies and rosy earning prospects.

Stock in the high-end equipment-manufacturing sector is likely to outperform the general market, which may remain volatile in 2011, said Tang Yonggang, an analyst at Hongyuan Securities.

The Chinese manufacturing sector is shifting from the production of low-value goods toward the technology-intensive manufacturing of satellites, airplanes, high-speed railways, and smart-grid equipment as the country undergoes major structural changes in its economic growth path.

"The industry may offer good investment opportunities as it has been listed as one of the key strategic industries supported by favorable government policies and sufficient capital," Tang said.

China's high-end equipment has mainly been imported from developed countries even though the country has been supplying 85 percent of the manufacturing equipment it employs, which mainly meet the demand in the low- and medium-end market.

China has recently put great emphasis on the development of the high-end equipment-manufacturing sector by listing it as one of the national strategic industries in its 12th Five-Year Plan (2011-2015). Analysts expect that a large amount of capital and human resources will be invested in the sector in the coming years.

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Meanwhile, China's high-end equipment manufacturers are rapidly expanding abroad to increase their global market share. Stocks of China CNR Corp and CSR Corp, the nation's two largest trainmakers, rose sharply on Wednesday after reports that the two may sign their first agreements in the United Kingdom with four deals worth $799.4 million.

The high-end manufacturing industry has 63 listed companies in the A-share market with a market capitalization of 450 billion yuan ($68.32 billion) and an average price-to-earning ratio of 30, according to research by the Shenzhen-based Essence Securities.

The sector posted total net profits of 27.5 billion yuan and an average earnings per share of 0.42 yuan in the third quarter of 2010.

Analysts said that steady growth in the demand for advanced equipment will continue to boost manufacturers' business, which may continue to be a solid bet for investors in 2011, given the reasonable valuations of related stocks and the good earning prospects of listed companies.

More investment opportunities will also come from the industry's quest for technological advancement and structural upgrades, they said.