Galaxy Securities: Seize the deterministic opportunity of rising industry prosperity and recommend the top ten gold stocks in February

Editor's note: Seize the deterministic opportunity of an upward trend in industry prosperity brought by policies and recommend monthly gold stocks that are in line with technological upgrades or consumption upgrades

Strategy: In an environment of ample liquidity, Actively seize the structured investment opportunities in the stock market - February Monthly Gold Stock Report

Core Views

The stock market has ample liquidity, market sentiment will not be too weak, and structural differentiation continues the global currency over-issuance Under the general environment, coupled with the trend of my country's residents' assets being converted into investments, the A-share market has abundant funds, prompting a strong market bullish atmosphere. However, it should be noted that the abundant liquidity does not bring about a general rise, but a continuous rise. The structure is differentiated, and the market is still in a stage of high volatility, high differentiation, and high valuation. Only the value of high-quality assets can continue to increase.

Actively seize the deterministic opportunities for the upward trend of industry prosperity brought by policies

2021 is a critical year for my country’s economic transformation and upgrading, and a good start in the 14th Five-Year Plan is more important. Gao, it is recommended to follow the tone of the 14th Five-Year Plan and the Central Economic Work Conference and actively deploy industries with rising mid- and long-term business trends that are in line with technological upgrades or consumption upgrades, such as new energy, high-end manufacturing, consumer services, etc.

In the short term, attention should be paid to risk factors such as repeated epidemics, high market volatility, and performance disclosure

Recommended main lines in February 2021

Risk warning

1) The risk of a shift in easing and stimulus policies; 2) The risk of the COVID-19 vaccine progress not meeting expectations; 3) The risk of intensifying conflicts between China and the United States.

Macro: Profits in the midstream and upstream industries are rising, while profits for intensive products are falling - Comments on profits of industrial companies in December

Core point of view

Overseas demand is relatively strong, driving profits On the upside, with production growth rising, inventories increasing slightly, terminal demand sufficient, and orders equally sufficient, profits will continue to rebound in the future. This month's profits are in line with the data. Exports hit a new high in December, but domestic demand fell slightly. External demand is stronger than domestic demand. Under the epidemic, overseas demand has increased the boost to my country's production.

Production and prices are rising at the same time, driving profits higher

The monthly growth rate of my country's industrial profits is still relatively high, the corporate revenue curve is upward, and the output of industrial enterprises is increasing. The added value of industrial enterprises above designated size increased by 7.3% in December, and the PMI production index reached 54.2% in December, indicating that enterprise production is relatively strong. Ex-factory prices of products rose rapidly in December, driving up profits. In December, the ex-factory price of industrial finished goods PPI was -0.4% year-on-year, up 1.1% month-on-month.

Midstream profits rose rapidly

In December, the performance of the midstream industry was even more outstanding, and upstream and downstream profits continued to recover. Economic recovery relies on rising demand, which directly drives the profits of downstream industries, and the industry rotation has extended to the upstream and midstream.

The upstream benefited from rising product prices, the midstream benefited from increased orders, and the profits of downstream labor-intensive products fell

Commodity prices rose, and ferrous metal mining, petroleum, coal and other fuels in December Processing, oil and gas extraction, non-ferrous metal smelting and rolling processing saw the best profit recovery. The recovery in the midstream and upper reaches industries is also considerable, and the profits of the black industry have recovered significantly. The profit growth rate of equipment and chemical fiber manufacturing has also increased year-on-year. The resurgence of the new crown epidemic is beneficial to the pharmaceutical manufacturing industry. The profit growth rate of the downstream labor-intensive goods industry has slowed down, and the profits of textiles, clothing, leather, fur and feathers have declined. The profits of the rubber and plastic products industry, which have always performed relatively well after the epidemic, have declined slightly and require continued observation. The profits of the automobile industry unexpectedly fell in December, and the popularity of the automobile industry dropped slightly.

The inventory of finished products rose slightly due to the Spring Festival stocking up

The inventory of finished products rose slightly, and the inventory may fluctuate.

The increase in finished product inventories in December may be due to stocking up for the Spring Festival. Terminal demand is still relatively strong, and finished product inventories may remain at this level.

Industrial profits will still rise slowly

The single-month growth rate of industrial profits in December rose sharply: (1) Enterprise income was better in December and demand was still relatively strong; (2) Rising commodity prices have driven higher profits. Our country's economy is still in the recovery stage, and industrial production is expected to remain strong. Profit growth is lagging data, and profits are expected to remain upward in the first quarter. The upward trend in industrial profits is expected to be suspended in the second quarter of 2021.

The midstream industry will still see the best profit recovery in 2020

Due to the rebound in production in 2020, the raw material industry and equipment industry will see the fastest profit growth. Affected by supply shortages, iron ore prices have risen rapidly, and non-ferrous metals have followed the rise in profits of the ferrous metal industry. The cyclical papermaking, chemical raw materials and chemical products industries performed better in terms of profits. The rise in these industries has led to an upward trend in equipment profits.

Petrochemicals: Industry performance is expected to improve cyclically, and fund holdings have increased significantly

Core Views

In 2020, my country’s crude oil demand will increase by 5.71% year-on-year, and foreign dependence will hit a new high Historical high

Overall, in 2020, my country processed 674 million tons of crude oil, a year-on-year increase of 3.44%; output was 195 million tons, with positive growth for two consecutive years, a year-on-year increase of 2.04%; imported crude oil was 542 million tons, a year-on-year increase of 2.04%. An increase of 7.25%; apparent consumption of crude oil was 736 million tons, a year-on-year increase of 5.71%; external dependence reached 73.5%, an increase of 0.95 percentage points from the previous year, setting a new record high. In 2020, my country's apparent demand for refined oil decreased by 6.58% year-on-year, with negative growth for three consecutive years

In 2020, my country's refined oil production was 331 million tons, a year-on-year decrease of 8.06%; refined oil exports were 45.73 million tons, a year-on-year decrease of 17.39% ; The apparent consumption of refined oil products was 290 million tons, a year-on-year decrease of 6.58%. Among them, the apparent consumption of gasoline, kerosene, and diesel changed by -7.17%, -14.72%, and -3.91% year-on-year respectively. As the domestic refined oil market is already saturated, the proportion of refined oil production is gradually declining, and more is turning to the production of chemicals.

Oil prices rose slightly in January and are expected to fluctuate within a narrow range in February.

Benefited from Saudi Arabia’s announcement that it will proactively implement unilateral production cuts of 1 million barrels per day in February and March. Stimulated by factors, oil prices rose slightly in January. As of January 27, Brent and WTI oil prices reached US$55.81/barrel and US$52.85/barrel respectively, an increase of more than 7% from the beginning of the year. Considering that the current oil price has reflected the comprehensive impact of a new round of blockade caused by the new crown epidemic and Saudi Arabia's unilateral production reduction, it is expected that oil prices will mainly fluctuate within a narrow range in the next few weeks. However, in the medium to long term, affected by the continued improvement in crude oil demand brought about by the vaccination of the new coronavirus, crude oil supply and demand are expected to improve marginally, and prices are expected to center upward.

The industry’s performance is better than that of the entire market, ranking 3rd among the 109 secondary sub-industries

Year to date, the petrochemical industry’s return rate is 19.80%, outperforming the entire market, ranking Ranked 3rd among 109 secondary sub-industries. As of January 27, the overall valuation (PE (TTM)) of the petrochemical sector was approximately 21.59x. As performance improved quarter by quarter, the industry valuation level gradually returned to a reasonable level.

Investment Suggestions

Risk Warning

The risk of continued decline in oil prices, the risk of falling product spreads, the risk of revenue falling short of expectations, etc.