Zoomlion Heavy (1157.HK), the maker of concrete and crane machinery, jumped 7.6% this morning in Hong Kong, making it the best-performing stock in the Hang Seng large- and mid-cap universe, after the People’s Bank of China cut its banks’ reserve ratio last night.
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This market reaction is a bit of surprise (to this blogger) as Zoomlion outperformed direct beta-play financials – banks, brokers, insurance companies, as well as the heavily indebted real estate developers.
Everything seems in favor of Zoomlion today. About 70% of Zoomlion’s revenue is exposed to construction in the real estate sector, which will benefit from more liquidity, according to Citi Research. Around 15% is on environment protection and importantly, over 12% is from agriculture. Yesterday, the central bank said it would give rural banks another 50 basis point cut and Agricultural Development Bank of China would get a 4 percentage points cut.
In addition, “the RRR cut would also reduce the account receivables risk for Zoomlion, which used to drag down the valuation,†noted Citi analyst Eric Lau and team.
By Shuli Ren
