Analysis Of High-Quality Stocks In Hong Kong

In Hong Kong, there are many high-quality stocks with the characteristics of durable competitive advantage (DCA), which means the company can generate profits sustainably in the long time. In the following, I would like to recommend three stocks, which are HK & CHINA GAS (00003), HANG SENG BANK (00011) and LINK REIT (00823). I believe that they are resulting impressive profits growth in the future and can generate stable income.

First of all, Towngas is one of the largest energy suppliers with a total length of more than 3,400 kilometers gas supply network supplies gas to more than 1.68 million customers. In recent years, their businesses become more diversity, like expanding telecommunications, building constructions, etc. Towngas has a stable consistent profitability in the past few years. According to the statistics from Aastocks, the net profit of the company consistently increased from 2013 to 2017, the net profits about 6854 (Mn), 7109 (Mn), 7302 (Mn), 7341(Mn) and 8225 (Mn) respectively. Apart from the consistent profitability, the company also has stable distribution policy. According to the statistics from Aastocks, the distribution of the past five years is the same amount of $0.35. Also, the company will distribute 1-for-10 dividend to stockholder. The bonus share does not involve any cash distribution, and the company can use this to retain cash for future development purposes and reduce financial pressure. To conclude, Towngas monopolizing Hong Kong market, there is not much government regulation, price independence can pass the cost, and gas is the necessities of life, so this company is definitely a good quality stock and a good choice for long-term investment.

Secondly, LINK REIT the major activities of the company are investment in retail and car park operations. These rental properties are closely related to people's livelihood, so the income is quite stable. At the same time, there is considerable room for improvement. The rental income can be increased through refurbishment. With the renovation of many shopping malls, the space for rent increase is reduced, and the government has relaxed the restrictions. In recent years, the exhibition has become more and more aggressive. It has been selling estates and shopping malls, starting buildings and acquiring properties in the Mainland. Back to some statistic, with reference to ON.CC, under the unstable global situation and the collapse of the market, funds have already begun to flow into the company. Since June 21, the unit price of the fund has risen by more than 7.8%, while the Hang Seng Index has fallen by 2.6% over the same period, which clearly outperformed the market. Besides, LINK REIT has low debt ratio. According to the LINK REIT Annual Report, the total debt maintains around 30,000 million in 2018 compare with 2017, while the total asset increased round 20%, from 175,940 million in 2017 to 216,404 million in 2018. It could imply that long-term financial of the company is stable, which can let the company have more resources to develop their business.

Last but not least, Heng Seng Bank is the Bank and its subsidiaries and related companies are engaged in banking and related financial services. The banking industry is an industry with certain risks, because it is highly indebted. Hence, when analyzing their risk management, we can observe their ability to make money when financial crisis came over, like the financial tsunami in 2008. According to YAHOO FINANCE, the net profits from 2006 to 2010 were around 12.6 billion, 17.8 billion, 13.7 billion, 13.1 billion and 14.9 billion respectively. As you can see that the profits in 2008 was 13.7 billion and 13.1 billion in 2009. Although they were lower than the profits in 2007, higher than 2006. It implies that Hang Seng's risk management is doing very well, not only does it not have a loss, the ability to return to normal earnings is fast.