summary
Preserve the strength and appropriately lay out the double low. In June, the valuation of low-priced partial debt-to-bond swaps was mainly compressed, while in July, the valuation of balanced equity-biased convertible bonds was compressed by more than 3 points, and the YTM of partial debt-to-bond swaps rose by more than 1 point, and the current valuation of various types of convertible bonds has fallen below the low point since 2022, among which the valuation of convertible bonds between balanced partial stocks (parity 80-130) is around the 20% quantile in the past 21 years and the 50% quantile in 18 years; In the short term, high YTM convertible bonds should still be avoided in the short term, and even if they participate, they should choose state-owned enterprises with close maturity dates, or private enterprises with abundant book funds and payment guarantees. However, on the whole, the current absolute price position is not high, the CSI 1000 has recently approached the liquidity impact in early February, the bottom of the equity is gradually clear, the current "double low value" below 150 The number of convertible bonds exceeds 200, considering the underlying stock qualification/performance/industry and other factors, there are still about 100 "double low" targets worth participating in, and the gradual layout can be carried out in the adjustment process.
Weekly Market Review: Last week's revolving bond index fell less than the major stock indexes; In terms of valuation, the parity 90-110 conversion premium is 21.2%, the median price is 108.5, and the valuation is "V"-shaped.
Stock market: Keep a close eye on the direction of reform and policy. Recently, policies such as reducing deposit interest rates, increasing MLF, equipment renewal and trade-in have been introduced more than expected, and about 300 billion yuan of ultra-long-term special treasury bond funds will be arranged as a whole, and efforts will be made to support large-scale equipment renewal and consumer goods trade-in, and steady growth has begun to gradually exert force, especially in the field of household appliances in the trade-in policy, subsidies in the field of household appliances have significantly exceeded market expectations, and the future policy may further develop domestic demand. If the Politburo meeting at the end of the month also mentions this, it will further verify the main line of the policy; In addition, scientific and technological innovation will also become one of the priorities of future reforms. Strategically, we will continue to focus on it in the short term; 1) Consumer electronics and other directions with good performance; 2) Export machinery and other directions in non-European and American directions; 3) Continue to pay attention to the new trends of the technology industry, pay close attention to the opportunities brought by event catalysis, and pay attention to new quality productivity directions such as AI/semiconductor/intelligent driving/low-altitude economy.
Convertible bonds: low-level layout, waiting for a rebound. In the context of the small and micro market is still weak, the low-priced convertible bonds continue to adjust, and the small market rebounded on Friday after the overfall, driving the short-term repair of the valuation of the convertible bonds, but the overall valuation is still down. In terms of strategy, in the short term, in the context of recovery and corporate earnings have not been definitively repaired, equity will still maintain a structural market, and the median price of convertible bonds has fallen below 110 yuan again, and pessimism has been amplified, and the current valuation & price has once again come to a low level in the past two years. 2) Semiconductor domestic substitution direction: Feikai/Nandian/Qiangqiang, etc.; 3) Youfa/Huakang/Chutian, etc., which have a certain amount of support for the underlying stock; 4) Feng 21 / aggregation / Taiwan 21 / crane 21 / special paper and so on; 5) Aircraft with performance support in the export chain, etc.; 6) Repair of low-priced targets such as Huitian/Yinwei, etc.
Primary market tracking: Last week, 2 new bonds were issued, 4 companies were approved by major shareholders in bond conversion, and 1 company's bond conversion issuance was approved by the Issuance Examination Committee.
Risk Warning: Credit Event Shock; changes in refinancing policies; Equity Adjustments
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[Preserve Strength, Appropriate Layout of Double Low] In July, the convertible bonds continued to actively compress their valuations, and the performance of the CSI Convertible Bond Index and the equal-weight index were weaker than those of the major stock indexes, and the valuation compression was also more significant than that in June; From a stylistic point of view, the valuation compression in June is more reflected in the low price and relatively local, so the decline of the CSI convertible bond index in June is much smaller than that of the equal weight index, while the high and medium low-price convertible bonds in July have been significantly adjusted, and the market has an undifferentiated valuation compression, and the performance of the convertible bond index is basically the same as that of the equal weight index.
From the perspective of valuation compression, the premium rate of 80-90 convertible bonds to equity swaps at parity in July was compressed by more than 6 points, far exceeding the range of 2 points in June; The average premium rate of 90-110 convertible bonds at parity was compressed by 4 points, far exceeding the range of less than 1 point in June. YTM, which converts bonds below 80 parity, rose by 150bp in June and more than 100bp in July, and the valuation adjustment of low-priced convertible bonds is basically the same.
At present, the valuations of various types of convertible bonds have fallen below the low point since 2022, among which the valuations of balanced equity-biased convertible bonds and debt-biased convertible bonds have clearly diverged, and the valuation of convertible bonds between balanced equity (parity 80-130) is around the 20% quantile since 21 years and the 50% quantile since 18 years. The valuation of partial debt (below 80 parity) is at a low level in 21 and 18 years, and the average YTM of convertible bonds below 80 is at a historical high.
Is the valuation reasonable? The adequacy of market pricing is reflected behind: 1) the occurrence of material default (Sote/Hongda) raises credit risk concerns; 2) There has been a significant increase in the number of convertible bonds to be repaid at maturity, and the market's concern about the default of targets with high debt pressure has increased; 3) Lower and lower stock prices and higher and higher potential dilution ratios (referring to the dilution of the underlying stock by convertible bonds after the downward revision of the conversion price) make the market realize that the downward revision may be useless and the conversion of shares is not inevitable. As a result of the above expected changes, the higher the current convertible bond valuation, the higher the convertible bond balance/market capitalization, the higher the issuer's interest-bearing debt ratio, and the higher the market trading YTM.
The valuation gap between different ratings has also reached an all-time high. The average YTM of convertible bonds rated below AA & parity below 80 has reached a high of 5.5%, second only to the beginning of 2021, while the average YTM of convertible bonds rated above AA (inclusive) & below 80 is 3%, which is significantly lower than the position at the beginning of 21, and the spread between the two has reached an all-time high of 250bp, in stark contrast to 100bp at the beginning of 21.
According to the article "The Extreme Deduction of Credit Negative", the current convertible bond market has occurred: 1) the underlying stock and the convertible bond are delisted together; 2) There are two situations in which the reorganization of the underlying stock leads to the delisting of convertible bonds, the normal existence of the underlying stock and the default of the maturity/resale of the convertible bonds have not yet occurred, and there are still 12 convertible bonds due during the year, and some of them are still at risk of not being redeemed; In addition, since the beginning of this year, due to the increase in the number of broken convertible bonds, the repurchase and capital reduction have led to the pressure of debt repayment, resulting in an additional credit risk for convertible bonds.
Therefore, in the short term, there is still the possibility of impact on the future market of high-YTM convertible bonds, especially those with high debt ratios and large balance/market value ratios, and should still be avoided in the short term.
However, on the whole, the current absolute price position is not high. Recently, the median price of convertible bonds has come to around 108, and the number of convertible bonds between 100 and 120 in the price structure has reached more than 60%.
From the perspective of the equity market, although the Shanghai Composite Index has fallen by less than 5% driven by large-cap banks/dividends, the CSI 1000, which represents the small and medium-sized cap, has fallen by more than 20% year-to-date, approaching the liquidity shock in early February, and the bottom of equity is gradually clear. At present, the number of convertible bonds with a "double low value" below 150 is nearly 200, and the number of double low convertible bonds has increased significantly.
[Market Review] 1. Equity Market: The market fell into adjustment Last week, the Shanghai Composite Index and the ChiNext Index fell by 3.07% and 3.82% respectively, and the inflow of mainstream ETF products decreased significantly after the conference, while the net outflow of northbound funds exceeded 10 billion yuan during the week, and the market showed a significant adjustment. In terms of style, the non-ferrous metals sector fell sharply due to the decline in the prices of precious metals & industrial metals, the food and beverage sector was also greatly adjusted due to the reduction of public offering positions, and the electronics sector was also affected by the impact of peripheral technology stocks. Only the defense and military industry (commercial aerospace progress) and the environmental protection sector with defensive attributes rose.
Index valuations retreated. Last week, the market rose slightly, and the PE (TTM) of all A-shares was 13.80X, a slight increase of 0.03X from the previous month, and it was at the 23.5% quantile of the historical valuation level since 2005, and the valuation of the whole market rebounded slightly. The GEM PE (TTM) is basically flat at 27.56X, which is at the 0.6% quantile of historical valuation levels since 2009.
Valuations of various sectors have fallen. Last week, the market as a whole showed a relatively large adjustment, the rising national defense and military industry valuation rebounded by 0.43X, and the valuation of the non-ferrous metals, food and beverage, and electronics sectors that fell by 1.4X, 1.35X, and 1.59X respectively. Valuations of major sectors are still below the historical median, with nearly two-thirds of the sectors already below the 10% historical quantile, and the overall valuation level is still low.
2. Convertible bond market: valuation continues to adjust
Last week, the CSI Convertible Bond Index closed at 377.33, down 1.54%, a smaller decline than the major stock indexes, but the mid-week decline once exceeded the index; In terms of trading volume, the average daily turnover was 68.896 billion, up 5.39% month-on-month, and the transaction volume rebounded slightly.
In terms of individual bonds, last week, Tederic (83.02%), China Loading 2 (28.66%), and Yanpai (27.99%) rose highly, belonging to machinery and equipment, building decoration, and environmental protection sectors. Jinfei (-24.76%), Dongshi (-20.98%), Huatong (-19.39%) led the decline, respectively, belonging to the automobile, social services, food and beverage sectors, last week with the equity market adjustment of the convertible bonds also fell a lot, the early speculation of Jinfei, Dongshi, Huafeng, etc. fell sharply last week.
Convertible bond valuations continued to fall. The premium rate of convertible bonds between 90-110 parity (arithmetic average) was 21.18% last week, and the convertible bonds showed V-shaped fluctuations in the middle of the week, which is still lower than the previous position, and the current valuation of balanced convertible bonds is at the 20% quantile in 20 years and the 40% quantile in 18 years, which is at the lowest level since 2022; The average YTM of convertible bonds below parity of 80 has risen to nearly 5%, and the overall valuation continues to fall.
In absolute terms, the median closing price of convertible bonds is currently at 108.8, which is at the lowest level in 20 years. The proportion of convertible bonds with an absolute price of less than 120 yuan has rebounded to more than 80%. Last week, Tuesday/Wednesday in the process of small and micro market adjustment, the conversion of bonds to kill the decline is more obvious, the valuation is significantly compressed, until the market rebound on Friday after the valuation has been repaired to a certain extent, the current market price is less than 120 yuan, the number of shares premium rate is less than 30% of the target has also rebounded significantly, and the number of double-low convertible bonds continues to increase.
【Convertible Bond Investment Strategy】
Stock market: Keep a close eye on the direction of reform and policy. Recently, policies such as reducing deposit interest rates, increasing MLF, equipment renewal and trade-in have been introduced more than expected, and about 300 billion yuan of ultra-long-term special treasury bond funds will be arranged as a whole, and efforts will be made to support large-scale equipment renewal and consumer goods trade-in, and steady growth has begun to gradually exert force, especially in the field of household appliances in the trade-in policy, subsidies in the field of household appliances have significantly exceeded market expectations, and the future policy may further develop domestic demand. If the Politburo meeting at the end of the month also mentions this, it will further verify the main line of the policy; In addition, scientific and technological innovation will also become one of the priorities of future reforms. Strategically, we will continue to focus on it in the short term; 1) Consumer electronics and other directions with good performance; 2) Export machinery and other directions in non-European and American directions; 3) Continue to pay attention to the new trends of the technology industry, pay close attention to the opportunities brought by event catalysis, and pay attention to new quality productivity directions such as AI/semiconductor/intelligent driving/low-altitude economy.
Convertible bonds: low-level layout, waiting for a rebound. In the context of the small and micro market is still weak, the low-priced convertible bonds continue to adjust, and the small market rebounded on Friday after the overfall, driving the short-term repair of the valuation of the convertible bonds, but the overall valuation is still down. In terms of strategy, in the short term, in the context of recovery and corporate earnings have not been definitively repaired, equity will still maintain a structural market, and the median price of convertible bonds has fallen below 110 yuan again, and pessimism has been amplified, and the current valuation & price has once again come to a low level in the past two years. 2) Semiconductor domestic substitution direction: Feikai/Nandian/Qiangqiang, etc.; 3) Youfa/Huakang/Chutian, etc., which have a certain amount of support for the underlying stock; 4) Feng 21 / aggregation / Taiwan 21 / crane 21 / special paper and so on; 5) Aircraft with performance support in the export chain, etc.; 6) Repair of low-priced targets such as Huitian/Yinwei, etc.
[Attached: Primary Market Tracking]
Last week, 2 new bonds were issued, namely Heshun (338 million) and Ao Rui (812 million). Last week, the issuance of convertible bonds of four companies was approved by the general meeting of shareholders, namely Zhibang Home Furnishing (670 million yuan), Wuxi Zhenhua (520 million yuan), solar energy (2.95 billion yuan), and Haohan Depth (500 million yuan); The issuance of 1 company's convertible bonds was approved by the Issuance Examination Committee, which was the State Inspection Group (800 million yuan).
Analysts of this report
Yin Ruizhe SAC Practice Certificate Number: S1450523120003 Li Ling SAC Practice Certificate Number: S1450523120005 Special Note: This official account is not a publishing platform for the research reports of SDIC Securities Co., Ltd. (hereinafter referred to as "SDIC Securities"). This official account is only a partial reprint of the views of the research reports published by SDIC Securities, and if the subscriber uses the information contained in this official account, there may be ambiguities in the understanding of the key assumptions, ratings, target prices and other contents in the information due to lack of understanding of the full report or lack of relevant interpretation. The information and opinions contained in this official account do not constitute an offer or levy for the purchase and sale of the securities or financial instruments mentioned above, nor do the analysis and judgment of ratings, target prices, valuations, profit forecasts and other judgments constitute investment recommendations for specific securities or financial instruments at specific prices, specific points in time and specific market performance. Such information and opinions do not constitute targeted and guiding operational advice to anyone at any time, and subscribers should evaluate the information and opinions in this official account, make investment decisions independently according to their own circumstances and bear their own investment risks. SDIC Securities does not make any express or implied guarantee for the accuracy, reliability, timeliness and completeness of the information contained in this official account. SDIC Securities shall not assume any form of responsibility for any consequences arising from the reliance on or use of the information contained in this official account. The content contained in this official account is only for the reference of professional investors among the customers of SDIC Securities, and any other readers should evaluate the appropriateness of receiving the relevant content before subscribing to this official account, and SDIC Securities will not regard relevant personnel as professional investors because of the act of subscribing to this official account or receiving and reading the information contained in this official account. General statement: This official account is only a partial reprint of the views of the report published by SDIC Securities, and the profit forecast, target price, rating, valuation and other views contained in it are based on a series of assumptions and preconditions, and the subscriber may form a more comprehensive understanding of the relevant views only on the basis of understanding all the information in the relevant report. The information contained in this official account is delayed compared with the report officially released by SDIC Securities, and may no longer be accurate or invalid due to changes in the situation or other factors after the date of issuance of the report. The opinions, assessments and forecasts contained in this material are solely those of the date of this report. Such opinions, assessments and forecasts are subject to change at any time without notice. The price movements of the securities or financial instruments involved in the information contained in this official account may be affected by various factors, and past performance should not be taken as an indication or guarantee of future performance. At different times, SDIC Securities may issue research reports that are inconsistent with the opinions, assessments and forecasts contained in this material. The salespeople, traders and other professionals of SDIC Securities may express market comments or trading opinions that are inconsistent with the opinions of this information, either orally or in writing, based on different assumptions and standards and using different analytical methods. The copyright of this Official Account and its push content belongs to SDIC Securities, and SDIC Securities reserves all legal rights to this Official Account and its push content. Without the prior written permission of SDIC Securities, no institution or individual shall reproduce, copy, publish, reprint and quote in any form, otherwise all adverse consequences and legal liabilities caused thereby shall be borne by the person who reproduces, reproduces, publishes, reprints and quotes without permission.