The year 2018 ended on a poor note as market sentiment took a negative turn in December. The Hang Seng Index (HSI) dropped 6.3 percent in the month alone. Heading into 2019, UOBKH expects the markets to remain volatile amid the weakening manufacturing activities in China. Thus, for 2019, UOBKH recommends focusing on defensive stocks to start the year. Here are five defensive HK stocks that UOBKH thinks you should own in 2019.

Investors Takeaway: 4 Defensive HK Stocks You Want To Own In 2019 By UOBKH

  1. China Gas

Among the gas players in China, China Gas tops its peers in terms of involvement in township coal-to-gas (CTG) conversion. The CTG conversion is expected to bear fruit for China Gas in the near term despite CTG development being in the early stages. At the same time, China Gas is also benefitting from ongoing industrial CTG projects on Northern and inland China where gas supply has been lacking. As the winter heating season commences, China Gas will see gas demand pick up drastically thanks to its strategic deployment in provincial pipeline operations which would guarantee sufficient gas volume amid tight supply.

BUY, TP HK$35.44; Current share price HK$25.35

  1. China Mengniu Dairy Company

Driven by demand for more nutritional products, the dairy industry has seen robust development in recent years. Going forward, UOBKH expects the demand to remain sustainable. Within the dairy industry, China Mengniu Dairy Company (Mengniu) continues to stand out on the back on its effective marketing strategies, innovative products pipeline and developed distribution channels. Management has been sticking to its aggressive “wolf spirit” and this has led to the subsequent turnaround of its subsidiaries/associates. It is no wonder why Mengniu’s share price surged in 2018 despite most of the market being down due to the weak economy.

BUY, TP HK$29.50

  1. China Southern Airlines

With domestic air travel passengers expected to be resilient in 2019, China Southern Airlines is potentially the biggest beneficiary, thanks to its market share of domestic traffic among the big three carriers. The positive sentiment arising from a stronger RMB and lower fuel prices will also contribute to higher earnings for China Southern, at least in the next three months.

UOBKH notes that China Southern recently announced a code share with American Airlines for trans-pacific flights. UOBKH expects this to reduce capacity overhang and improve margins year-on-year. Right now, China Southern is the cheapest airline in China based on both price-to-earnings (P/E) and price-to-book value (P/B).

BUY, TP HK$6.20; Current share price HK$5.33

  1. Nine Dragons Paper

UOBKH highlights Nine Dragons Paper as a catalyst play with multiple potential catalysts. Having been hammered by the US-China trade war, any positive news from Trump-Xi talks will catalyse its share price. Moreover, Nine Dragons Paper has been stabilising its paper price and profit margins despite a one-third drop in paper prices in the industry. With paper price and profit margins bottoming out, Nine Dragons Paper has a significant room for growth. Most importantly, Nine Dragons Paper has an attractive valuation of 5.9 times FY19F PE, which is -2 SD away from its historical mean, coupled with a five percent dividend yield.

BUY, TP HK$11.00; Current share price HK$7.75

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