Industries affected by the epidemic can generally be divided into three categories:

The epidemic has a greater impact on the demand side of optional consumer goods in the short term. Real estate sales area fell by 86.19% year-on-year during the Spring Festival. Car sales are expected to fall by more than 15% in the first quarter, mobile phone sales fall by 20-30% in the first quarter, and the movie box office is only 20 million (last year’s Spring Festival box office was 5.8 billion).

The epidemic is the main factor leading to the decline. At present, the epidemic has not yet been completely controlled, and it is difficult to judge the impact on these industries in the medium and long term. In accordance with the principle of caution, we have basically lowered the full-year forecasts for these industries, with the general reduction range being 5±3pct, and the movie box office has the largest decline, reaching 11pct.

Based on these phenomena, it can be inferred that industries such as catering, tourism, and hotels that we do not track but are closely related to optional consumption will be significantly affected.

This impact can be divided into two aspects: transportation capacity and production capacity. Since Hubei is located in the hinterland of the Central Plains, the impact on transportation capacity will be greater than production capacity for the whole country.

The negative impact of transportation capacity on express delivery companies is the first to bear the brunt. Secondly, the building materials industry in Hubei has also been greatly affected; in terms of production capacity, if the epidemic can be controlled as soon as possible, the full recovery of national production capacity will be delayed by 20 days to a month, but industries with a higher proportion of Hubei's production capacity or greater influence of Hubei enterprises The recovery time may be further delayed, including PCB manufacturing (Hubei's production capacity accounts for 10-15%), automobile manufacturing (Hubei's production capacity accounts for 8-9%) and some high-end manufacturing industries.

It is worth pointing out that the impact on the production capacity of the optical communication equipment industry, in which Hubei enterprises are more prominent, is not obvious. This is mainly because the relevant enterprises have sufficient inventory in the early stage (January to March) in order to stock up on 5G. The impact is relatively small.

Medical supplies, online videos, games, online medical care, fresh food e-commerce, online education, online office, online medical care, online education, third-party IDC, etc. will all benefit from this.

In the short term, the demand for medicines and medical supplies related to the epidemic has increased significantly, while the demand for non-epidemic-related medicines has been suppressed. We believe that the epidemic will have little long-term impact on the pharmaceutical industry.

Benefiting from the significant increase in online consumption, it is expected that the data traffic of the entire network during the Spring Festival this year will change from the previous downward trend during the Spring Festival, with a month-on-month growth rate of about 50%. During the Spring Festival, the average number of daily active users of the two major online games, Honor of Kings and Peace Elite, increased by 60-100%. "囧Mom" switched from its theatrical premiere to its online premiere, paving the way for short video companies to open up new business areas.

The demand for online education and online office has increased significantly after the holidays. Since the monthly activity was not high before, the increase may be as high as dozens of times, and it will help change the long-term consumption habits of users.

Short-term impact

1) For products related to the epidemic, sales in January have increased significantly compared with previous years;

2) For non-related products, due to During the epidemic, in-hospital purchasing plans were delayed, patients avoided going to the hospital as much as possible, and order volume declined;

3) The overall impact needs to be further evaluated based on the development of the epidemic. In the early stages, diagnostic and treatment products, pharmacies, consultation platforms, and medicines The circulation and medical information sectors benefited relatively.

Medium and long-term impacts

1) Sales of some equipment, consumables, and medicines increased rapidly during the epidemic, but the shortage of goods caused enterprises to invest less in overtime labor, raw materials, etc. In addition, the number of other patients in medical institutions has been gradually reduced, coupled with the impact of traffic control and logistics restrictions on product sales, the impact of the epidemic on the overall performance of related companies needs to be comprehensively considered;

2 ) In the long term, the domestic pharmaceutical industry will continue to develop under the guidance of policies such as medical insurance fee control and hierarchical diagnosis and treatment.

Business Opportunities

1) In the short term, due to the impact of the epidemic, the funding gap of various enterprises has increased. We can pay attention to the demand for short-term financing and project loans of enterprises related to the epidemic;

2) In the medium and long term, the overall development logic of the industry will remain unchanged after the epidemic, and attention will be paid to cooperation opportunities such as innovation, CXO, specialist chains, medical information enterprise funding and mergers and acquisitions;

3) In the long term, hierarchical diagnosis and treatment The progress of the promotion may be accelerated, and attention should be paid to potential cooperation opportunities in necessary links such as distributors and remote consultations for the sinking of medical resources.

Risks

1) After the epidemic, the performance of companies producing epidemic-related products will fall;

2) The epidemic lasts longer than expected, and companies producing non-epidemic-related products will experience a correction. R&D recovery is delayed and risks increase;

3) The recovery of regular hospital department operations, corporate production capacity and order growth are less than expected.

Short-term impact

1) Demand side: Mobile phones have certain optional consumption attributes. While offline channel sales still dominate, the panic and outing caused by the epidemic The frequency reduction has suppressed the demand of some consumers to replace their phones. The economic downturn caused by the epidemic will cause some consumers to lose their incomes or even lose their jobs, and their spending power will decline, which will in turn affect the consumption of mobile phones. We predict that domestic mobile phone shipments may decline by 20-30% in 2020Q1.

2) Supply side: Hubei has less local mobile phone assembly capacity, but the provinces surrounding Hubei such as Henan, Jiangxi, and Hunan have major production bases for mobile phone industry chain companies such as Foxconn, OFILM, and Lens. Virus infection The provinces with the highest number of confirmed cases, such as Guangdong and Zhejiang, are also major mobile phone industry chain bases. At the same time, companies in the mobile phone industry chain generally have low levels of automation and a large number of employees. Judging from the current epidemic, the resumption of work of companies in many places has been affected, and may have a significant impact on the global mobile phone industry chain. After the new coronavirus was declared a global emergency by the WHO, there is still follow-up attention on whether it will have an adverse impact on exports. At present, transportation capacity in many places across the country has been greatly affected, and the transportation time of some raw materials has been extended. The disturbance factors in the supply of raw materials are worthy of attention.

3) The epidemic may also affect the release and launch pace of 5G mobile phones by major brands. Xiaomi Group announced on the 4th that the Xiaomi Mi 10 mobile phone will be released online instead of offline. Pay attention to the release of major brand products at the Mobile World Congress (MWC) at the end of February.

Medium and long-term impact

Taking into account the impact of the epidemic, we have lowered our previous forecast. It is expected that domestic smartphone shipments in 2020 will decrease from a year-on-year increase of about 1% to a year-on-year increase of about 1%. down 5%. In the long term, the epidemic will have basically no impact on the development of the mobile phone industry.

Business opportunities

It is recommended to increase support for leading mobile phone brands and mobile phone parts companies.

Risk

Pay attention to the operating risks and financial risks of companies with high debt ratios and high capital expenditures, such as OEM/EMS, due to the epidemic.

Short-term impact

1) Demand side: Offline entertainment such as movies has stagnated, while online entertainment such as games, online videos, short videos, live broadcasts, music, etc. have increased in popularity. The epidemic has led to the closure of theaters. The box office for the 2020 Spring Festival is 20 million (VS. 5.8 billion for the 2019 Spring Festival). The box office for February is expected to be 10 million (VS. 11.1 billion for February 2019); neutrally considering that the epidemic has been suppressed in March, it is expected The annual movie box office was approximately 57 billion, down 11 points year-on-year.

2) Supply side: Content production is stagnant, and the way movies and programs are broadcast is innovative. The production crews of TV dramas have stopped working, resulting in the "backlog of dramas" from the previous two years being digested and broadcast to a certain extent; some movies have shifted from offline theaters to online broadcasts; entertainment program recording has been suspended, and some TV stations are trying to innovate with online live broadcasts.

Medium and long-term impacts

1) The closure of theaters may accelerate the reshuffle of theater chains;

2) "囧Mom" will not be changed to a big-budget movie when it is transferred online In the mid-term broadcast pattern, the main constraints of online theaters are terminal payment capabilities, network and terminal equipment presentation effects are limited;

3) Film and television crews have stopped working, the supply side of TV series has been further cleared, and head production + binding The production and broadcast model of fixed online video platforms has become more common;

4) Although the "backlog of drama" inventory has been digested in the short term, what is more worthy of attention is that in the medium term, high-quality content will become more scarce.

Business Opportunities

1) It is recommended to closely track theater chain integration opportunities this year and next, and pay attention to theater capital chain risks in lower-tier cities;

2) In In the context of widespread production shutdowns, more financial support should be provided to leading content production enterprise customers;

3) Offline entertainment is migrating online, and it is recommended to increase support for leading online platforms, including online video , short videos, live broadcasts, etc.;

4) In the medium and long term, early software and hardware opportunities related to online and offline integration scenarios such as VR/AR can also be planned in advance.

Risks

Refinancing risks for related companies caused by long-term business shutdowns;

Regulatory risks for content/platforms, such as the release of works that have been produced or purchased Not sure etc.

To be continued...

The copyright of this article belongs to the Asset Management Department of China Merchants Bank