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BOCOM Int'l Research

Morning Express 31 August 2020

Focus of the DayChina Merchants Bank 3968 HK Steady provision and cleaner book ready for future growth

Rating: Buy

CP: HK$ 38.40 TP: HK$ 44.50 Upside: +15.9% Jaclyn Wang [email protected]

1H20 net profit fell 1.6% YoY on loan impairment losses: CMB’s revenue and PPOP rose 6.8%/5.0% YoY in 1H20, thanks to stable net interest income growth and good fee and investment incomes. However, impairment losses were up 22% in 1H20, resulting in the net profit decline. NIM in 1H20 was flat HoH, and down 20bps YoY. 2Q20 NPL ratio rose 3bps QoQ to 1.14%. NPL coverage ratio fell 11ppts QoQ to 440%, but LLR/loans were up 1bp QoQ to 5.02%, both remaining the highest among nationwide banks we cover.

Large write-offs and provisions bode well for growth: The leading indicators for asset quality, i.e. SML/overdue loan ratios, were down 18/6bps HoH, implying lower underlying credit risks. The increase in loan provisions also maintained high NPL coverage and LLR/loan ratios. Although the bank may continue to increase write-offs and provisions in 2H20, we expect CMB to resume growth fast when the economy recovers.

Cut earnings estimates on provisions; maintain Buy: We cut FY20-22E earnings due to surges in loan impairment losses following 1H20 trend and policy guidance, but keep our TP unchanged due to roll-over to end-1H21 and lower risk-free rate. We believe CMB’s profitability is resilient with cleaner book.

China Everbright Bank 6818 HK Cleaner loan book, but revenue and capital pressures ahead

Rating: Neutral

CP: HK$ 2.89 TP: HK$ 3.10↓ Upside: +7.3% Jaclyn Wang [email protected]

1H20 net profit fell 10.2% YoY due to loan impairment losses: CEB’s revenue/ PPOP rose 9.0%/10.1% YoY in 1H20. However, impairment losses were up 31% YoY in 1H20. NIM contracted 6bps HoH in 1H20 and 10bps QoQ in 2Q20 due to higher deposit cost and lower asset yield. NPL ratio was flat QoQ at 1.55%. Overdue and special-mention loan ratios were down 6/3bps HoH in 1H20, thanks to large write-offs. High provision resulted in higher NPL coverage and LLR/loan ratios, up 5ppts/8bps QoQ to 187%/2.90%.

Higher NIM contraction pressure with expansion restriction due to tight capitalization: We believe the NIM contraction will accelerate in 2H20, as the

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Global Stock Indices Close 1D% YTD%

HSI 25,422 0.35 -10.63HSCEI 10,183 -0.19 -8.82SH A 3,568 1.61 11.63SH B 251 -0.03 -2.37SZ A 2,413 1.97 33.89SZ B 956 0.81 -0.56DJIA 28,654 0.57 0.40S&P 500 3,508 0.67 8.58Nasdaq 11,696 0.60 30.35FTSE 5,964 -0.61 -20.93CAC 5,003 -0.26 -16.31DAX 13,033 -0.48 -1.63

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HSI TechnicalHSI 25,422.0650D MA 25,103.63200D MA 24,767.7914D RSI 53.00Short sell (HK$ m) 24,856Source: FactSet

Hao Hong, CFAHead of [email protected]

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31 August 2020Morning Express

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stabilizing interbank rates, decline in loan yield, and increase in deposit cost may persist. Meanwhile, CEB’s 13.8% asset growth in 1H20 is not sustainable in 2H20 given its tight CET1 ratio, and thus the top-line growth will significantly decelerate, in our view.

Cut TP and earnings on provisions; maintain Neutral: We cut our FY20-22E net profit by ~32-33% mainly due to surges in loan impairment losses, and thus lower TP from HK$3.40 to HK$3.10. We believe revenue and capitalization pressures may continue to drag CEB’s earnings in 2H20 and profit rebound ahead.

China CITIC Bank 998 HK Loan write-off and provision pressure to persist after 1H20 profit drop

Rating: Neutral


1H20 net profit fell 9.8% YoY due to surges in impairment losses on financial investment: CNCB’s revenue and PPOP rose 9.7%/14.6% in 1H20, thanks to good non-interest income growth and lower operating expenses. However, the impairment losses on loans/other financial assets were up 14%/15x in 1H20. NIM contracted 13bps HoH and 9bps YoY, but expanded slightly QoQ in 2Q20. NPL ratio rose 3bps QoQ to 1.83% and NPL coverage ratio fell 2ppts QoQ to 175%.

Revenue growth to decelerate, high loan provision pressure in 2H20E: We believe the YoY NIM contraction and lower investment yield will slow down revenue growth in 2H20E. Its NPL formation in 1H20 was similar to FY19, and net write-offs dropped 28% YoY. Thus, SML and overdue ratios were up 32/50bps HoH to 2.54%/3.10%. We expect CNCB’s to increase write-offs and loan provisions in 2H20 given asset quality deterioration and policy guidance.

Cut TP and estimates; maintain Neutral: We cut our FY20-22E net profit by ~35-37% mainly due to surges in loan impairment losses and policy guidance. Our TP is lowered from HK$4.10 to HK$3.60. We believe the increases in the bank’s overdue and SML ratios may lead to worse-than-peer provision pressure and earnings drops.



Minsheng Bank 1988 HK Resilient NIM, but provision pressure still high in 2H20E

Rating: Neutral


1H20 net profit fell 10% YoY due to surges in impairment losses: MSB’s revenue/PPOP rose 11.1%/12.1% YoY in 1H20, thanks to good net interest income growth and lower cost-to-income ratio. However, impairment losses were up 46% YoY in 1H20. NIM expanded 6bps HoH and 11bps YoY in 1H20 thanks to deposit cost control and lower interbank funding cost. NPL ratio rose 14bps QoQ to 1.69% and NPL coverage ratio fell 4ppts QoQ to 152%. Although overdue ratio was down 7bps HoH in 1H20, the special-mention loan (SML) ratio was still up 16bps YoY to 3.13%.

Higher SML ratio and low provision coverage imply high loan provision pressure in 2H20E: MSB’s net write-offs rose 19% YoY in 1H20, but SML ratio still rose HoH and overdue loan balance increased HoH too. NPL coverage was still around the regulatory recommended level of 150%. We believe MSB still needs to further increase its provision.

Cut TP and earnings on provisions; maintain Neutral: We cut our FY20-22E net profit by ~25-30% mainly due to surges in loan impairment losses, and thus lower TP from HK$6.20 to HK$5.10. We believe MSB’s weaker-than-peer provision coverage and rising SML ratio may lead to worse-than-peer provision pressure and earnings drops.

Great Wall Motor 2333 HK Strong 2Q20 rebound, eyes on new models in 2H20E

Rating: Buy

CP: HK$ 7.88 TP: HK$ 9.50 Upside: +20.6% Angus Chan [email protected]

GWM’s 2Q20 revenue jumped 25.4% YoY to RMB23.5bn, with wholesale shipment of 245k units, up 16.7%. 2Q20 GPM of 17.5% was up 3.9ppts YoY thanks to the contribution from higher-margin models (Great Wall Pao, H9, etc). 2Q20 net profit surged 141.4% YoY to RMB1.8bn.

GWM registered a much stronger 2Q20 recovery than domestic peers. Its sales volume growth in Jun-July outperformed the overall auto market. We believe it will continue to benefit from the model line-up, especially its pickup trucks. Its dominant position in the pickup truck market should ensure growth and margin outlook, in our view.

We maintain our Buy rating and TP of HK$9.50.



ZTE Corp 763 HK GPM likely bottomed in 2Q20; lower estimates and maintain Buy

Rating: Buy

CP: HK$ 22.75 TP: HK$ 30.00 Upside: +31.9% Chris Yim [email protected]

Healthy net profit growth but GPM declined on initial China 5G ramp-up. ZTE’s 1H20 net profit grew 26% YoY driven by (1) revenue growth, (2) lower impairment, (3) lower finance cost, which offset lower GPM due to China’s 5G ramp-up. GPM fell 10ppts YoY to 28.5% in 2Q20, due to limited scale and market share competition amid 5G ramp-up.

Expecting solid recovery in 2H20. While the GPM decline was steeper than expected, we believe 2Q20 could be a bottom for GPM, as 5G scales up and overseas 4G revenue starts to recover in 2H20E.

Lower estimates and maintain Buy. Shares trade at 18x 2021E P/E, which is relatively attractive in the A/H technology sector. Our unchanged TP of HK$30.00 is based on 25x 2021E P/E.

NetDragon Websoft 777 HK Slower 1H20 growth on COVID-19; monetizing Edmodo from 2021E

Rating: Buy

CP: HK$ 21.05 TP: HK$ 29.42↓ Upside: +39.7% Brandy Sun [email protected]

NetDragon’s 1H20 game business missed on ARPU and new mobile game launch. Education growth was steady, compared to the market decline.

We expect 2H20 game revenue to grow 6% YoY, mainly driven by PC with limited contribution from new mobile games. Promethean may remain flat HoH and see normalized growth from 2021E. Edmodo may start to generate SaaS revenue from the Egypt order starting 2021E.

With lower game/education estimates, we cut 20/21E revenue by 11%/8% and net profit by 18%/22%. We revise down TP from HK$36.60 to HK$29.42, based on (1) 8x 21E P/E for gaming, (2) US$256m valuation (0.7x 21E P/S) for education with 70% discount (uncertainty in overseas markets). We maintain Buy and expect steady growth to resume for gaming and education from 2021E, while 2H20E may still see pressure.



Shanghai Pharmaceutical 2607 HK 1H20 beat, rosy outlook as industry leader; reaffirm Buy

Rating: Buy

CP: HK$ 13.68 TP: HK$ 17.87 Upside: +30.6% Aiwei Li, PhD [email protected]

SH Pharma delivered 1H20 revenue of RMB87.2bn (-5.8% YoY) and adj. attributable net profit of RMB2.2bn (+5.0% YoY), beating our estimate by 5.5%, mainly on gross margin improvement from significant revenue recovery in 2Q20.

The revenue/attributable net profit of pharmaceutical manufacturing dropped 2.24%/rose 7.4%. We expect this segment to be the main growth driver, fueled by ramp-up of PTQ products and product export in ST, and launch of innovative products in LT.

As for the pharmaceutical services segment, revenue/attributable net profit fell 6.38%/increased 5.22%, with gross margin up 0.59ppt despite impact from PTQ, thanks to the strong growth of imported new drugs. SH Pharma obtained distributorship of 11 imported new products YTD. Besides, riding on the “internet+healthcare” policy tailwind, SHP established collaboration with 31 online hospitals.

We fine-tune FY20-22E attributable net profit by 1-2%, to reflect margin improvement. We maintain Buy and DCF-based TP of HK$17.87, implying 2021E P/E of 8.4x.

Luye Pharma Group 2186 HK Eyes on R&D milestones after 1H20 miss; maintain Buy

Rating: Buy

CP: HK$ 4.45 TP: HK$ 5.86↓ Upside: +31.7% Aiwei Li, PhD [email protected]

Luye posted revenue/normalized attributable net profit of RMB2.96bn/630m for 1H20, -5.4%/-13.9% YoY, which missed our expectations due to: (1) sales decline for core products on COVID-19 and price cut from centralized procurement; (2) surging finance cost (RMB223.0m in 1H20, +84.9% YoY).

Lipusu’s sales fell 3.3% YoY to RMB1.23bn in 1H20. Potential NRDL inclusion in Nov could be a sales catalyst. Beixi’s sales dropped 17% YoY due to the price cut from national centralized procurement, but should rebound in 2H20 on volume ramp-up. Seroquel saw +35.7% YoY growth.

Rykindo and Avastin biosimilar are expected to be launched in 2021; Rotigotine microsphere entered Ph.III trial in China and the US. 6 products will be commercialized and 5 will submit NDA in the next 18 months.



We cut 2019-21E EPS by 6-13% to reflect impact from COVID-19 and gross margin drop due to price cut. We lower TP from HK$6.98 to HK$5.86, implying 7.7x 2021E P/E. Maintain Buy.

Beijing Enterprises Water 371 HK Making steps forward in asset-light repositioning Rating: BuyCP: HK$ 3.21 TP: HK$ 3.92↓ Upside: +22.1% Wallace Cheng [email protected]

1H20 net profit declined on lower profit contribution from water renovation. Net profit fell 18.1% YoY to HK$2.3bn. Water renovation segment recorded 48% YoY drops in both revenue and GP, as well as a 14% drop in profit shared from JV.

Further moves on asset-light approach. Management expects rising contribution from asset-light projects in 2020, and indicated that the company had started work on spinning off its first batch of water operation projects under the REIT format, which could be launched as early as Oct this year.

EPS cut on transition of water renovation segment. We lower 2020/21E EPS by 11.7%/10.1%, and expect net gearing to total equity to rise to 116% by end-2020 as we expect the increase in BOT project construction to drain OCF.

Rebalancing likely a longer-term catalyst; maintain Buy. We trim SOTP-based TP to HK$3.92 (from HK$4.25) after forecast revisions and rollover to 2021E. We expect BEW’s emphasis on an asset-light approach to take more time to improve overall cash flow, which acts as a longer-term re-rating catalyst.

China Power Int'l 2380 HK 1H20 results beat on better cost control Rating: BuyCP: HK$ 1.49 TP: HK$ 2.05↑ Upside: +37.8% Spencer Luo [email protected]

CPI posted upbeat 1H20 results with core profit up 20.1% YoY and topping our estimate by 20%. Despite a 5.7% YoY decline in total revenue, softened thermal coal price and lower-than-expected finance cost helped support growth of bottom line.

We lower our FY20E power sales by 2.1% to 84,614GWh, taking into account a 6.5% YoY drop in average utilization hours (-2.1% vs. previous estimate). Besides, we expect CPI’s direct power sales ratio to remain unchanged YoY at end-2020, along with a slightly-wider tariff discount.

We lift our core profit estimate by 49.6% to RMB1.7bn for FY20E. In addition, we are confident that CPI would strike a good balance between project development



and dividend payout. After earnings revision, we lift TP from HK$2.01 to HK$2.05. Maintain Buy.

CRRC Corp 1766 HK Downgrade to Neutral as 2H20E top-line pressure lingers

Rating: Neutral↓

CP: HK$ 3.55 TP: HK$ 4.05↓ Upside: +14.1% Maggie Wang [email protected]

CRRC posted a net profit of RMB3.69bn in 1H20, down 22.8% YoY and lower than our expectation by 12%. Revenue retreated 7.0% YoY to RMB89.4bn as revenue contribution from railway equipment weakened. Gross profit margin (GPM) slid 1.2ppts YoY to 21.3% in 1H20, given revenue mix change.

Management pointed to possible less-than-expected delivery of MUs in 2020, due to delivery delay in 2H20. We expect the accelerating delivery of urban rail transit vehicles in 2H20 to be insufficient to cushion the impact of soft railway equipment demand, given the lower revenue contribution from this business. We expect overall GPM to remain under pressure in 2H20, due to (1) increasing revenue contribution from lower-margin business, (2) slowdown in rail equipment business, and (3) ceased policy support for reducing labor cost after the contained epidemic in China.

We are still positive on CRRC’s better position to tap China’s expanding railway construction demand in the long run. However, given short-term headwinds, we downgrade CRRC from Buy to Neutral and trim earnings forecasts. Our TP is cut from HK$4.96 to HK$4.05, based on 9.5x 2020E P/E.

China Railway Group 390 HK Higher-than-peer new contract growth; reiterate Buy

Rating: Buy


China Railway Group (CRG) reported net profit of RMB11,697m in 1H20, up 11.3% YoY and beating both our and market expectations. Total revenue reached RMB416.3bn, rising 15.0% YoY. GPM inched down 0.9ppt YoY to 8.7% in 1H20. 1H20 results of CRG surpassed its peers including China Railway Construction (1186 HK/Buy) and China Communications Construction (1800 HK/Neutral) due to robust revenue growth from infrastructure construction segment (85.8% of total revenue) during the period.

We expect acceleration of new contracts growth and a contract backlog of RMB3,486.9bn to underpin CRG’s overall revenue growth in 2H20. We expect GPM to remain stable at 9.1% in 2020, albeit slightly below 2019’s 9.4% due to



rising revenue contribution from low-margin projects and continual weak property development business in 1H20.

We maintain Buy call on attractive valuation and increasing project pipeline. We nudge up our FY20 revenue forecast to reflect the better-than-expected 1H20 results, and slightly revise down our TP from HK$5.30 to HK$5.00, based on 4.6x FY20E P/E.

China Communications Const 1800 HK Downgrade to Neutral on earnings miss Rating: Neutral↓CP: HK$ 4.49 TP: HK$ 4.91↓ Upside: +9.4% Maggie Wang [email protected]

CCC’s 1H20 earnings of RMB5,517m were down 37.2% YoY and below consensus and our forecasts. This also lags the positive earnings growth of peers China Railway Group (390 HK/Buy) and China Railway Construction (1186 HK/Buy).

Revenue inched up 2.5% YoY to RMB245.4bn. Overall gross profit margin (GPM) remained stable at 11.6% in 1H20 (vs. 11.7% in 1H19), but operating profit margin (OPM) fell 1.1ppts YoY to 5.5%, due to doubled impairment loss and high base from 1H19 other gains on infrastructure.

We remain concerned about CCC’s revenue growth in 2020-22E given recent slow growth in new contract value. However, we expect ample contract backlog to improve turnover HoH in 2H20, as total contract backlog reached RMB2,259.5bn in 1H20, representing ~4.1x revenue of 2019.

In its upcoming results meeting on 31 August, we will focus on management guidance for 2H20, new contract growth, overseas project progress, and margin outlook. We cut earnings estimates post 1H20 weakness, and downgrade from Buy to Neutral. Our TP is lowered from HK$6.00 to HK$4.91, based on 4.18x 2020E P/E.

TravelSky Technology 696 HK IT spending drop may eclipse bookings recovery; maintain Neutral

Rating: Neutral

CP: HK$ 15.50 TP: HK$ 16.17 Upside: +4.3% Luya You [email protected]

TravelSky Technology reported net loss of RMB323.2m for 1H20, as revenue from bookings plunged 55.2% YoY. We expect ongoing ASP pressure in the coming years as major carriers will likely renegotiate unit prices amid depressed demand.

Combined, system integration and data network revenue accounted for 26.5% of total 1H20 revenue (vs. 18.7% in 1H19). However, short-term outlook on aviation



IT spending will be mixed. Better-positioned firms may maintain IT spending while smaller, struggling players may slash non-essential IT spending given dried-up traffic.

While bookings volume is set to recover with rebounding domestic demand, TravelSky’s remaining business segments (and source of high growth) may meet unprecedented headwinds in FY20-21E. We maintain our Neutral rating and our DCF-based TP of HK$16.17 as outlook will remain dull without newer revenue streams.

Beijing Capital Int'l Airport 694 HK Dual-hub model under threat as int’l demand dries up; maintain Neutral

Rating: Neutral

CP: HK$ 5.33 TP: HK$ 5.94↓ Upside: +11.4% Luya You [email protected]

Beijing Capital Airport (BCA) reported a net loss of RMB738m in 1H20, as total passenger throughput plunged 60% YoY. Though overall passenger demand is still in the doldrums, we expect improving domestic passenger demand across 2H20 as carriers tentatively resume operations on key routes.

BCA faces more challenges in FY21-22E as traffic diversion to Beijing Daxing Airport (BDA) is completed. Though BCA originally planned to focus on international expansion, BCA now faces more direct competition with BDA over remaining domestic demand. The dual-hub model may no longer be relevant immediately following COVID-19, as international traffic is far too negligible to require hub differentiation.

We maintain our Neutral rating and lower DCF-based TP to HK$5.94 (from HK$6.04). Domestic demand rebound will aid traffic growth in 2H20E, though revenue recognition may be limited under lowered movement fees.

Sinotrans Limited 598 HK Lackluster ST outlook despite improved revenue in 1H20

Rating: Neutral


Sinotrans’ net profit shed 19.9% YoY to RMB1,215.1m in 1H20, 5.7% lower than our forecast. Overall revenue grew 5.2% YoY to RMB39.7bn, with all segments recording increase. However, accelerated growth of operating costs and surging R&D expenses eroded operating margin, which dipped 0.8ppt YoY to 3.9%. Management did not propose any interim dividend.



We expect profit contribution from freight forwarding to remain flat in 2020, despite the strong ocean and air freight rates in 3Q20. Logistics segment is likely to soften YoY in 2H20, given the slow progress on construction projects overseas, in our view. We expect e-commerce segment to buttress overall margins in 2H20, although its revenue contribution is the smallest (~7% of total in 1H20).

We slightly revise up our earnings forecast for FY20E to reflect the improved revenue in 1H20. Our TP is trimmed from HK$2.10 to HK$1.94, based on 5.0x FY20E P/E. Maintain Neutral.

Guangshen Railway 525 HK Maintain Neutral on sustained pressure on all fronts post 1H20 miss

Rating: Neutral


Guangshen Railway (GSR) posted a record loss of RMB614.0m in 1H20 (vs. RMB762.2m gain in 1H19), far below our forecast and Bloomberg consensus. Total revenue shrank 26.8% YoY to RMB7,456.9m in 1H20, with passenger revenue slumping 57.6% YoY.

We expect passenger revenue to remain weak in 2H20, due to (1) no signs of recovery in passenger volume on Hong Kong Through Train, and (2) soft demand to travel by long-distance trains as COVID-19 lingers. However, freight business will likely recover in 2H20E, in our view. We expect cost pressure to persist in 2H20, due to heavy wage and welfare expenses (flat YoY in 1H20) and rising depreciation costs.

We maintain Neutral call on weak operating performance and the lack of ST catalysts, despite historical low valuation. We cut our earnings estimates for 2020-21E and introduce 2022E forecast. We lower TP from HK$2.76 to HK$1.65, based on 0.37x 2020E P/B.

CIFI Holdings 884 HK Results in line, outlook stable Philip Tse, CFA, FRM [email protected]

1H20 results largely in line despite GP drop. Revenue increased 11.3% YoY to RMB23.0bn with gross profit down 2.8% YoY to RMB5.9bn, mainly on GPM drop from 29.3% to 25.6%. With lowered finance cost and effective tax rate, attributable core profit rose 11.2% to RMB3.2bn, largely in line with expectations.

Sales progress needs to catch up. 7M20 total contracted sales amounted to RMB102.7bn, ~44.7% of full year target, still behind the industry average.



Margin outlook stable. Despite the GPM drop in 1H20, CIFI expects margins to remain largely stable at current levels in the short to medium term.

Finance cost dropped with stable gearing. With a favorable refinancing environment, CIFI lowered its weighted average funding cost to 5.6%, -40bps vs. end Dec 2019.

Maintain Neutral. We believe the 1H20 results were largely in line and earnings outlook is stable. Following the share rally due to the series of capital actions in Jun, we believe the current 36% discount to NAV looks fair. We maintain our TP of HK$6.40 and Neutral rating, and expect limited upside before sales progress picks up significantly in 3Q20E.

Internet Sector Weekly As of 28 August 2020 Rating: OutperformConnie Gu, CPA [email protected]

According to 1H20 QuestMobile Mini Program report: (1) WeChat Mini Program MAU grew 11.6% YoY to 829m, marking 86.9% penetration of WeChat users; (2) Jingxi WeChat Mini Program’s MAU surged by ~100m in June to 245m, driven by “618” Shopping Festival, vs. 134m and 102m for Pinduoduo and JD.com.

Alibaba: (1) Alibaba started “Alibaba Cloud Netdisk” test, and its download speed for free users (8-10 MB/s) is clearly ahead of Baidu Netdisk (1-2MB/s); (2) Eleme plans to expand its “Ten Billion Subsidies” to cover 100 cities, and also announced that the participating merchants in the trial operation achieved 100%+ order growth in general.

Tencent purchased 8m ADS in Beike’s IPO, with a total transaction price of US$160m.

Baidu Maps announced its voice queries users has exceeded 400m, up 100m from October 2019.

Recommendation: Maintain Outperform sector rating and Alibaba (BABA US) and iQIYI (IQ US) as top Buys. We remain optimistic on the long-term potential of Meituan (3690 HK).

Consumer Sector Weekly As of 28 August 2020 Rating: OutperformEdward Lui [email protected]

1H20 earnings recap: Among results reported last week, 10 companies posted profit decline or losses, while 3 saw profit growth.



F&B: Nongfu Spring, China’s bottled water giant, is seeking to raise as much as HK$8.35bn in an IPO.

Home appliances: Guangdong Galanz Household Appliances announced its intention to pursue a partial tender offer for Whirlpool China.

Dairy: China Mengniu has decided to terminate the US$430m deal to purchase Kirin’s wholly-owned Australian dairy firm Lion-Dairy and Drinks.

Agriculture: China has completed 50 of the 57 structural changes in agricultural trade it agreed to make under the phase one deal.

Investment implications: Key takeaways from results: (1) Luxury sales are gaining momentum in mainland China because overseas travel limitations are redirecting spending power back home. (2) Weidian (Wechat stores) is emerging as a profitable channel for brands in extending offline stores’ sales. (3) Exporters are seeing an order rebound in 3Q, earlier than expected. (4) Sportswear sales in China are expected to grow 0-10% YoY in 2H20 with higher YoY discounting. (5) HK retail recovery remains weak with store closures continuing.



Economic data releases for this week – US Economic data releases for this week – ChinaDate Event Survey Prior Date Event Survey Prior 3 Sep Services PMI (Aug) 54.8 54.8 - - - -3 Sep Market Composite PMI (Aug) 54.7 54.73 Sep Initial Jobless Claims (k) 980 1,006Source: Bloomberg Source: Bloomberg

BOCOM Research latest reports28 Aug China CITIC Bank (998 HK) - Loan write-off and provision pressure to persist after 1H20 profit

dropJaclyn Wang, Hannah Han

28 Aug China Power Int'l (2380 HK) - 1H20 results beat on better cost control Spencer Luo, Wallace Cheng28 Aug Shanghai Pharmaceutical (2607 HK) - 1H20 beat, rosy outlook as industry leader; reaffirm Buy Aiwei Li, PhD, Li Zhao, PhD, Mengmeng Xi28 Aug Guangshen Railway (525 HK) - Maintain Neutral on sustained pressure on all fronts post 1H20

missMaggie Wang

28 Aug China Cinda (1359 HK) - Distressed asset business steady, NCB profitability improves Li Wan, CFA, FRM28 Aug Ping An Insurance (2318 HK) - Major indicators in line; expect life insurance reform to bear fruit Li Wan, CFA, FRM28 Aug Kerry Logistics Network (636 HK) - Uncertain trade recovery in 4Q20 despite brilliant 1H20;

maintain NeutralMaggie Wang

28 Aug Tian Lun Gas (1600 HK) - Resilient 1H20; stay Neutral pending further signs of improvement Wallace Cheng, Spencer Luo28 Aug China Resources Pharmaceutical (3320 HK) - Manufacturing business yet to recover; maintain

NeutralAiwei Li, PhD, Li Zhao, PhD, Mengmeng Xi

28 Aug Property Sector Weekly - As of 27 August 2020 Philip Tse, CFA, FRM, Steve Liu, Evangeline Luo27 Aug CGN Power (1816 HK) - 1H20 results in line; maintain Buy on solid outlook Spencer Luo, Wallace Cheng27 Aug Country Garden Services (6098 HK) - Growth engines abound post solid 1H20 beat Evangeline Luo, Philip Tse, CFA, FRM, Steve Liu27 Aug Tian Lun Gas (1600 HK) - Resilient 1H20; stay Neutral pending further signs of improvement Wallace Cheng, Spencer Luo27 Aug Central China Real Estate (832 HK) - Results slightly missed on margin and dividend payout Philip Tse, CFA, FRM27 Aug China Resources Land (1109 HK) - 1H20 results in line; positive on more visible prop mgmt spin-

offPhilip Tse, CFA, FRM

27 Aug Renewable Energy Sector Weekly - As of 26 August 2020 Louis Sun, Bob Wen, CPA27 Aug Datang Renewable (1798 HK) - Wind segment less hit by COVID; PV installation speeds up;

maintain NeutralLouis Sun, Bob Wen, CPA

27 Aug CSPC Pharmaceutical (1093 HK) - 1H20 beats, multiple NDA submissions ahead; reiterate Buy Aiwei Li, PhD, Li Zhao, PhD, Mengmeng Xi27 Aug ZhongAn Online (6060 HK) - 1H20 earnings growth beat; business structure improved Li Wan, CFA, FRM27 Aug China Life Insurance (2628 HK) - NBV growth in line and remains peer-leading Li Wan, CFA, FRMSource: BOCOM Int'l



HSI constituentsCompany Stock Current Mkt 5D YTD --------52-week-------- ------------------P/E------------------ Yield P/Bname code price cap chg chg High Low 2019 2020E 2021E 2020E 2020E

(HK$) (HK$ m) (%) (%) (HK$) (HK$) (x) (x) (x) (%) (x)CKH 1 HK 50.65 195,319 -0.78 -31.83 75.45 45.55 4.89 6.29 N/A 4.91 0.40CLP 2 HK 75.65 191,126 0.46 -7.63 84.20 65.00 40.90 16.43 15.86 4.11 1.69HK & CHINA GAS 3 HK 11.16 198,328 0.18 -23.01 15.20 10.86 28.14 30.67 27.60 3.17 3.00HSBC 5 HK 34.00 692,447 1.04 -44.12 61.85 32.80 6.02 17.90 9.35 0.00 0.51POWER ASSETS 6 HK 44.40 94,761 1.37 -22.11 58.50 41.85 13.22 15.00 13.96 6.34 1.10HANG SENG 11 HK 123.50 236,112 2.15 -23.29 179.00 117.90 9.40 13.44 13.26 4.58 1.34HENDERSON 12 HK 30.85 149,357 0.65 -19.35 40.55 26.95 10.12 9.97 10.33 5.89 0.45SHKP 16 HK 102.90 298,182 3.05 -13.75 123.00 89.00 9.08 10.11 9.18 4.88 0.50NEW WORLD 17 HK 40.70 103,749 0.49 -4.73 46.88 30.44 11.64 12.25 10.97 5.09 0.45SWIRE PACIFIC 19 HK 42.00 38,019 2.19 -41.99 78.50 37.70 8.69 N/A 12.84 3.90 0.23GEG 27 HK 61.00 264,500 -2.09 6.27 62.45 38.60 19.93 N/A N/A 0.00 3.74MTRC 66 HK 40.60 250,833 1.37 -11.83 47.80 36.85 23.58 42.78 24.50 3.03 1.37SINO 83 HK 9.14 64,393 0.00 -19.26 12.40 8.18 13.17 13.77 N/A 6.05 0.42HLP 101 HK 22.10 99,400 5.24 29.24 22.15 13.82 21.92 22.46 N/A 3.50 0.70WANT WANT 151 HK 5.42 67,290 -0.18 -25.55 7.37 4.93 16.61 N/A N/A N/A N/AGEELY 175 HK 15.74 154,458 1.55 3.28 19.06 10.08 15.80 18.38 13.79 1.36 2.10CITIC LTD 267 HK 7.30 212,359 -2.93 -29.94 10.70 6.95 3.95 4.32 3.84 5.75 0.34WH GROUP 288 HK 6.78 99,889 -0.73 -15.78 8.78 5.96 9.17 9.68 8.59 4.09 1.35SINOPEC 386 HK 3.49 89,042 -0.85 -25.59 5.04 3.20 6.51 23.14 9.97 4.52 0.51HKEX 388 HK 380.60 482,540 1.12 50.43 386.00 211.40 50.65 43.76 37.56 2.06 10.31COLI 688 HK 22.85 250,340 -1.72 -24.71 30.70 22.00 5.34 5.80 5.08 5.14 0.72TENCENT 700 HK 540.50 5,179,114 4.34 43.90 564.00 316.20 51.37 39.55 33.16 0.24 8.53UNICOM 762 HK 5.72 175,021 -10.63 -22.07 8.68 3.90 13.92 12.26 10.95 3.30 0.48LINK 823 HK 61.45 127,105 0.00 -25.52 91.55 57.00 22.42 21.17 20.93 4.72 0.78CR POWER 836 HK 9.30 44,737 -2.72 -14.99 11.40 6.58 6.89 5.33 4.81 7.35 0.58PETROCHINA 857 HK 2.67 56,334 -0.74 -31.71 4.32 2.23 9.41 112.65 23.52 1.82 0.35CNOOC 883 HK 8.75 390,665 -2.89 -32.48 13.74 6.40 5.72 15.68 9.93 4.11 0.77CCB 939 HK 5.65 1,425,470 -2.42 -16.05 6.80 5.65 4.95 4.79 4.57 6.39 0.56CHINA MOBILE 941 HK 55.80 1,142,532 -4.45 -14.81 69.70 48.25 9.59 9.50 9.20 5.88 0.88CK INFRA 1038 HK 41.20 109,208 0.37 -25.70 57.85 35.65 9.78 12.33 10.88 6.08 0.89HENGAN 1044 HK 62.20 73,999 -3.42 12.07 71.00 49.20 16.73 14.13 N/A 4.88 3.36SHENHUA 1088 HK 12.58 42,754 0.00 -22.73 17.00 12.06 5.33 5.77 5.74 8.67 0.60CSPC 1093 HK 17.04 127,521 7.71 10.05 17.83 11.43 30.36 24.86 21.28 1.17 5.17CR LAND 1109 HK 36.75 262,062 5.76 -5.28 39.40 28.00 10.39 9.37 8.14 3.78 1.20CKA 1113 HK 41.90 154,753 -0.59 -25.51 57.50 34.40 5.39 8.13 N/A 3.51 0.43SBP 1177 HK 9.24 174,383 0.65 27.16 10.88 6.47 48.53 47.05 37.87 0.55 4.52AIA 1299 HK 80.65 975,146 7.46 -1.41 87.35 60.70 18.11 23.25 17.54 1.70 2.00ICBC 1398 HK 4.50 1,909,133 -2.39 -25.00 6.05 4.50 4.68 4.62 4.42 6.48 0.53SANDS 1928 HK 33.95 274,627 -0.73 -18.49 45.00 26.15 17.10 N/A N/A 2.95 13.99WHARF REIC 1997 HK 32.80 99,588 1.23 -31.02 49.10 27.30 10.00 12.82 12.14 5.02 0.45COUNTRY GARDEN 2007 HK 9.77 215,286 -5.33 -21.71 12.88 7.88 4.84 4.40 3.85 6.93 1.04AAC TECH 2018 HK 48.95 59,156 -9.27 -28.01 70.00 33.75 24.03 30.49 20.06 0.84 2.57SHENZHOU 2313 HK 127.00 190,909 16.19 11.50 127.00 73.15 32.89 31.23 26.80 1.65 5.99PING AN 2318 HK 83.30 1,570,856 -0.83 -9.55 99.55 70.90 8.81 9.65 8.12 3.00 1.73MENGNIU 2319 HK 39.20 154,658 14.12 24.44 39.20 25.00 30.04 37.97 24.72 0.57 3.90SUNNY OPTICAL 2382 HK 118.10 129,538 -4.83 -12.45 149.50 92.40 28.96 26.68 20.24 0.78 7.20BOCHK 2388 HK 22.30 235,773 0.68 -17.56 28.90 20.40 7.28 8.79 8.56 5.66 0.77CHINA LIFE 2628 HK 18.92 1,190,967 0.42 -12.61 22.75 12.86 8.13 9.75 8.71 3.72 1.08BOCOM 3328 HK 4.18 146,350 -1.88 -24.55 5.61 4.18 3.73 3.69 3.52 8.58 0.37BOC 3988 HK 2.56 997,567 -1.92 -23.12 3.37 2.56 3.74 3.70 3.62 8.29 0.38

HANG SENG INDEX 25,422.06 18,927,963 1.23 -9.82 29,056.42 21,696.13 21.28 19.57 16.25 3.46 3.23 Source: FactSet



HSCEI constituentsCompany Stock Closing Mkt 5D YTD --------52-week-------- ------------------P/E------------------ Yield P/Bname code price cap chg chg High Low 2019 2020E 2021E 2020E 2020E

(HK$) (HK$ m) (%) (%) (HK$) (HK$) (x) (x) (x) (%) (x)CITIC LTD 267 HK 7.30 212,359 -2.93 -29.94 10.70 6.95 3.95 4.32 3.84 5.75 0.34GDI 270 HK 12.54 81,984 -3.54 -23.07 17.30 12.22 16.33 16.58 14.17 4.76 1.93CGH 384 HK 21.30 111,155 -6.99 -27.05 34.75 21.30 13.25 12.27 10.49 2.31 2.85SINOPEC 386 HK 3.49 89,042 -0.85 -25.59 5.04 3.20 6.51 23.14 9.97 4.52 0.51CRG 390 HK 4.01 142,807 -3.61 -16.63 5.32 3.47 3.78 3.72 3.28 4.71 0.37DONGFENG 489 HK 5.41 15,449 -1.46 -26.19 8.47 4.42 3.18 3.95 3.12 5.27 0.30TENCENT 700 HK 540.50 5,179,114 4.34 43.90 564.00 316.20 51.37 39.55 33.16 0.24 8.53CHINA TELECOM 728 HK 2.64 36,636 -2.94 -17.76 3.76 2.06 9.23 8.88 8.39 4.88 0.51AIR CHINA 753 HK 5.39 104,943 1.32 -31.86 8.26 4.60 10.26 N/A 9.97 0.00 0.85CHINA TOWER 788 HK 1.74 81,195 0.00 1.16 1.91 1.56 45.37 33.62 26.73 1.50 1.26PETROCHINA 857 HK 2.67 56,334 -0.74 -31.71 4.32 2.23 9.41 112.65 23.52 1.82 0.35CNOOC 883 HK 8.75 390,665 -2.89 -32.48 13.74 6.40 5.72 15.68 9.93 4.11 0.77HUANENG 902 HK 3.27 84,375 -11.62 -17.01 4.38 2.24 300.05 6.52 5.79 9.50 0.43CONCH 914 HK 57.45 74,662 0.09 1.14 61.05 44.15 8.30 7.74 7.50 4.10 1.68CCB 939 HK 5.65 1,425,470 -2.42 -16.05 6.80 5.65 4.95 4.79 4.57 6.39 0.56CHINA MOBILE 941 HK 55.80 1,142,532 -4.45 -14.81 69.70 48.25 9.59 9.50 9.20 5.88 0.88CNCB 998 HK 3.33 250,562 -2.06 -28.69 4.77 3.33 3.34 3.01 2.81 8.39 0.30HENGAN 1044 HK 62.20 73,999 -3.42 12.07 71.00 49.20 16.73 14.13 N/A 4.88 3.36SHENHUA 1088 HK 12.58 42,754 0.00 -22.73 17.00 12.06 5.33 5.77 5.74 8.67 0.60CSPC 1093 HK 17.04 127,521 7.71 10.05 17.83 11.43 30.36 24.86 21.28 1.17 5.17SINOPHARM 1099 HK 19.12 25,655 -2.05 -32.79 29.45 14.86 8.01 7.70 6.85 3.90 1.00CR LAND 1109 HK 36.75 262,062 5.76 -5.28 39.40 28.00 10.39 9.37 8.14 3.78 1.20BYD 1211 HK 77.15 70,592 9.98 98.58 89.80 33.55 138.66 74.13 N/A 0.14 3.21ABC 1288 HK 2.68 1,243,957 -2.90 -21.87 3.47 2.68 4.05 3.98 3.85 7.70 0.43NCI 1336 HK 31.90 177,910 -9.89 -4.78 35.95 20.65 6.02 6.64 6.16 4.34 0.92PICC 1339 HK 2.59 22,601 -0.77 -20.06 3.38 2.11 4.60 4.99 N/A 5.04 0.51CINDA 1359 HK 1.53 20,758 -3.77 -13.56 1.86 1.36 4.47 3.74 3.46 7.94 0.35ICBC 1398 HK 4.50 1,909,133 -2.39 -25.00 6.05 4.50 4.68 4.62 4.42 6.48 0.53PSBC 1658 HK 4.01 79,623 -5.20 -24.34 5.39 4.01 5.01 4.81 4.37 6.38 0.57CRRC 1766 HK 3.55 175,561 -1.93 -37.50 5.99 3.16 7.64 7.55 6.77 4.82 0.63GF SEC 1776 HK 9.08 15,452 -3.09 -4.32 10.76 7.60 8.21 7.67 6.95 4.74 0.64CCC 1800 HK 4.49 126,273 -4.06 -29.29 6.70 4.35 3.44 3.27 3.02 6.01 0.26CGN POWER 1816 HK 1.73 153,129 2.37 -16.83 2.12 1.52 7.64 8.01 7.69 5.21 0.81MSB 1988 HK 4.79 263,159 -1.64 -18.68 5.99 4.79 3.62 3.52 3.42 8.74 0.38VANKE 2202 HK 24.85 47,054 -3.31 -25.26 34.35 23.20 6.42 5.86 5.19 5.16 1.15GAC 2238 HK 7.28 106,761 2.54 -24.95 9.97 5.59 10.00 9.20 7.40 3.28 0.77SHENZHOU 2313 HK 127.00 190,909 16.19 11.50 127.00 73.15 32.89 31.23 26.80 1.65 5.99PING AN 2318 HK 83.30 1,570,856 -0.83 -9.55 99.55 70.90 8.81 9.65 8.12 3.00 1.73PICC P&C 2328 HK 6.02 41,534 -4.14 -35.89 10.16 6.02 4.93 5.42 5.13 7.85 0.66GWM 2333 HK 7.88 117,313 2.20 36.81 8.24 3.85 14.33 14.89 11.67 3.28 1.13CPIC 2601 HK 22.50 305,565 -5.06 -26.71 33.00 18.16 6.61 7.10 6.64 6.19 0.92CHINA LIFE 2628 HK 18.92 1,190,967 0.42 -12.61 22.75 12.86 8.13 9.75 8.71 3.72 1.08HUARONG 2799 HK 0.91 22,790 -1.09 -26.02 1.34 0.77 20.20 16.16 11.54 2.48 0.25BOCOM 3328 HK 4.18 146,350 -1.88 -24.55 5.61 4.18 3.73 3.69 3.52 8.58 0.37CMB 3968 HK 38.40 1,069,793 -2.04 -4.12 42.00 31.45 9.20 8.39 7.46 3.88 1.29BOC 3988 HK 2.56 997,567 -1.92 -23.12 3.37 2.56 3.74 3.70 3.62 8.29 0.38CITIC SEC 6030 HK 18.46 425,786 -1.28 3.82 20.75 13.00 16.76 12.70 11.51 3.62 1.19ZA ONLINE 6060 HK 52.20 24,524 21.40 85.77 55.10 17.70 N/A 183.52 97.38 0.00 4.55HAITONG SEC 6837 HK 7.05 188,913 -3.82 -23.45 9.43 5.86 7.55 7.04 6.33 4.12 0.53HTSC 6886 HK 13.62 203,267 -4.49 -1.16 16.04 10.40 12.21 10.15 9.18 3.36 0.85

HANG SENG CHINA ENT INDX 10,182.83 18,592,301 -0.29 -8.82 11,419.91 8,559.64 20.19 16.48 13.64 4.06 2.84Source: FactSet



BOCOM International10/F, Man Yee Building, 68 Des Voeux Road Central, Central, Hong KongMain: (852) 3766 1899 Fax: (852) 2107 4662

Rating SystemAnalyst Stock Rating: Analyst Industry Views:Buy: The stock's total return is expected to exceed that of thecorresponding industry over the next 12 months.

Neutral: The stock's total return is expected to be in line withthat of the corresponding industry over the next 12 months.

Sell: The stock's total return is expected to be below that of thecorresponding industry over the next 12 months.

Not-Rated: The analyst does not have conviction regarding theoutlook of the stock's total return relative to that of thecorresponding industry over the next 12 months.

Outperform: The analyst expects the industry coverage universeto be attractive relative to the relevant broad marketbenchmark over the next 12 months.

Market perform: The analyst expects the industry coverageuniverse to be in line with the relevant broad marketbenchmark over the next 12 months.

Underperform: The analyst expects the industry coverageuniverse to be unattractive relative to the relevant broadmarket benchmark over the next 12 months.

Broad market benchmark for Hong Kong is the Hang SengComposite Index, for China A-shares is the MSCI China A Index,for US-listed Chinese companies is S&P US Listed China 50(USD) Index.



Analyst certificationThe authors of this report, hereby declare that: (i) all of the views expressed in this report accurately reflect their personal views about any and all of thesubject securities or issuers; and (ii) no part of any of their compensation was, is, or will be directly or indirectly related to the specific recommendations orviews expressed in this report; (iii) no insider information/ non-public price-sensitive information in relation to the subject securities or issuers which mayinfluence the recommendations were being received by the authors.The authors of this report further confirm that (i) neither they nor their respective associates (as defined in the Code of Conduct issued by the Hong KongSecurities and Futures Commission) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue ofthe report; (ii)) neither they nor their respective associates serve as an officer of any of the Hong Kong listed companies covered in this report; and (iii) neitherthey nor their respective associates have any financial interests in the stock(s) covered in this report except for one coverage analyst who is holding shares ofShimao Property Holdings Limited.

Disclosure of relevant business relationshipsBOCOM International Securities Limited, and/or its associated companies, has investment banking relationship with Bank of Communications, Guolian Securities Co. Ltd., Luzhou XingluWater (Group) Co., Ltd., BOCOM International Holdings Company Limited, Sichuan Energy Investment Development Co., Ltd, Light Year Holdings Limited, Analogue Holdings Limited,Zhejiang New Century Hotel Management Co., Ltd, Tai Hing Group Holdings Limited, Shanghai Kindly Medical Instruments Co, Ltd, Edvantage Group Holdings Limited, China BrightCulture Group, Xinyuan Property Management Service (Cayman) Ltd, Sinic Holdings (Group) Company Limited, Jinchuan Group International Resources Co. Ltd, China Tianbao GroupDevelopment Company Limited, JiaXing Gas Group Co., Ltd, Huali University Group Limited, Alibaba Group Holding Limited, Alphamab Oncology, Poly Property Development Co Ltd,Kwung's Holdings Limited, Honliv Healthcare Management Group Company Limited, Shanghai Gench Education Group Limited, Zhongguancun Science-tech Leasing Co., Ltd, Joy SpreaderInteractive Technology. Ltd, Fu Shek Financial Holdings Limited, Xingye Wulian Service Group Co Ltd, Jiu Zun Digital Interactive Entertainment Group Holdings Limited, Cirtek HoldingsLimited, Kidztech Holdings Limited, Akeso, Inc., JD.com, Inc, Qingdao Holdings International Limited, Immunotech Biopharm Ltd, Ganglong China Property Group Limited, Sino-Entertainment Technology Holdings Limited, Dashan Education Holdings Limited, Adtiger Corporations Limited, and China Bohai Bank Co., Ltd. within the preceding 12 months.

BOCOM International Global Investment Limited currently holds more than 1% of the equity securities of Orient Securities Company Limited.BOCOM International Global Investment Limited currently holds more than 1% of the equity securities of Everbright Securities Company Limited.BOCOM International Global Investment Limited currently holds more than 1% of the equity securities of Guolian Securities Co., Ltd.BOCOM International Global Investment Limited currently holds more than 1% of the equity securities of Guotai Junan Securities Co., Ltd.

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