China/HK - Morning Notes 22 August 2014pg.jrj.com.cn/acc/Res/CN_RES/MEMOIR/2014/8/22/e4fe... ·...

Morning Notes China/Hong Kong

China & HK Research Team (852) 2600 8593 Friday, 22 August 2014

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Conviction callsTicker Company Rec Target

return P/E(x) EPSg(%) Yield(%) P/B(x) ROE(%) 1M YTDBIDU US Baidu BUY 15 29.6 24.9 0.0 7.0 26.7 9.7 21.9

941 HK China Mobile BUY 9 14.2 0.0 3.1 1.7 12.1 15.6 17.41929 HK Chow Tai Fook BUY 35 16.3 (4.6) 3.1 2.8 17.8 1.2 (1.9)688 HK Coli BUY 31 7.0 20.1 2.8 1.3 19.9 11.9 5.5992 HK Lenovo O-PF 11 17.5 10.1 2.3 4.7 29.2 8.6 25.3

MPEL US Melco Crown 6883 HK BUY 105 16.4 21.7 1.8 3.0 19.7 (9.2) (26.0)1910 HK Samsonite BUY 29 15.9 21.8 2.6 3.0 18.4 (1.8) 3.21072 HK Dongfang SELL (24) 12.4 (8.9) 1.5 1.0 8.6 (0.3) (1.9)

3 HK HK & China Gas SELL (15) 26.5 7.1 2.3 3.4 13.2 7.5 1.62638 HK HK Electric SELL (8) 15.0 0.2 7.7 1.0 6.5 (0.2) 0.02727 HK Shanghai Electric SELL (34) 16.9 (0.5) 2.4 1.0 6.1 5.8 22.0

Valuations 14CL Performance(%)

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MSCI China vs MSCI Asia ex-Japan

China & HK Indices

Last 1D 1M 3MHSCEI 10,942 (1.0) 3.2 8.2HSCCI 4,895 (0.1) 6.8 14.7Shanghai A 2,335 (0.4) 7.5 10.3Shanghai B 252 (0.9) 10.5 10.8Shenzhen A 1,278 0.1 9.8 19.0Shenzhen B 944 (0.3) 5.3 16.3HSI 24,994 (0.7) 5.1 8.9 Finance 32,916 (0.8) 4.5 6.6 Properties 32,267 (0.6) 7.7 13.5 Utilities 55,765 (0.2) 6.3 8.7 Comm & Ind. 15,571 (0.6) 5.0 10.5

Yesterday's top five gainers and losers% change

Top gainers Ticker 1D 1M YTDChina Taiping 966 HK 7.4 16.9 15.3Trinity 891 HK 4.7 1.5 (22.7)Anta Sports 2020 HK 3.8 24.1 59.9Kerry Logistics 636 HK 3.1 3.6 19.8Dongxiang 3818 HK 3.0 9.6 30.5Top losersTechtronic 669 HK (5.8) (5.5) 10.2Beijing Constructio 1599 HK (4.6) 26.4 #N/A N/AFirst Pacific 142 HK (3.8) (1.2) 3.1Zhengtong Auto 1728 HK (3.5) 2.7 (16.7)Hidili Industry 1393 HK (3.1) 10.7 (21.2)

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Thru Train (Strategy) By Francis Cheung | Published on 19-Aug-2014 | CLSA TV Snapshots (video) | 2:55 The Shanghai-Hong Kong Stock Connect is a landmark in the global integration of China’s capital markets and internationalising the renminbi. This Thru Train will provide arbitrage and opportunities as a new avenue of diversification for investors.

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What’s inside: • China Taiping Insurance (966 HK - U-PF). To be big. • Macau Legend (1680 HK - BUY). Attractively valued. • Li & Fung (494 HK - O-PF). Fresh start. • Soho China (410 HK - U-PF). Transformation pain. • CR Enterprise Ltd (291 HK – Downgrade to U-PF). Challenges ahead. • ChinaOpps - China strategy. August PMI - Past the peak. • Kerry Properties (683 HK - UNDERPERFORM). Cheap for a reason. • Great Eagle (41 HK - U-PF). A mixed bag. • Techtronic (669 HK - BUY). Positive momentum. • Sinopec Kantons (934 HK - BUY). A solid beat.

China Taiping Insurance (966 HK - U-PF). To be big. The interim result shows Taiping’s innovation in funding growth. By turning to financial reinsurance, a cheaper alternative to sub-debt and equity, it’s able to get around the capital constraint. Led by agency expansion and pickup in bancassurance quality, we expect the strong NBV growth to continue. However, profitability is still in doubt as the

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Morning Notes - China/Hong Kong

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management have to keep investing in distribution. To be big is certainly on the agenda. But to be strong remains to be seen. We keep the U-PF rating.

Macau Legend (1680 HK - BUY). Attractively valued. MLD delivered +9% Ebitda growth in 2Q, acceleration from +6% in 1Q. We expect further improvements in 2H14 with consolidation of profit from New Legend and the opening of Harbourview hotel in Sept-14. Management remains confident in getting 350 new gaming tables as they conclude the Fisherman’s Wharf redevelopment. That remains the long-term growth driver and we expect that to drive a 4x increase in Ebitda. We maintain our BUY rec and HK$6.3 TP which implies 46% upside.

Li & Fung (494 HK - O-PF). Fresh start. Li & Fung reported its first set of results post the spin-off of GBG. Core OP was down -9% in the 1H, in line with our expectations that the company would be investing significantly this year. Trading turnover grew by +2% supported by new customers and market share gains. We believe that Li & Fung has returned to an asset-light business model and should see ROE improving over time, which should translate into multiple expansion. Maintain OPF to a price target of HK$11.20 based on 18x CY15 PE.

Soho China (410 HK - U-PF). Transformation pain. Soho is starting to see some transformation pain from its mid-12 business model change from build-and-sell to build-and-hold as its property-sales pipeline diminishes. While rental income is ramping up from a growing completed portfolio, it is off a low base and uncertain given noncore disposals in Shanghai not ruled out by management. This is also against a backdrop of Shanghai and Beijing office markets seeing rental pressure over the past two and one quarters, respectively. Maintain U-PF.

CR Enterprise Ltd (291 HK – Downgrade to U-PF). Challenges ahead. CRE’s 35% decline in 2Q14 core net profit was 10% below our expectation, given operating deleverage and drag of Tesco loss in retail division. We expect Tesco loss to significantly weigh on its retail business, which is likely to suffer from continuous operating deleverage in 2H14. Despite our long-term positive view on CRE, we see short-term pressure on the stock and downgrade our rec from O-PF to U-PF.

ChinaOpps - China strategy. August PMI - Past the peak. We had expected the manufacturing PMIs were near peak last month, but the pace of decline is faster than expected. The flash August HSBC/Markit PMI slowed significantly down 1.4ppts from July's 51.7 to 50.3, missing consensus estimate at 51.5 by a wide margin. This is also the sharpest pace of decline in 18 months since Feb-2013. There has been increasing volatility in PMIs as it is increasingly difficult to sustain high growth and the marginal impact of government stimulus is declining. The economic recovery is far from stable and we would be cautious on the market especially after the recent rally.

Kerry Properties (683 HK - UNDERPERFORM). Cheap for a reason. Kerry’s more HK launches in 2H and the recent disposal of Lions Rise mall may help close the funding gap as a result of weak China property sales but room for gearing to improve looks limited due to funding needs for its China rental properties under development. Meanwhile, its HK property sales will still be affected by policies given its high-end concentrated pipeline. Its wide disc is justified in our view, given an unappealing growth prospect with mediocre development earnings trend and relatively high gearing.

Great Eagle (41 HK - U-PF). A mixed bag. After spinning its HK hotels off into Langham Hotel Investments (LHI), Great Eagle’s key revenue contributor is Champion Reit, followed by overseas hotel portfolio and contribution from LHI. With steady-to-positive outlook across most markets, overseas hotels should grow, but rental pressure on Citibank Plaza is likely to drag on Champion’s contribution. Slowing mainland arrivals will also impact HK hotels, despite positive operating metrics YTD. Reiterate Underperform.

Techtronic (669 HK - BUY). Positive momentum. We attended the investor presentation post the results announcement. As usual, CEO Joe Galli went through the new products range being launched this year apart from the normal financial presentation. Overall the mood remains of positive momentum. They remain a new product machine with a target of one-third new products every year. However, this year, with Hoover, management’s goal is to replace nearly the full line of product by the end of 2014. We maintain BUY with a target of HK$28.88.

Sinopec Kantons (934 HK - BUY). A solid beat. The company reported upbeat 1H14 results, with net attributable profits came in at HK$377mn, up 63% on year, beating CL estimate by 14%. The company continued to deliver strong growth in crude throughput volumes, and also expanded its net profit margin to north of 10% in 1H14. We continue to like the company with 30% earnings Cagr for 2013-18CL, underpinned by Yulin-Jinan gas pipeline and LNG vessels gradually phasing in starting 2015. Maintain BUY to a TP of HK$ 7.80 p.s.

Trinity (891 HK – Upgrade to O-PF). Early signs of recovery.

Morning Notes - China/Hong Kong

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Trinity reported weak 1H14 results with sales and net profits down 6%/47% YoY respectively. The negative operating leverage and impact from the FX change caused significant margin contraction in 1H14. However, management started to see encouraging signs of recovery with positive momentum in SSSg in July 2014 and since. It might still be too early to tell if such trend will sustain, but the expectation is low and Trinity could be a high beta play amid macro recovery. We upgrade the stock by one notch from U-PF to O-PF with a new TP of HK$2.1.

News headlines China Stocks Fall Most in a Week on Manufacturing Data China’s stocks fell the most in a week, led by financial and energy companies, as a bigger-than-estimated drop in a private manufacturing gauge spurred concerns about the strength of the economic recovery. – Bloomberg

China Money-Market Rate Climbs Most in a Month on Share Sales China’s benchmark money-market rate rose the most in a month on concern a spate of initial public offerings of shares will increase demand for funds. – Bloomberg

China to Fine Coal Miners Exceeding Output Limits as Prices Drop China will fine coal miners as much as 2 million yuan ($325,200) if they exceed national production limits after prices fell to the lowest in almost seven years. – Bloomberg

China Spends More on Social Security China’s government spending on social security and employment rose 12.6 percent in the January-July period from a year earlier, Ministry of Finance data showed Wednesday. – Xinhua

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Key to CLSA/CAST investment rankings: BUY: Total stock return (including dividends) expected to exceed 20%; O-PF: Total expected return below 20% but exceeding market return; U-PF: Total expected return positive but below market return; SELL: Total expected return to be negative. For relative performance, we benchmark the 12-month total forecast return (including dividends) for the stock against the 12-month forecast return (including dividends) for the market on which the stock trades. • We define as “Double Baggers” stocks we expect to yield 100% or more (including dividends) within three years. ©2014 CLSA Limited (for research compiled by non-Taiwan analyst(s)) and/or Credit Agricole Securities Taiwan Co., Ltd (for research compiled by Taiwan analyst(s)). Note: In the interests of timeliness, this document has not been edited. The analyst/s who compiled this publication/communication hereby state/s and confirm/s that the contents hereof truly reflect his/her/their views and opinions on the subject matter and that the analyst/s has/have not been placed under any undue influence, intervention or pressure by any person/s in compiling such publication/communication. CLSA group of companies (excluding CLSA Americas, LLC) (“CLSA”), Credit Agricole Securities Taiwan Co., Ltd. (“CA Taiwan”), CLSA/CA Taiwan's analysts and/or their associates do and from time to time seek to establish business or financial relationships with companies covered in their research reports. As a result, investors should be aware that CLSA and/or such individuals may have one or more conflicts of interests that could affect the objectivity of this report. Regulations or market practice of some jurisdictions/markets prescribe certain disclosures to be made for certain actual, potential or perceived conflicts of interests relating to research reports and such details are available at www.clsa.com/member/research_disclosures/. Disclosures therein include the position of CLSA, CLSA Americas, LLC and CA Taiwan only and do not reflect those of CITIC Securities International Company Limited, Credit Agricole Corporate & Investment Bank and/or their respective affiliates. If investors have any difficulty accessing this website, please contact [email protected] or +852 2600 8111. If you require disclosure information on previous dates, please contact [email protected] IMPORTANT: The content of this report is subject to and should be read in conjunction with the disclaimer and CLSA's Legal and Regulatory Notices as set out at www.clsa.com/disclaimer.html, a hard copy of which may be obtained on request from CLSA Publications or CLSA Compliance Group (18/F, One Pacific Place, 88 Queensway, Hong Kong, telephone +852 2600 8888) and/or CA Taiwan Compliance (27/F, 95, Section 2 Dun Hua South Road, Taipei 10682, Taiwan, telephone +886 2 2326 8188). 01/01/2014

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China TaipingHK$18.26 - UNDERPERFORM

FinancialsYear to 31 December 12A 13A 14CL 15CL 16CLGross premiums (HK$m) 60,060 85,556 103,996 121,602 142,546Net profit (HK$m) 937 1,530 2,639 2,808 3,353EPS (HK¢) 54.6 77.3 108.0 114.9 137.2CL/consensus (18) (EPS%) - - 106 100 100EPS growth (% YoY) 71.0 41.6 39.6 6.4 19.4ROE (%) 7.4 9.1 12.5 11.5 11.6ROA (%) 0.6 0.8 0.9 0.8 0.8PE (x) 33.4 23.6 16.9 15.9 13.3PB (x) 2.3 1.8 2.0 1.7 1.4P/EV (x) 1.1 0.8 0.9 0.7 0.6NBV/share (HK¢) 134.4 159.1 152.0 179.2 211.1Source: CLSA

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Patricia [email protected]+852 2600 8683

Ruoxu Liu+852 2600 8440

22 August 2014

ChinaInsurance

Reuters 0966.HKBloomberg 966 HK

Priced on 21 August 2014HS CEI @ 10,942.4

12M hi/lo HK$18.30/10.52

12M price target HK$17.00±% potential -7%

Shares in issue 2,430.0mFree float (est.) 46.7%

Market cap US$5,725m

3M average daily volumeHK$38.6m (US$5.0m)

Major shareholdersChina Taiping Insurance Group53.3%

Stock performance (%)1M 3M 12M

Absolute 22.1 47.5 63.6Relative 15.5 34.7 47.4Abs (US$) 22.1 47.5 63.7

-20

30

80

130

180

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14

16

18

20

Aug-12 Feb-13 Aug-13 Feb-14China Taiping (LHS)

Rel to CEI (RHS)

(HK$) (%)

Source: Bloomberg

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Resu

lts revie

w

To be bigThe interim result shows Taiping’s innovation in funding growth. By turning to financial reinsurance, a cheaper alternative to sub-debt and equity, it’s able to get around the capital constraint. Led by agency expansion and pickup in bancassurance quality, we expect the strong NBV growth to continue. However, profitability is still in doubt as the management have to keep investing in distribution. To be big is certainly on the agenda. But to be strong remains to be seen. We keep the U-PFrating.

Capital relief from reinsurance With limited room for sub-debt issue and common equity not popular, Taiping has turned to financial reinsurance for capital relief. By paying the reinsurer a small fee, it gets to generate topline growth without having to set aside anycapital against the liabilities. We explain the modified coinsurance contract in the inside. The arrangement allows the company to stay on the fast lane.

Strong NBV growthThe reinsurance is applied to bancassurance policies done earlier and solvency ratio gets an uplift, giving them more room to continue the strong NBV growth, which reached 44% in 1H14, much higher than expectations. The 179% surge in profit, another beat, was a result of better investment income.

Profitability still in questionThe aggressive push to expand the distribution, especially in agency, and strengthening of bancassurance management will ensure growth stay at the top of the pack. Nonetheless, this won’t be possible without heavy investment and as such we remain doubtful about profitability, especially now that with financial reinsurance the transparency gets lower.

To be big…not to be strong yetWe’ve held a cautious view on Taiping because it has too much ambition and too little capital. Although the latter gets a relief, it’s not a permanent fix. The focus is too much on growth (though exactly what the market seems to care) and we worry that quality may get compromised. After all, there is a long way ahead before the bottomline can be more solid. We maintain the U-PF rating with target price unchanged at HK$17.

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To be big China Taiping - U-PF

22 August 2014 [email protected] 2

To be bigA typical reinsurance contract entails transfer of risk. But financial reinsurance serves more for capital management.

Think of it as taking a bank loan. The reinsurer provides the capital at a cost. The insurer (called the ceding company), by ceding a portfolio of business to the reinsurer, can get the associated assets and liabilities off its book, i.e. itcan book a release of capital. For the reinsurer, by taking on this block of business, its own balance sheet gets used and as a result it has to charge an interest. The arrangement allows an insurance company to report strong topline growth even though it doesn’t have the capital.

Available capital = Asset – Liabilities

Required capital = 4% of reserve + a percentage of sum at risk (as Taiping uses reinsurance for bancassurance premiums, which means it’s saving business rather than protection and the sum at risk part is very small. For sake of simplicity, we can just assume 4% of reserve)

Solvency ratio = available capital/required capital

By ceding the business to reinsurer, reserve goes down and required capital as well, hence solvency ratio gets a boost.

This is a simple concept. Now, let’s look at the reinsurance contract in question - modified coinsurance. Taiping doesn’t offer any more information. So we have to stress, below is a general description only. The insurer gets a reserve and capital release like other types of contracts. But under this arrangement, it actually gets to keep the assets and liabilities with respect to the policies reinsured physically on its book. But when it comes to capital calculation, the business is excluded because it’s been ceded to reinsurer.

What this means – from the insurer’s perspective, no capital charge needs to be taken for the block of business ceded (even though it sits on the balance sheet, it’s held for the reinsurance company). For the reinsurer, since the reserve doesn’t sit on its book, it’s not required to set aside any capital if it isn’t in the same jurisdiction as the insurer.

The simple logic is someone has to take a capital charge, whether it’s the primary insurer or the reinsurer. But the beauty of modified coinsurance is it allows a play on regulatory arbitrage if the two companies fall under different jurisdiction. In a way, it’s similar to off-balance sheet operation for a bank.

From our understanding, the largest reinsurance companies aren’t keen about this type of business as they don’t want to get any potential regulatory issue.

We don’t know if Taiping has adopted this type of reinsurance. But for business as thin margin as bancassurance saving type, we doubt any reinsurer will be willing to take it up with their own balance sheet unless the ceding company is happy to pay a high fee.

By using modified coinsurance, the interest cost can be kept low (since the reinsurer doesn’t take up any capital charge) and the insurer can maintain control over the investment of the portfolio. This ideal arrangement of course only works for Solvency I regimes.

A loan behind fin re

Release in reserve

And less required capital

No assets transfer under Mod-Co

Potential regulatory arbitrage



Enough of the technicality. We shall not bore you anymore.

The key message is Taiping has found a way to keep growing.

Figure 1

Interim results highlight

(HK$m) 1H13 1H14 YoY 1H14CLIncome statement RestatedNet earned premiums 48,035 43,255 (10%) 59,580Investment income 5,007 7,788 56% 7,239Other income 267 649 143% 450Total revenue 53,309 51,691 (3%) 67,269Benefits and claims (9,909) (15,504) 56% (12,376)Commission expenses (4,246) (6,189) 46% (5,006)Life insurance funds (31,228) (18,528) (41%) (38,219)Other expenses (6,373) (7,774) 22% (9,535)Total expenses (51,756) (47,994) (7%) (65,137)Profit before tax 1,553 3,697 138% 1,803Net profit 692 1,933 179% 1,368EPS 0.35 0.76 120% 0.56Balance sheetTotal assets 274,997 377,903 37% 353,538Total liabilities 251,600 348,430 38% 328,669Shareholders equity 14,175 23,672 67% 20,591BPS 8.29 9.30 12% 8.43Key assumptionsLifeEV - life 41,938 51,844 24% 47,364NBV 1,650 2,376 44% 2,029NBV growth 28.6% 44.0% 23.0%New business margin 7.0% 8.1% 7.0%

P&CPremium growth 42.1% 23.3% 21.9%Combined ratio 99.5% 99.6% 98.6%

ReinsurancePremium growth 4.2% 41.6% 8.1%Combined ratio 92.4% 92.8% 92.8%

GroupEPS growth 10.5% 119.7% 84.9%ROE 9.9% 17.3% 12.7%ROA 0.5% 1.1% 0.8%

Note: Restated balance sheet of 1H13 is not available, original figures are used. Source: Company

Drop in NEP due to reinsurance

Tripling of profit led by investment

A strong beat in NBV growth



Summary financialsYear to 31 December 2012A 2013A 2014CL 2015CL 2016CLSummary P&L forecast (HK$m)Gross premiums written 60,060 85,556 103,996 121,602 142,546Net earned premiums 56,617 80,931 98,540 115,389 135,244Total investment income 5,904 11,126 15,028 18,280 22,302Other income 511 786 1,014 1,051 1,089Total revenue 63,033 92,843 114,582 134,721 158,635Claims and benefits (45,825) (67,660) (83,434) (98,394) (116,230)General & admin exp (10,428) (13,734) (16,842) (19,814) (23,108)Other expenses (5,687) (8,891) (10,285) (12,290) (14,268)Total expenses (61,940) (90,285) (110,562) (130,499) (153,606)Operating profit 1,092 2,558 4,020 4,222 5,030Other income & exp 141 (1) (234) (234) (234)Profit before tax 1,233 2,557 3,786 3,988 4,796Taxation 241 (346) (671) (713) (847)Preference dividends - - - - -Profit for period 1,474 2,211 3,115 3,275 3,949Minority interest (537) (681) (476) (467) (595)Net profit 937 1,530 2,639 2,808 3,353Adjusted net profit 937 1,530 2,639 2,808 3,353

Summary balance sheet forecast (HK$m)Investments 219,787 280,860 348,643 427,102 518,557Other assets 23,152 34,156 34,063 34,206 34,336Total assets 242,939 315,016 382,706 461,307 552,893Policyholder reserves 163,528 210,780 272,260 342,620 424,406Total liabilities 221,946 291,165 355,426 429,175 514,916Shareholder funds 13,837 19,847 22,486 26,562 31,427Minorities/other equity 7,156 4,004 4,795 5,570 6,549Total equity 20,992 23,851 27,281 32,132 37,976Total liabs & equity 242,939 315,016 382,706 461,307 552,893

Ratio analysisExpense ratio (%) - - - - -Loss ratio (%) - - - - -Combined ratio (%) - - - - -Investment yield (%) - - - - -Adjusted EPS (HK¢) - - - - -Adjusted BVPS (HK¢) - - - - -Adjusted PE (x) 33.4 23.6 16.9 15.9 13.3Adjusted PB (x) - - - - -ROE (%) 7.4 9.1 12.5 11.5 11.6Adjusted ROE (%) - - - - -ROA (%) 0.6 0.8 0.9 0.8 0.8Adjusted ROA (%) - - - - -PE (x) 33.4 23.6 16.9 15.9 13.3PB (x) 2.3 1.8 2.0 1.7 1.4P/EV (x) 1.1 0.8 0.9 0.7 0.6EPS (HK¢) 54.64 77.35 108.01 114.92 137.24BVPS (HK¢) 807.29 1,003.24 920.24 1,087.06 1,286.17DPS (HK¢) 0.00 0.00 0.00 0.00 0.00Dividend yield (%) 0.0 0.0 0.0 0.0 0.0NBV (HK$m) 2,304 3,148 3,713 4,380 5,158NBV/share (HK¢) 134.42 159.13 151.96 179.24 211.09NBV growth (% YoY) 2.7 36.6 18.0 18.0 17.8EV (HK$m) 29,286 45,390 50,844 60,010 71,062EV/share (HK¢) 1,708.67 2,294.40 2,080.79 2,455.90 2,908.23EV growth (% YoY) 35.7 55.0 12.0 18.0 18.4Source: CLSA



Companies mentionedChina Taiping (966 HK - HK$18.26 - UNDERPERFORM)

Recommendation history of China Taiping Insurance Holdings Co Ltd 966 HK

Date Rec Target Date Rec Target08 Dec 2013 U-PF 17.00 31 Aug 2012 U-PF 12.0013 Aug 2013 U-PF 12.00 06 Aug 2012 U-PF 13.0028 May 2013 BUY 17.00 04 Jun 2012 U-PF 15.0019 Mar 2013 U-PF 15.00 20 Mar 2012 U-PF 17.0026 Jan 2013 U-PF 17.00 28 Sep 2011 U-PF 16.00Source: CLSA

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Key to CLSA/CAST investment rankings: BUY: Total stock return (including dividends) expected to exceed 20%; O-PF: Total expected return below 20% but exceeding market return; U-PF: Total expected return positive but below market return; SELL: Total expected return to be negative. For relative performance, we benchmark the 12-month total forecast return (including dividends) for the stock against the 12-month forecast return (including dividends) for the market on which the stock trades. • We define as “Double Baggers” stocks we expect to yield 100% or more (including dividends) within three years.

©2014 CLSA Limited (for research compiled by non-Taiwan analyst(s)) and/or Credit Agricole Securities Taiwan Co., Ltd (for research compiled by Taiwan analyst(s)). Note: In the interests of timeliness, this document has not been edited.

The analyst/s who compiled this publication/communication hereby state/s and confirm/s that the contents hereof truly reflect his/her/their views and opinions on the subject matter and that the analyst/s has/have not been placed under any undue influence, intervention or pressure by any person/s in compiling such publication/communication.

CLSA group of companies (excluding CLSA Americas, LLC) (“CLSA”), Credit Agricole Securities Taiwan Co., Ltd. (“CA Taiwan”), CLSA/CA Taiwan's analysts and/or their associates do and from time to time seek to establish business or financial relationships with companies covered in their research reports. As a result, investors should be aware that CLSA and/or such individuals may have one or more conflicts of interests that could affect the objectivity of this report. Regulations or market practice of some jurisdictions/markets prescribe certain disclosures to be made for certain actual, potential or perceived conflicts of interests relating to research reports and such details are available at www.clsa.com/member/research_disclosures/. Disclosures therein include the position of CLSA, CLSA Americas, LLC and CA Taiwan only and do not reflect those of CITIC Securities International Company Limited, Credit Agricole Corporate & Investment Bank and/or their respective affiliates. If investors have any difficulty accessing this website, please contact [email protected] or +852 2600 8111. If you require disclosure information on previous dates, please contact [email protected]

IMPORTANT: The content of this report is subject to and should be read in conjunction with the disclaimer and CLSA's Legal and Regulatory Notices as set out at www.clsa.com/disclaimer.html, a hard copy of which may be obtained on request from CLSA Publications or CLSA Compliance Group (18/F, One Pacific Place, 88 Queensway, Hong Kong, telephone +852 2600 8888) and/or CA Taiwan Compliance (27/F, 95, Section 2 Dun Hua South Road, Taipei 10682, Taiwan, telephone +886 2 2326 8188). 01/01/2014

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(HK

$)

Sep 11 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13 Jan 14 May 14

Patricia ChengOther analystsNo coverage

BUYU-PFN-R

O-PFSELL


Macau LegendHK$4.32 - BUY

FinancialsYear to 31 December 12A 13A 14CL 15CL 16CLRevenue (HK$m) 1,501 1,764 2,259 3,756 5,510Net profit (HK$m) 535 510 537 1,189 2,216EPS (HK¢) 11.8 8.8 8.3 18.5 34.4CL/consensus (6) (EPS%) - - 63 80 80EPS growth (% YoY) (17.4) (25.3) (5.7) 121.5 86.4PE (x) 36.5 48.9 51.8 23.4 12.5Dividend yield (%) 0.0 0.0 0.0 0.0 0.0FCF yield (%) 4.2 0.5 (10.1) (7.7) 7.6PB (x) 3.7 4.5 3.7 3.2 2.6ROE (%) 16.2 9.3 8.2 14.7 22.7Net debt/equity (%) 30.5 (7.8) 15.4 40.3 14.8Source: CLSA


Aaron Fischer, [email protected]+852 2600 8256

Richard Huang+852 2600 8455

21 August 2014

Hong KongHotels & Leisure


Priced on 18 August 2014HK HSI @ 24,955.5

12M hi/lo HK$9.19/2.38

12M price target HK$6.30±% potential +46%




Major shareholdersDavid Chow 30.8%Lam Fong Ngo 18.7%


Absolute (5.3) (24.6) 80.0Relative (11.0) (31.4) 62.4Abs (US$) (5.3) (24.6) 80.1

0

50

100

150

200

250

300

350

400

2.1

3.7

5.3

6.9

8.5

Jul 13 Jan 14 Jul 14Macau Legend (LHS)

Rel to HS I (RHS)

(HK$) (%)

Source: Bloomberg

www.clsa.com

Resu

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Attractively valuedMLD delivered +9% Ebitda growth in 2Q, acceleration from +6% in 1Q. We expect further improvements in 2H14 with consolidation of profit from New Legend and the opening of Harbourview hotel in Sept-14.Management remains confident in getting 350 new gaming tables as they conclude the Fisherman’s Wharf redevelopment. That remains the long-term growth driver and we expect that to drive a 4x increase in Ebitda. We maintain our BUY rec and HK$6.3 TP which implies 46% upside.

2Q Ebitda +9% YoYMLD reported 2Q14 revenue of HK$456m (+10% YoY) and Ebitda of HK$235m (+9% YoY). Modest increase in mass revenue at Landmark of +5% is the key reason to the slow 2Q. That in part was due to table shifts from mass to the VIP area. VIP revenue growth remained healthy at +8% in 2Q, as compared to industry average of -6% decline.

Forecast +14% Ebitda growth for 2014CLLooking ahead, we expect sequential earnings improvement driven by 1) consolidation of earnings from New Legend (direct VIP operations), which recorded HK$51m Ebitda in 4Q13 and 2) incremental earnings from Harbourview Hotel (targeted for Sept-14 opening). We forecast HK$1.1bn Ebitda (+14% YoY) for 2014CL. That implies 2H14 Ebitda of HK$602m, which represents +20% YoY and +30% HoH increase.

Still confident in getting 350 new gaming tablesManagement remains confident in receiving 350 new gaming tables as they conclude the redevelopment of Fisherman’s Wharf. However, instead giving guidance on the table allocation for the Harbourview hotel (to be opened in Sept-14), management only indicate that tables are likely to be allocated in phases as they gradually complete the re-development. The lack of visibility on table allocation remains a near-term overhang, but we are confident in the medium/long-term growth prospects of the company and forecast 4x Ebitda growth over next three years as Fisherman’s Wharf becomes fully operational.

Maintain BUYWe maintain our earnings estimate and our target price at HK$6.3 (based on 8.1x 17CL EV/Ebitda). Recent share price decline (down -53% from the peak and -32% since our downgrade in Feb-14) has priced in a lot of the potential negatives with the stock now trading on 12.5x 16CL PE implying +46% upside to our HK$6.3 target price. Maintain BUY.



Attractively valued Macau Legend - BUY


Attractively valuedFigure 1

Macau Legend: 2Q14 earnings summary

1H12 2H12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 QoQ% YoY%

Landmark Macau

Total Revenue 641 653 344 341 328 397 375 376 0% 10%

- VIP 58 53 32 36 25 34 39 39 -1% 8%

- Mass 441 459 240 241 230 284 249 253 2% 5%

- Slots 10 6 3 2 2 2 2 2 14% 14%

- Non-gaming 133 134 69 62 71 76 85 82 -4% 32%

Adjusted Ebitda 373 394 213 215 181 244 227 241 6% 12%

Macau Fisherman's Wharf -

Total Revenue 33 174 83 75 93 103 86 80 -7% 7%

- VIP - - - - - - - - n.a. n.a.

- Mass 14 71 33 35 37 40 38 32 -16% -9%

- Slots 0 - - - 2 1 - n.a. n.a.

- Non-gaming 19 104 49 41 56 61 48 48 0% 17%

Adjusted Ebitda -6 -11 4 -1 13 12 1 -7 n.a. n.a.

Macau Legend -

Total Revenue 674 827 427 416 421 500 461 456 -1% 10%

- VIP 58 53 32 36 25 34 39 39 -1% 8%

- Mass 455 530 274 275 267 324 287 285 -1% 4%

- Slots 10 6 3 2 3 4 3 2 -24% 14%

- Non-gaming 151 238 118 103 127 137 133 130 -3% 26%

Adjusted Ebitda 367 383 216 216 194 307 228 235 3% 9%

Source: CLSA

Figure 2

Macau Legend: Earnings forecast(HK$m) 2011 2012 2013 14CL 15CL 16CL 17CL

Turnover 1,346 1,501 1,764 2,259 3,756 5,510 6,859

Cost of Sales -419 -665 -777 -1,009 -1,479 -2,041 -2,142

Gross Profit 927 836 987 1,250 2,276 3,469 4,717

Other income 3 36 63 - - - -

Marketing and promotional expenses -31 -46 -44 -69 -101 -140 -147

Operating and administrative expenses -90 -77 -72 -116 -170 -235 -247

Adj. Ebitda 809 750 933 1,065 2,004 3,094 4,323

Less: Contribution from New Legend -53 53

Depreciation and Amortization -52 -104 -127 -180 -333 -393 -473

Pre-opening expenses -210 -210 -210

Release of prepaid lease payments -12 -35 -51 -50 -50 -50 -50

Loss on disposal of property and equipment -0 - -7

Share based payment -35 -8 -52 -20 -15 -55 -21

One-off costs associated with the listing -11 -12 -105

Operating Profit 698 592 540 677 1,411 2,441 3,800

Interest income 0 2 25

Finance Costs -50 -63 -59 -135 -211 -211 -211

Profit before tax 648 531 507 542 1,200 2,230 3,589

Income tax expenses - 4 3 -5 -11 -14 -16

Profit for the year 648 535 510 538 1,189 2,216 3,573

Source: CLSA

Forecast 14% Ebitda and net profit growth in

2014CL

2Q14 Ebitda grew +9%



Figure 3

Macau Legend: Key events timeline

1Q 2014 Opening of new VIP gaming room

2Q 2014 Approval on VIE structure to fully consolidate earnings from New Legend Club

Sept 2014 Opening of Harbourview Hotel

End 2014 Completion of Phase I of the Marina

2Q 2015 Completion of F&B Colonnade

4Q 2015 Opening of Legend Palace Hotel

2Q 2016 Completion of the Dinosaur Museum & Live Performance Theatre

1Q 2017 Opening of Legendale Hotel

Source: CLSA

Figure 4

Redevelopment plan of Macau Fisherman’s Wharf

Source: CLSA, company data

Figure 5 Figure 6

Harbourview Hotel Legend Palace Hotel

Source: CLSA, company Source: CLSA, company

Macau Fisherman’s Wharf redevelopment to

complete in 2014-16

To add three casino-hotel towers to Macau

Fisherman’s Wharf



Figure 7 Figure 8

Legendale Hotel Macau Covered Entertainment Colonnade


Figure 9 Figure 10

Yacht Club and Pier Dinosaur Museum and Theatre


Figure 11

Company valuations

Company Code Price (lcc)

Target (lcc)

Upside (%)

Rec Mkt cap (US$m)

PE (x) EV/Ebitda (x) Div. yield (%)

13CL 14CL 15CL 13CL 14CL 15CL 13CL 14CL 15CL

Wynn Macau 1128 HK 32.1 61.0 90.0 BUY 21,316 20.3 18.4 20.3 15.8 13.8 11.2 3.9 3.9 3.9

Sands China 1928 HK 53.9 74.5 38.3 BUY 56,456 18.8 15.4 14.1 16.3 13.6 11.6 4.6 5.2 5.7

SJM 880 HK 20.2 34.3 70.2 BUY 14,667 13.8 11.1 10.4 11.2 6.9 5.9 5.1 6.3 6.7

MGM China 2282 HK 27.1 48.0 77.1 BUY 13,042 16.2 14.5 15.5 13.5 13.1 11.0 3.7 3.7 3.7

Galaxy 27 HK 61.6 100.0 62.3 BUY 33,884 20.6 17.9 14.5 17.1 14.2 10.7 1.5 1.5 1.6

Macau Legend 1680 HK 4.4 6.3 41.9 BUY 3,628 53.2 24.0 12.9 26.6 16.0 9.8 - - -

Louis XIII 577 HK 5.5 11.0 100.0 BUY 324 n.a. n.a. n.a. n.a. n.a. n.a. - - -

Source: CLSA



Summary financialsYear to 31 December 2012A 2013A 2014CL 2015CL 2016CLSummary P&L forecast (HK$m)Revenue 1,501 1,764 2,259 3,756 5,510Op Ebitda 752 933 1,117 2,004 3,094Op Ebit 648 806 936 1,671 2,701Interest income 2 25 0 0 0Interest expense (63) (59) (135) (211) (211)Other items (56) (266) (260) (260) (260)Profit before tax 531 507 541 1,200 2,230Taxation 4 3 (5) (11) (14)Minorities/Pref divs - - - - -Net profit 535 510 537 1,189 2,216

Summary cashflow forecast (HK$m)Operating profit 648 806 936 1,671 2,701Operating adjustments - - - - -Depreciation/amortisation 104 127 180 333 393Working capital changes 95 (160) 0 (18) (21)Net interest/taxes/other (18) (263) (265) (271) (274)Net operating cashflow 829 510 852 1,715 2,799Capital expenditure (8) (384) (3,650) (3,850) (700)Free cashflow 821 126 (2,798) (2,135) 2,099Acq/inv/disposals - - - - -Int, invt & associate div (669) 25 - - -Net investing cashflow (677) (359) (3,650) (3,850) (700)Increase in loans 10 0 1,350 1,350 0Dividends 0 0 0 0 0Net equity raised/other (121) 1,577 1,216 (211) (211)Net financing cashflow (111) 1,577 2,566 1,139 (211)Incr/(decr) in net cash 40 1,728 (232) (996) 1,889Exch rate movements 0 0 0 0 0Opening cash 72 112 1,835 1,603 607Closing cash 112 1,840 1,603 607 2,496

Summary balance sheet forecast (HK$m)Cash & equivalents 112 1,839 1,603 607 2,496Debtors 467 605 775 1,288 1,890Inventories - - - - -Other current assets 2,328 113 118 148 183Fixed assets 2,549 2,799 6,268 9,785 10,092Intangible assets 682 682 682 682 682Other term assets 1,783 1,775 1,775 1,775 1,775Total assets 7,921 7,813 11,221 14,285 17,117Short-term debt 334 356 356 356 356Creditors 541 619 793 1,319 1,935Other current liabs 119 2 2 2 2Long-term debt/CBs 1,405 1,049 2,399 3,749 3,749Provisions/other LT liabs 198 191 191 191 191Minorities/other equity 0 0 0 0 0Shareholder funds 5,324 5,596 7,480 8,669 10,885Total liabs & equity 7,921 7,813 11,221 14,285 17,117

Ratio analysisRevenue growth (% YoY) 11.5 17.5 28.1 66.3 46.7Ebitda growth (% YoY) (7.2) 24.1 19.7 79.5 54.4Ebitda margin (%) 50.1 52.9 49.4 53.4 56.2Net profit margin (%) 35.7 28.9 23.8 31.7 40.2Dividend payout (%) 0.0 0.0 0.0 0.0 0.0Effective tax rate (%) (0.8) (0.7) 0.9 0.9 0.6Ebitda/net int exp (x) 12.4 27.8 8.3 9.5 14.7Net debt/equity (%) 30.5 (7.8) 15.4 40.3 14.8ROE (%) 16.2 9.3 8.2 14.7 22.7ROIC (%) 13.0 13.0 13.1 15.6 21.4EVA®/IC (%) 4.6 4.6 4.7 7.3 13.1Source: CLSA



Companies mentionedMacau Legend (1680 HK - HK$4.32 - BUY)

Recommendation history of Macau Legend Development Ltd 1680 HK

Date Rec Target Date Rec Target29 Jul 2014 BUY 6.30 20 Sep 2013 BUY 4.0019 Feb 2014 U-PF 6.60 12 Aug 2013 BUY 3.4031 Oct 2013 O-PF 5.20Source: CLSA







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Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14

Aaron Fischer, CFAOther analystsNo coverage

BUYU-PFN-R

O-PFSELL


Li & FungHK$10.48 - OUTPERFORM

FinancialsYear to 31 December 13A 14CL 15CL 16CLRevenue (US$m) 19,041 20,561 22,185 23,949Net profit (US$m) 612 553 624 698Adjusted net profit (US$m) 544 515 670 743Adjusted net profit growth (% YoY) - (5.4) 30.1 10.9EPS (US¢) 7.3 6.6 7.5 8.4CL/consensus (19) (EPS%) - 94 94 97EPS growth (% YoY) - (9.7) 12.8 11.9PE (x) 18.5 20.4 18.1 16.2Dividend yield (%) 4.7 3.6 4.6 5.0ROE (%) 11.0 10.2 11.6 12.7Net debt/equity (%) 43.0 (3.7) (3.4) (1.6)Source: CLSA


Aaron Fischer, [email protected]+852 2600 8256

Mariana Kou, CFA+852 2600 8190

21 August 2014

Hong KongConsumer



12M hi/lo HK$12.48/9.47





Foreign s'holding 12.3%

Major shareholdersVictor and William Fung 30.7%Capital Group 10.0%


Absolute 2.5 (3.1) (10.1)Relative (4.0) (11.5) (21.5)Abs (US$) 2.5 (3.1) (10.1)

0

50

100

150

7.9

9.6

11.3

13.0

14.7

Aug 12 Feb 13 Aug 13 Feb 14Li & Fung (LHS)

Rel to HS I (RHS)

(HK$) (%)

Source: Bloomberg

www.clsa.com

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Fresh startLi & Fung reported its first set of results post the spin-off of GBG. Core OP was down -9% in the 1H, in line with our expectations that the company would be investing significantly this year. Trading turnover grew by +2% supported by new customers and market share gains. We believe that Li & Fung has returned to an asset-light business model and should see ROE improving over time, which should translate into multiple expansion. Maintain OPF to a price target of HK$11.20 based on 18x CY15 PE.

1H turnover +3%Li & Fung reported 1H turnover up +3%. The Trading business saw turnover up +2% supported by new customers such as Under Armour and market share gains within its top ten customers. Meanwhile, the logistics business benefited from cross-selling opportunities and the acquisition of China Container Line, resulting in a +44% jump in turnover.

Investment yearHowever, as we highlighted in our previous note, Li & Fung would be investing in headcounts for new customers as well as the VSS division in 2014. Hence, we should see margin pressure this year. Overall core OPM fell from 2.9% in 1H13 to 2.6% in 1H14. Core OP came in at US$227m, down -9% yoy. Adjusting for the one-off reorganization costs and non-cash M&A charges, recurring net profit was down -11% to US$147m.

Focus on organic growthManagement reiterated its three-year target: Trading core OP to exceed 2013’s group COP of US$871m; and Logistics core OP to double from 2013’s US$36m. Organic growth and cross-selling would be key drivers. Our 2016forecast of US$948 is roughly in line with management’s target. For 2014, we expect core OP to remain under pressure in the 2H. We forecast 2014 to finish at US$687m core OP, implying 2H to be down -6%. This translates into 1/3 core OP in the 1H, and 2/3 in the 2H.

Maintain OPFOur price target of HK$11.20 is based on 18x CY15 PE, which represents a 24% discount to the ten-year average PE of 23x. With 7% upside, we maintain our OPF rating. Post spin-off of GBG, we believe that Li & Fung has returned to its asset-light business model and would be a steady dividend play with around 4-5% yield, which could potentially be even higher.



Fresh start Li & Fung - O-PF


Fresh startFigure 1

1H14 financials by segment

Trading LogisticsUS$m 1H13 1H14 Change 1H13 1H14 ChangeTurnover 8,232 8,369 2% 243 349 44%Total margin 894 893 0% 90 102 13%% of turnover 10.9% 10.7% 37.2% 29.3%Operating costs 660 685 4% 76 84 10%Core OP 234 208 (11%) 14 19 31%% of turnover 2.8% 2.5% 5.9% 5.3%Source: CLSA, Company

Figure 2

Financial summary

US$m 1H13A 2H13A 2013A 1H14A 1H14CL 2014CL 2015CL 2016CL 13-16CLTurnover 8,467 10,574 19,041 8,710 11,852 20,561 22,185 23,949 7.9%growth (%) 2.9 12.1 8.0 7.9 7.9Gross profit 955 1,264 2,219 968 1,376 2,344 2,551 2,790 7.9%margin (%) 11.3 12.0 11.7 11.1 11.6 11.4 11.5 11.7growth (%) - - - 1.3 8.9 5.6 8.8 9.4Total margin 985 1,309 2,294 995 1,417 2,412 2,627 2,865 7.7%margin (%) 11.6 12.4 12.0 11.4 12.0 11.7 11.8 12.0growth - - - 1.0 8.2 5.1 8.9 9.1Core operating profit/(loss) 249 489 737 227 460 687 864 948 8.7%margin (%) 2.9 4.6 3.9 2.6 3.9 3.3 3.9 4.0growth (%) - - - (8.6) (5.8) (6.8) 25.8 9.7Net profit 96 467 563 111 343 455 624 698 7.4%margin (%) 1.1 4.4 3.0 1.3 2.9 2.2 2.8 2.9growth (%) - - - 15.6 (26.5) (19.3) 37.2 11.9Loss from discontinued operations 49 - 49 98 - 98 - -One-off reorganization costs - - - 13 - 13 - -Gain on remeasurement of contingent consideration payable - (113) (113) (98) - (98) - -Amortisation of other intangible assets 15 17 32 17 19 36 36 36Non-cash interest expenses 5 8 13 6 5 11 10 9Adjusted net profit 165 379 544 147 368 515 670 743 10.9%margin (%) 2.0 3.6 2.9 1.7 3.1 2.5 3.0 3.1growth (%) - - - (10.9) (3.1) (5.4) 30.1 10.9Source: CLSA, Company



Summary financialsYear to 31 December 2013A 2014CL 2015CL 2016CLSummary P&L forecast (US$m)Revenue 19,041 20,561 22,185 23,949Op Ebitda 1,131 1,062 1,141 1,225Op Ebit 812 743 822 906Interest income 18 22 21 20Interest expense (117) (117) (117) (117)Other items 0 0 0 0Profit before tax 714 648 727 809Taxation (72) (65) (73) (82)Minorities/Pref divs (30) (30) (30) (30)Net profit 612 553 624 698

Summary cashflow forecast (US$m)Operating profit 812 743 822 906Operating adjustments - - - -Depreciation/amortisation 319 319 319 319Working capital changes - - - -Net interest/taxes/other (1,131) (981) (391) (505)Net operating cashflow 0 81 751 720Capital expenditure (125) 176 (20) (20)Free cashflow (125) 256 731 700Acq/inv/disposals (178) 3,176 (100) (100)Int, invt & associate div 302 50 21 20Net investing cashflow 0 3,401 (99) (100)Increase in loans (7) (894) - -Dividends (332) (412) (519) (569)Net equity raised/other 796 (3,147) (147) (147)Net financing cashflow 457 (4,453) (666) (716)Incr/(decr) in net cash 457 (972) (14) (96)Exch rate movements 3 0 0 0Opening cash 0 3,125 2,152 2,138Closing cash 460 2,152 2,138 2,042

Summary balance sheet forecast (US$m)Cash & equivalents 460 2,152 2,138 2,041Debtors 2,735 3,115 3,167 3,582Inventories 1,100 1,283 1,286 1,483Other current assets 3 3 3 3Fixed assets 440 264 284 304Intangible assets 7,609 4,433 4,533 4,633Other term assets 120 72 75 79Total assets 12,465 11,322 11,485 12,125Short-term debt 132 222 222 222Creditors 3,814 3,806 3,854 4,353Other current liabs 135 112 118 123Long-term debt/CBs 2,715 1,731 1,731 1,731Provisions/other LT liabs 118 96 101 106Minorities/other equity 10 10 10 10Shareholder funds 5,540 5,345 5,450 5,579Total liabs & equity 12,465 11,322 11,485 12,125

Ratio analysisRevenue growth (% YoY) - 8.0 7.9 7.9Ebitda growth (% YoY) - (6.1) 7.4 7.3Ebitda margin (%) 5.9 5.2 5.1 5.1Net profit margin (%) 3.2 2.7 2.8 2.9Dividend payout (%) 85.8 74.6 83.2 81.5Effective tax rate (%) 10.1 10.1 10.1 10.1Ebitda/net int exp (x) 11.5 11.1 11.9 12.7Net debt/equity (%) 43.0 (3.7) (3.4) (1.6)ROE (%) 11.0 10.2 11.6 12.7ROIC (%) 9.4 10.1 13.9 14.9EVA®/IC (%) 1.8 2.5 6.4 7.3Source: CLSA



Companies mentionedLi & Fung (494 HK - HK$10.48 - OUTPERFORM)

Recommendation history of Li & Fung Ltd 494 HK

Date Rec Target Date Rec Target04 Jul 2014 O-PF 11.20 24 Sep 2012 SELL 10.6003 Jul 2014 BUY 14.00 10 Aug 2012 SELL 14.4020 Mar 2014 BUY 15.00 11 Jun 2012 O-PF 16.1013 Jan 2014 O-PF 12.30 23 Mar 2012 U-PF 18.5021 Mar 2013 U-PF 10.50 06 Jan 2012 U-PF 16.3013 Jan 2013 SELL 10.50 07 Oct 2011 O-PF 16.3011 Jan 2013 SELL 13.10 02 Sep 2011 O-PF 17.40Source: CLSA







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Aaron Fischer, CFAOther analystsNo coverage

BUYU-PFN-R

O-PFSELL


Soho ChinaHK$6.40 - UNDERPERFORM

FinancialsYear to 31 December 12A 13A 14CL 15CL 16CLRevenue (Rmbm) 16,143 14,621 5,776 2,233 2,313Net profit (Rmbm) 10,585 7,388 1,520 1,388 1,487NP forecast change (%) - - (3.4) (6.3) 2.3EPS (Rmb) 0.65 0.90 0.29 0.27 0.29CL/consensus (23) (EPS%) - - 71 111 129EPS growth (% YoY) 135.7 38.7 (67.7) (7.9) 7.1PE (x) 8.1 5.7 17.5 19.0 17.7Dividend yield (%) 4.8 4.9 4.9 4.9 4.9Net debt/equity (%) 2.6 17.1 18.2 18.8 18.3Source: CLSA


Susanna [email protected]+852 2600 8597

Nicole Wong+852 2600 8207

Oliver Lam+852 2600 8296

22 August 2014

ChinaProperty



12M hi/lo HK$7.14/5.56





Major shareholdersPan Shiyi 63.1%Oppenheimer Developing Markets Fund 6.0%


Absolute 4.1 6.0 (2.4)Relative (1.5) (3.2) (12.1)Abs (US$) 4.1 6.0 (2.4)

0

50

100

150

4.2

4.9

5.6

6.3

6.9

Aug-12 Feb-13 Aug-13 Feb-14Soho China (LHS)

Rel to CEI (RHS)

(HK$) (%)

Source: Bloomberg

www.clsa.com

Resu

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Transformation painSoho is starting to see some transformation pain from its mid-12 business model change from build-and-sell to build-and-hold as its property-sales pipeline diminishes. While rental income is ramping up from a growing completed portfolio, it is off a low base and uncertain given noncore disposals in Shanghai not ruled out by management. This is also against abackdrop of Shanghai and Beijing office markets seeing rental pressureover the past two and one quarters, respectively. Maintain U-PF.

1H14 snapshotSoho China’s 128% YoY growth 1H14 core earnings was off a low base, driven by 83% increase in GFA booked to 80,559sqm from completed inventories. With the completion of Wangjing SOHO in 2H13, development earnings would come off sharply in 2H and we are looking for underlying profit to decrease by 67% YoY in FY14CL. Completed rental portfolio is still too small to compensate for the decline despite 84% YoY jump in rental income to Rmb164m. With remaining saleable resources amounting to just Rmb1.2bn, we expect another 9% YoY decline in FY15CL earnings.

Shanghai and Beijing office markets seeing pressureShanghai and Beijing office markets have both seen contracting rents this year, down 1.8% in 1H14 and an initial dip of 0.1% QoQ during in 2Q14, respectively (source: DTZ). Shanghai saw 347k sqm of new office spacecompleted in 1H14 and with 280k sqm more in 2H14, vacancy rates and rental pressure could rise even further (up to 9.3% end-Jun from 8.6% end-Dec 13). On the other hand, Beijing vacancy came down from 2.6% end-Dec 13 to 2.3% end-Jun, with only 53ksqm of new supply, but rentals were impacted by weak MNC expansion demand.

SOHO’s Shanghai leasing more difficult in BeijingOccupancy of Wangjing SOHO Towers 1&2 has reached 83% (or 200k sqm) since leasing in Jan, but pre-leasing of its own Tower 3, which focuses on large-sized tenants, has reached 35% (or 44k sqm) since late April. However, leasing of its Shanghai properties, which account for two-thirds of its rental portfolio, is much slower. Only 20% of 57k sqm of office space (or 11k sqm)of SOHO Fuxing Plaza, completing in Aug, has been pre-let. Pre-leasing of Sky SOHO has not started despite completion in Oct.

Maintain UnderperformWe cut our earnings on slower-than-expected sales of remaining inventories and lower rental rates achieved. Our target price is unchanged at HK$6.5, set at 45% disc to our FY14CL NAV of HK$11.92.



Transformation pain Soho China - U-PF


Transformation painFigure 1

1H14 results snapshot

(Rmb m) 1H14(Restated)

1H13 YoY %

Turnover 4,750 2,596 83.0

Sale of property units 4,586 2,507 82.9

Rental income 164 89 83.5

COGS (2,360) (1,254) 88.1

Gross profit 2,391 1,342 78.1

Other gains, net 257 - N/A

Other operating revenue 172 82 109.2

Selling expenses (111) (84) 31.8

Administrative expenses (109) (114) (5.1)

Other operating expense (62) (57) 9.3

Operating profit 2,538 1,169 117.1

Finance income 381 369 3.3

Finance expense (188) (86) 119.7

Government grants - - N/A

Profit before tax 2,731 1,452 88.1

Tax (1,994) (1,433) 39.2

PRC enterprise income tax (668) (256) 160.8

LAT (732) (445) 64.6

Deferred tax (594) (732) (18.8)

Profit after tax 736 19 3,753.5

Non-controlling interests (15) (60) (74.5)

Valuation gains on IP 1,976 2,136 (7.5)

Reported net profit 2,697 2,094 28.8

Less: Exceptionals (1,473) (1,557) (5.4)

Core underlying profit 1,224 537 127.9

DPS (fen/share) 12 12 0.0Source: Company

1H14 core earnings (excl. revaluation gains on investment properties) was up 128% YoY to Rmb1,224m mainly due to more completed inventories booked in the interim period. However, we expect FY14 earnings to decline as the booking of Wangjing SOHO took place in 2H13 and diminished property sales pipeline as a result of the business strategy change.

Property development turnover increased by 83% to Rmb4,586m on the back of 97% YoY increase in GFA booked to 80,559sqm. Bookings mainly came from inventory units of Wangjing SOHO, Galaxy SOHO and SOHO Zhongshan Plaza, compared to the booking of Galaxy SOHO inventories in 1H13.

Rental income jumped 84% YoY to Rmb164m, thanks to higher average occupancy rate in SOHO Century Plaza and Qianmen project.

Net gearing (net debts over shareholder’s equity) came in at 15.4%, compared to 17.4% at end-Dec 13.

Interim DPS came in flat at Rmb12fen.



Figure 2

Beijing and Shanghai grade A office market rental growth

Source: DTZ

Figure 3

Beijing and Shanghai grade A office market vacancy rates

Source: DTZ

Figure 4

end-FY14CL NAV estimate

RMBm Rmb/sh % of GAV

Properties under development 21,802 4.19 33.2

Office 16,463 3.17 25.0

Retail 5,339 1.03 8.1

Completed rental properties 43,959 8.45 66.8

Office 27,997 5.38 42.6

Retail 15,447 2.97 23.5

Hotel 515 0.10 0.8

Gross asset value 65,761 12.65 100.0

LAT liability (7,086) (1.36)

Net (debt)/cash (9,766) (1.88)

Net asset value 48,909 9.41

NAV/share (HK$) 11.85Source: CLSA

Beijing office saw vacancy recovery due to lack of

new supply despite sluggish demand

Rental growth showing pressure across both

markets

Target price set at 45% discount to end-FY14CL

NAV estimate



Figure 5

China property valuation summary

Stock code

Rec Last close(LC)

Target(LC)

NAV(LC)

Disc to NAV(%)

FY14U/L PE

(x)

FY15U/L PE

(x)

FY16U/L PE

(x)

FY14Yield(%)

FY15Yield(%)

FY16Yield(%)

Agile 3383 HK BUY 6.2 8.5 16.9 (63.3) 5.1 4.1 3.4 4.9 6.2 7.3Vanke H 2202 HK BUY 15.3 20.0 N.A. N.A. 7.4 6.1 5.8 4.1 4.9 5.2COLI 688 HK BUY 23.0 29.5 29.5 (22.0) 8.4 7.0 6.1 2.4 2.8 3.3Country Garden 2007 HK SELL 3.7 3.0 8.5 (56.8) 5.8 4.9 4.3 6.1 7.3 8.4CRL 1109 HK BUY 18.6 23.0 31.1 (40.3) 9.9 9.0 7.8 2.4 3.0 3.5Evergrande 3333 HK U-PF 3.2 3.3 7.3 (55.6) 4.5 3.9 3.3 6.7 7.8 9.1Guangzhou R&F 2777 HK U-PF 10.8 10.5 27.0 (60.1) 4.8 3.9 3.3 7.3 9.0 10.7KWG 1813 HK BUY 5.8 6.3 11.7 (50.1) 4.6 3.7 3.1 5.4 6.9 8.6Longfor 960 HK BUY 10.5 13.8 21.0 (50.1) 6.7 5.3 4.0 3.0 3.8 5.0Shimao 813 HK BUY 16.9 20.2 26.2 (35.4) 5.5 4.5 3.5 5.1 6.2 7.9Soho China 410 HK U-PF 6.4 6.5 11.9 (46.0) 17.5 19.0 17.7 4.9 4.9 4.9COGO 81 HK U-PF 4.9 5.9 15.5 (68.1) 5.4 4.0 3.7 3.7 4.3 4.4Sunac 1918 HK BUY 6.4 7.7 11.0 (41.7) 3.2 2.4 2.1 4.0 4.6 4.7Source: CLSA



Summary financialsYear to 31 December 2012A 2013A 2014CL 2015CL 2016CLSummary P&L forecast (Rmbm)Revenue 16,143 14,621 5,776 2,233 2,313Op Ebitda 18,344 11,818 2,843 1,700 1,891Op Ebit 18,321 11,789 2,823 1,680 1,872Interest income 433 807 498 521 474Interest expense (558) (125) (121) (134) (136)Other items - 0 - - -Profit before tax 18,195 12,470 3,201 2,066 2,209Taxation (7,548) (5,034) (1,586) (565) (567)Minorities/Pref divs (62) (48) (95) (113) (156)Net profit 10,585 7,388 1,520 1,388 1,487

Summary cashflow forecast (Rmbm)Operating profit 18,321 11,789 2,823 1,680 1,872Operating adjustments (24) 137 (21) (19) (20)Depreciation/amortisation 23 29 20 20 19Working capital changes (889) (1,957) (676) (2,265) 220Net interest/taxes/other (12,368) (8,174) (3,030) (1,251) (1,024)Net operating cashflow 5,062 1,825 (884) (1,835) 1,066Capital expenditure (545) (6,472) 0 0 0Free cashflow 4,517 (4,648) (884) (1,835) 1,066Acq/inv/disposals (2,497) 2,005 3,055 - -Int, invt & associate div (2,367) - - - -Net investing cashflow (5,410) (4,467) 3,055 0 0Increase in loans 3,037 (3,494) 3,240 129 259Dividends (1,189) (1,224) (1,318) (1,300) (1,300)Net equity raised/other 5,800 (1,909) 0 0 0Net financing cashflow 7,648 (6,626) 1,922 (1,170) (1,041)Incr/(decr) in net cash 7,300 (9,269) 4,093 (3,005) 25Exch rate movements (10) (153) 0 0 0Opening cash 11,202 18,492 9,069 13,162 10,157Closing cash 18,492 9,069 13,162 10,157 10,182

Summary balance sheet forecast (Rmbm)Cash & equivalents 18,492 9,069 13,162 10,157 10,182Debtors 663 682 688 685 687Inventories 10,048 8,587 6,344 8,725 8,593Other current assets 6,169 3,674 3,864 3,769 3,817Fixed assets 38,992 49,401 70,242 86,016 89,763Intangible assets - - - - -Other term assets 6,213 6,410 5,232 5,232 5,232Total assets 80,578 77,823 99,533 114,585 118,273Short-term debt 3,922 2,760 1,371 2,741 482Creditors - - - - -Other current liabs 21,124 16,491 12,574 12,327 12,488Long-term debt/CBs 19,082 14,310 23,449 22,208 24,726Provisions/other LT liabs 4,738 5,776 5,786 5,801 5,816Minorities/other equity 1,011 1,025 1,120 1,233 1,389Shareholder funds 30,700 37,461 55,233 70,275 73,372Total liabs & equity 80,578 77,823 99,533 114,585 118,273

Ratio analysisRevenue growth (% YoY) 184.0 (9.4) (60.5) (61.3) 3.6Ebitda growth (% YoY) 183.5 (35.6) (75.9) (40.2) 11.2Ebitda margin (%) 113.6 80.8 49.2 76.1 81.8Net profit margin (%) 65.6 50.5 26.3 62.2 64.3Dividend payout (%) 38.7 27.9 86.3 93.6 87.4Effective tax rate (%) 41.5 40.4 49.6 27.3 25.6Ebitda/net int exp (x) 145.7 - - - -Net debt/equity (%) 14.2 20.8 20.7 20.7 20.1ROE (%) 40.4 21.7 3.3 2.2 2.1ROIC (%) 33.2 16.5 2.4 1.5 1.6EVA®/IC (%) 25.0 8.3 (5.7) (7.0) (7.0)Source: CLSA



Companies mentionedSoho China (410 HK - HK$6.40 - UNDERPERFORM)

Recommendation history of Soho China Ltd 410 HK

Date Rec Target Date Rec Target05 Mar 2014 U-PF 6.50 04 Jan 2012 U-PF 5.6021 Aug 2013 U-PF 6.60 25 Nov 2011 O-PF 6.0007 Mar 2013 U-PF 6.80 06 Oct 2011 O-PF 6.4017 Aug 2012 U-PF 5.90 26 Aug 2011 O-PF 8.3023 Apr 2012 U-PF 6.20Source: CLSA







5

6

7

8

Stoc

kprice

(HK

$)


Susanna LeungOther analystsNo coverage

BUYU-PFN-R

O-PFSELL


CREHK$23.25 - UNDERPERFORM

FinancialsYear to 31 December 12A 13A 14CL 15CL 16CLRevenue (HK$m) 126,236 146,413 165,976 187,490 205,430Rev forecast change (%) - - (1.5) (0.9) (1.1)Net profit (HK$m) 3,945 1,908 1,223 1,378 1,694NP forecast change (%) - - (28.6) (31.9) (30.6)EPS (HK¢) 63.5 68.3 50.6 56.8 69.5CL/consensus (21) (EPS%) - - 67 62 69EPS growth (% YoY) (19.2) 7.5 (25.9) 12.2 22.4PE (x) 36.6 34.0 46.0 41.0 33.5Dividend yield (%) 1.3 1.2 0.9 1.0 1.2ROE (%) 10.0 4.5 2.8 3.0 3.7Net debt/equity (%) 3.2 2.5 16.0 11.7 7.2Source: CLSA


Xiaopo Wei, [email protected]+852 2600 8639

Eddy Wang+852 2600 8670

21 August 2014

ChinaConsumer



12M hi/lo HK$27.80/19.18





Major shareholdersChina Resources National Corporation 51.5%


Absolute 7.6 2.4 (1.9)Relative 1.9 (6.4) (11.6)Abs (US$) 7.6 2.4 (1.8)

0

50

100

150

16

19

22

25

28

Aug 12 Feb 13 Aug 13 Feb 14CRE (LHS)

Rel to CEI (RHS)

(HK$) (%)

Source: Bloomberg

www.clsa.com

Resu

lts revie

w

Challenges aheadCRE’s 35% decline in 2Q14 core net profit was 10% below our expectation, given operating deleverage and drag of Tesco loss in retail division. We expect Tesco loss to significantly weigh on its retail business, which is likely to suffer from continuous operating deleverage in 2H14. Despite our long-term positive view on CRE, we see short-term pressure on the stock and downgrade our rec from O-PF to U-PF.

Retail business: declined SSS + 1-month loss drag of Tesco in 2Q14Its SSS declined by low-single digit in 2Q14 (vs 0.4% SSS drop in 1Q14). Its net loss in North and Northeast China widened HK$30m YoY (to HK$200m) in 2Q14 and HK$100m YoY (to HK$350m) in 1H14. Despite 60bps YoY expansion in GP margin (to c.22%), operating deleverage and 1-mth consolidation of Tesco loss (not disclosed) led to 80bps EBITDA margin contraction and HK$25m of net loss in 2Q14. Its sales of prepaid cards (rep 15-20% in-store purchase) dropped 20-30% YoY in 1H14.

Beer and beverage business: positive surprise in 2Q14With 8% of volume growth and 3% ASP hike, beer sales grew 11%. With eased input cost, beer GP margin expanded 1ppts YoY. Given quick ramp-up of Kingway, beer EBITDA margin dropped by only 40bps and net profit (after minorities) expanded 8% YoY in 2Q14. Beverage division (which is skewed twds bottled water, the best performing category in 1H14) saw 46% sales growth and 81% net profit (after minorities) expansion in 2Q14, off a low comp base. Its food business loss narrowed 56% QoQ to HK$22m in 2Q14.

Challenges in the next 6 months Due to more rainy days in Jul-Aug, beer volume slightly decreased in 3Q14, leading to pressure on beer business in 3Q peak sales season. SSS decline in July was in line with that in 2Q14. We expect SSS to decrease 1% in 2014. Management targets to turn around Tesco in 3 to 5 years (starting from 2H14). We anticipate Tesco JV to book HK$650m/820m/700m loss in 14/15/16CL. Management observes more operating challenges in hypermarket format than other smaller formats in China. It intends to shift some investment in hypermarket format onto its own e-commerce (via collaboration with Tesco). Nevertheless, we see hidden value in CRE’s small retail formats (eg convenient stores and standard supermarkets), which may have great potential to develop its own O2O model in the long term.

Downgraded to U-PFWith cuts in retail margins and a lift in Tesco loss projections in 14-16CL, wehave trimmed our 14/15/16CL earning fcsts by 29%/32%/31%. Our NAV-derived target price is lowered to HK$23.78.



Challenges ahead CRE - U-PF


1H14 results detailsFigure 1

1H14 results details

Source: CLSA

(HK$ m) 1Q13 1Q14 2Q13 2Q14 1H13 1H14REVENUERetail 25,923 28,081 21,984 24,508 47,907 52,589YoY growth 7% 8% 22% 11% 14% 10%Beer & Beverage 8,001 10,135 11,452 13,397 19,453 23,532YoY growth 19% 27% 12% 17% 15% 21%Beer 6,548 7,876 9,530 10,599 16,078 18,475YoY growth 13% 20% 8% 11% 10% 15%Beverage 1,453 2,259 1,922 2,798 3,375 5,057YoY growth 56% 55% 41% 46% 47% 50%Food processing and distribution 2,433 3,942 2,571 4,093 5,004 8,035YoY growth -6% 62% 1% 59% -2% 61%Core business Sub-total 36,357 42,158 36,007 41,998 72,364 84,156YoY growth 9% 16% 17% 17% 13% 16%Elimination of inter-segment transactions (204) (346) (303) (304) (507) (650)YoY growth 129% 70% 168% 0% 151% 28%Total revenue 36,153 41,812 35,704 41,694 71,857 83,506YoY growth 8% 16% 17% 17% 12% 16%

RECURRENT NET PROFITRetail 525 464 99 (25) 624 439YoY growth -6% -12% 10% -125% -4% -30%Beer & Beverage (15) 16 412 467 397 483YoY growth n.m. n.m. -5% 13% -2% 22%Beer (23) 6 381 411 358 417YoY growth -30% n.m. -7% 8% -5% 16%Beverage 8 10 31 56 39 66YoY growth 33% 25% 29% 81% 30% 69%Food processing and distribution 57 (50) 14 (22) 71 (72)YoY growth 0% n.m. -84% -257% -51% -201%Core business Sub-total 567 430 525 420 1,092 850YoY growth -4% -24% -14% -20% -9% -22%Net corporate interest and expenses (55) (81) (32) (101) (87) (182)YoY growth 83% 47% -16% 216% 28% 109%Total recurrent net profit 512 349 493 319 1,005 668YoY growth -9% -32% -14% -35% -11% -34%

RECURRENT NET MARGINRetail 2.0% 1.7% 0.5% -0.1% 1.3% 0.8%Beer -0.4% 0.1% 4.0% 3.9% 2.2% 2.3%Beverage 0.6% 0.4% 1.6% 2.0% 1.2% 1.3%Food processing and distribution 2.3% -1.3% 0.5% -0.5% 1.4% -0.9%Core net margin 1.6% 1.0% 1.5% 1.0% 1.5% 1.0%



Figure 2

1H14 sales breakdown

Source: Company, CLSA

Figure 3 Figure 4

Retail business quarterly net profits Quarterly retail EBITDA margin

Source: CLSA, Company Source: CLSA, Company

Figure 5

Quarterly retail store net addition*

Note: *Self-operated stores only; Store addition in 3Q11 include 155 acquired Sanjin pharmacy stores;Source: Company, CLSA

Retail62%

Beer22%

Beverage6% Food

10%

532

142 57 77

560

90 77

(202)

525

99 75 35

464

(25)

(300)

(200)

(100)

0

100

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300

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500

600

700

1Q

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4Q

13

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2Q

14

(HK$m)5.9

4.1

3.1 2.9

5.4

3.5

2.9

1.7

4.7

3.33.1

3.3

4.5

2.5

0

1

2

3

4

5

6

7

1Q 2Q 3Q 4Q

2011 2012Ebitda margin

119 78 105

226

131 139

380

164 112 109 132 106

52 57 75 56 35 27

146

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100

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1Q

14

2Q

14

CRE self-operated stores Tesco stores(stores)



Figure 6

Retail business* – summary P&L

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14Turnover 25,923 21,984 23,920 23,347 28,081 24,508YoY 7% 22% 14% 14% 8% 11%EBITDA 1,224 725 733 764 1,276 618YoY (6%) 16% 21% 124% 4% (15%)Earnings 525 99 75 35 464 (25)YoY (6%) 10% (3%) (117%) (12%) nmEBITDA margin 4.7 3.3 3.1 3.3 4.5 2.5Net margin 2.0 0.5 0.3 0.1 1.7 (0.1)

*Excluded property revaluation and disposal gains/losses. Source: Company, CLSA

Figure 7

Beer business – summary P&L

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14Turnover 6,548 9,530 11,332 5,584 7,876 10,599YoY 13% 8% 24% 31% 20% 11%EBITDA 436 1,492 2,290 197 672 1,619YoY 15% 8% 24% (12%) 54% 9%Earnings* (45) 747 1,469 (322) 12 806YoY (30%) (7%) 49% 198% (127%) 8%EBITDA margin 6.7 15.7 20.2 3.5 8.5 15.3Net margin* (0.7) 7.8 13.0 (5.8) 0.2 7.6

*At JV level; Source: Company, CLSA

Figure 8

Beverage business – summary P&L

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14Turnover 1,453 1,922 2,494 1,436 2,259 2,798YoY 56% 41% 54% 67% 55% 46%EBITDA 42 92 218 (28) 56 156YoY 17% 31% 48% (380%) 33% 70%Earnings* 8 31 90 (23) 10 56YoY 33% 29% 55% 1050% 25% 81%EBITDA margin 2.9 4.8 8.7 (1.9) 2.5 5.6Net margin* 0.6 1.6 3.6 (1.6) 0.4 2.0

*Attributable to CRE after MI; Source: Company, CLSA

Figure 9

Food business – summary P&L

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14Turnover 2,433 2,571 3,171 3,894 3,942 4,093YoY (6%) 1% 20% 48% 62% 59%EBITDA 142 109 134 24 69 98YoY (7%) (47%) (19%) (83%) (51%) (10%)Recurrent earnings 57 14 30 (48) (50) (22)YoY 0% (84%) (56%) nm nm nmEBITDA margin 5.8 4.2 4.2 0.6 1.8 2.4Net margin 2.3 0.5 0.9 (1.2) (1.3) (0.5)

Source: Company, CLSA



Figure 10

Malting barley cost trend

Source: Bloomberg, CLSA

Figure 11

Quarterly SSS growth of China retailers(%) 1Q11 2Q11 3Q11 4Q11 2011 1Q12 2Q12 3Q12 4Q12 2012 1Q13 2Q13 3Q13 4Q13 2013 1Q14 2Q14Belle -footwear

22 20 18.5 8.2 Over 15 2.8 10.5 2.8 3 4 4.5 0.5 1.3 1.3 2 mid-to-low

single digit

decline

Est. low-

single digit

declineBelle -sportswear

7 5.5 2.5 3.5 Mid-single

digit

(2.4) 5 3.6 10 Close to 4

11 2.5 4.5 5 5.5 mid-single

digit

Est. mid teen

Daphne 1 32 23 26 20.5 22 14 5 2 8 (2.5) (13.7) (18) -5.4 (10.4) (9.5) (2.4)Golden Eagle

29 28 27-28 18 25 9 8.2 Low-single

digit

Mid-single

digit

6.1 Mid-single

digit

About 6 Expected low-to-mid single

digit

Flat 2.9 Est. slightly decline

Est. mid-

single digit

declineParkson 13.9 12.5 12 8 11.4 2 4 (1) Low-

single digit

decline

0.4 (2.8) 2-3 (4.2) Low-single

digit decline

(1.8) (8.0) (8.0)

Intime 27 29.8 27.2 High-single

digit

23.1 9 9 4 High-single

digit

9.1 9.5 19 4.7 Low-single

digit

8.1 1.8 (7.0)

NWDS High teens

High teens

Mid teens

Low to mid

teens

Mid to high

teens

High-single

digit

High-single

digit

Mid-single

digit

Low-teen

High-single

digit

Expected Mid-

to-high single

digit

Expected mid-

teen

n.a. n.a. 0.4 for 1HFY14

n.a. n.a.

Trinity 17.4 in 1H11 12.8 in 2H11 15.1 2.5 in 1H12 9.1 decline in 2H12

3.5 decli

ne

6.0 decline in 1H13

No signs of recovery in Jul-Aug

11.1 n.a. n.a.

Anta High single-

digit

High single-

digit

Mid single-

digit

Flat Mid single-

digit

Low-single

digit decline

Mid to high-single

digit decline

Mid-single

digit decline

Mid-single

digit decline

Mid-single

digit decline

Largely flat

Largely flat

Largely flat

Mid-single

digit

Low-single

digit

Mid-single

digit

Low-teen

Sun Art 14 Low teens

9.5 2-3 8.8 3.2 in1H12

2-3 in 2H12 3.3 2-3 3-4 Flattish Single-digit

decline

2 1 (1)

CRE 12.7 12.1 10 High single-

digit

10.9 6.4 About 5 Low-single

digit

Low-single

digit

4.1 2.9 7-8 6-7 Low-single digit.

4.7 (0.4) 1-2 decline

Gome 7.6 7.2 4.1 5.9decline

3.1 34.4 decline

18.7 decline

16.3 decline

25 decline

24.5 decline

16.9 7.9 8.8 17 13.7 8.1 6-7

Notes: NWDS is converted into Rmb; CRE’s SSS growth only relates to its China supermarket division; Trinity SSS growth only relates to its stores in mainland China and Trinity figures are adjusted for exchange rate as reported SSS growth is in HK$ terms; Source: Company, CLSA

150

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-12

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Apr-

13

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Oct

-13

Jan-1

4

Apr-

14

Jul-

14

(AUD/MT)



Figure 12

NAV calculation

FY15 Valuation Target multiple (x)

Valuation metrics

Reference FY15Valuation

(HK$m)

HK$/share

% of EV

China supermarket 0.12 EV/Sales 80% discount to Sun Art

9,487 3.93 14.1

Hong Kong supermarket 15.3 EV/EBITDA Dairy Farm 387 0.16 0.6Hong Kong investment property Book value 20% discount to

BV12,800 5.31 19.1

Retail division (incl retail property) 22,675 9.40 33.8Beer and beverage division 13.2 EV/EBITDA Tsingtao 42,161 17.47 62.9Food processing division 13.2 EV/EBITDA 20% premium

to Yurun2,217 0.92 3.3

Total attributable EV, excl investments 67,053 27.79 100Minus: Net debt (9,687) (4.01)Total NAV 57,366 23.78NAV per share (HK$) 23.78Discount to NAV 0%Target Price (HK$) 23.78Upside/downside 2%Source: CLSA

Figure 13

CRE – NAV premium/discount

Source: CLSA

Figure 14

NAV breakdown (before net debts)

Source: CLSA

-50

-40

-30

-20

-10

0

10

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Jul-14

NAV (LHS) Premium/(discount) to NAV(%)HK$

Hong Kong investment property

19%Hong Kong retail division

1%

China Retail division

14%

Beer and beverage division

63%

Food processing division

3%



Figure 15

Key assumptions and detailed forecast – China supermarket

Year to 31 December 12A 13A 14CL 15CL 16CLNo. of self-owned stores by year-end 3,472 3,772 3,872 4,022 4,222Growth of year-end store count 15% 9% 3% 4% 5%Average No. of self-owned stores 3,243 3,622 3,822 3,947 4,122SSS growth in Rmb terms 4.0% 5.5% (1.1%) 3.0% 4.7%Revenue 80,073 91,990 96,083 102,234 111,161Growth 19% 15% 4% 6% 9%EBITDA 2,722 3,036 2,690 2,863 3,113Growth 15% 12% (11%) 6% 9%EBITDA margin 3.4% 3.3% 2.8% 2.8% 2.8%EBIT 1,281 1,380 961 1,022 1,112Growth 5% 8% (30%) 6% 9%EBIT margin 1.6% 1.5% 1.0% 1.0% 1.0%Source: CLSA

Figure 16

Key assumptions and detailed forecast – beer and beverage segment

Year to 31 December 12CL 13A 14CL 15CL 16CLBeer sales volume (thousand tonnes) 10,639 11,722 12,425 13,171 14,225Growth of beer sales volume 4% 10% 6% 6% 8%Beer ASP in Rmb terms (Rmb/tonne) 2,354 2,511 2,612 2,716 2,852ASP growth in Rmb terms 1% 7% 4% 4% 5%Water sales volume (thousand tonnes) 3,507 4,930 5,916 6,626 7,421Growth of water sales volume 33% 41% 20% 12% 12%Water ASP in HK$ terms (HK$/ton) 1,216 1,350 1,377 1,377 1,377Growth of water ASP 14% 11% 2% 0% 0%Revenue 32,830 40,299 45,285 50,102 56,703Growth 10% 23% 12% 11% 13%Core EBITDA* 4,087 4,739 5,615 6,263 7,258Growth 9% 16% 18% 12% 16%Core EBITDA margin 12.4% 11.8% 12.4% 12.5% 12.8%EBITDA 4,087 4,739 5,615 6,263 7,258Growth 9% 16% 18% 12% 16%EBITDA margin 12.4% 11.8% 12.4% 12.5% 12.8%Core EBIT* 2,543 2,805 3,261 3,657 4,309Growth 8% 10% 16% 12% 18%Core EBIT margin 7.7% 7.0% 7.2% 7.3% 7.6%EBIT 2,543 2,805 3,261 3,657 4,309Growth 8% 10% 16% 12% 18%EBIT margin 7.7% 7.0% 7.2% 7.3% 7.6%Source: CLSA



Figure 17

Staples valuation matrix


C ode C ompany C LSA M kt C ap PE ( x) EPSg ( %) PB ( x) R OE ( %) Y ield ( %)

R ec ( U S$m) 13 14 15 13 14 15 14 14 14

A lcoho lic d r inks

600519 CH Kweichow M outai NR CNY 159.97 29,686 12.4 11.3 10.2 11 10 11 3.4 31.0 3.3

000858 CH Wuliangye Yibin NR CNY 19.42 11,979 8.8 10.6 9.7 (15) (18) 10 1.8 17.4 2.9

600809 CH Shanxi Xinghua NR CNY 16.18 2,276 10.5 17.2 18.8 0 (39) (8) 3.1 13.8 1.6

002304 CH Jiangsu Yanghe NR CNY 63.73 11,147 13.0 14.2 12.9 (14) (9) 10 3.2 23.6 2.7

291 HK CRE U-PF HKD 23.25 7,455 34.0 46.0 41.0 7 (26) 12 1.2 2.8 0.9

200869 CH Yantai Changyu NR HKD 23.40 2,822 10.1 11.7 11.2 (26) (14) 5 1.9 15.4 3.4

168 HK Tsingtao U-PF HKD 58.70 9,583 39.8 31.2 25.9 5 28 20 4.0 15.1 1.1

000729 CH Yanjing Brewery NR CNY 6.59 3,008 22.5 22.0 20.2 19 2 9 1.5 6.4 1.4

506 HK China Foods NR HKD 2.98 1,076 n.m. n.m. 34.3 (283) n.m. (769) 1.4 (0.9) 0.1

A verage 8 ,78 1 18 .9 18 .9 19 .0 ( 3 3 ) ( 4 ) ( 77) 2 .4 14 .0 2 .0

M eat p rocessing companies

1068 HK Yurun Food SELL HKD 4.02 943 (6.6) (11.0) (96.7) n.m. n.m. n.m. 0.5 (1.7) 0.0

000895 CH Shuanghui NR CNY 36.16 12,930 20.4 16.2 13.5 35 26 19 4.9 30.1 4.3

829 HK Shenguan NR HKD 2.90 1,244 10.2 10.5 9.9 0 (2) 6 2.6 27.4 6.1

A verage 5,0 3 9 8 .0 5.2 ( 2 4 .4 ) 18 12 13 2 .7 18 .6 3 .4

Ot her F&B companies

322 HK Tingyi SELL HKD 22.40 16,403 39.3 32.7 28.1 14 20 16 5.1 16.4 1.5

151 HK Want Want BUY HKD 10.76 18,830 26.7 23.9 20.0 24 12 20 8.2 36.6 2.5

2319 HK M engniu Dairy BUY HKD 37.45 9,602 33.3 28.7 22.2 26 16 29 2.7 11.1 0.8

6863 HK Huishan Dairy BUY HKD 1.80 3,420 19.3 11.8 9.2 40 18 28 1.4 12.7 1.5

600887 CH Yili NR CNY 25.95 12,922 26.3 20.9 17.0 38 26 22 4.2 20.6 2.1

220 HK Uni-President China U-PF HKD 7.20 4,068 25.2 32.0 28.9 (3) (21) 11 2.1 7.1 0.6

A verage 10 ,8 74 2 8 .3 2 5.0 2 0 .9 2 3 12 2 1 4 .0 17.4 1.5

Househo ld consumer p roduct

1044 HK Hengan BUY HKD 84.15 13,296 27.8 24.8 21.2 6 12 17 5.6 24.0 2.4

3331 HK Vinda BUY HKD 12.38 1,620 22.8 25.0 18.6 2 (9) 34 2.4 10.2 0.9

A verage 7,4 58 2 5.3 2 4 .9 19 .9 4 2 2 6 4 .0 17.1 1.7

Pr ice



Figure 18

Valuation matrix – consumer discretionary


Co de C ompany CLSA M kt C ap PE ( x) EPSg ( %) PB ( x) R OE ( %) Y ield ( %)

R ec ( U S$m) 13 14 15 13 14 15 14 14 14

Dep art ment st o res

3368 HK Parkson Retail Grp SELL HKD 2.69 986 17.0 16.5 15.5 (58) 3 7 1.0 6.3 2.7

1212 HK Lifestyle U-PF HKD 14.38 2,985 9.7 10.9 9.5 20 (11) 14 2.0 19.5 3.7

3308 HK Golden Eagle O-PF HKD 10.28 2,365 12.5 12.2 10.9 6 2 12 2.4 21.5 2.5

1833 HK Int ime O-PF HKD 7.45 2,084 13.8 16.7 14.6 12 (17) 14 1.3 10.5 2.2

Average 2 ,10 5 13 .2 14 .1 12 .6 ( 5) ( 6 ) 12 1.7 14 .4 2 .8

Spo rt swear

2331 HK Li Ning SELL HKD 4.44 775 (11.8) (11.5) 30.6 n.m. n.m. (138) 2.6 (20.5) 0.0

2020 HK Anta Sports BUY HKD 15.26 4,733 23.0 19.6 17.1 (3) 17 15 3.9 20.7 3.1

3818 HK Dongxiang SELL HKD 1.71 1,186 31.5 33.0 31.8 (1) (5) 4 0.9 2.6 2.1

1368 HK Xtep Internat ional NR HKD 3.34 938 9.2 10.1 9.4 (22) (9) 8 1.2 12.6 5.6

1968 HK Peak Sport NR HKD 2.25 609 15.7 12.3 10.5 (23) 27 17 0.9 7.3 4.6

1361 HK 361 Degrees NR HKD 2.35 627 14.7 10.1 9.1 (63) 46 11 0.8 7.3 3.8

Average 1,4 78 13 .7 12 .3 18 .1 ( 2 2 ) 15 ( 14 ) 1.7 5.0 3 .2

Hypermarket s and sup er cent res

291 HK CRE U-PF HKD 23.25 7,455 34.0 46.0 41.0 7 (26) 12 1.2 2.8 0.9

1025 HK Wumart NR HKD 7.33 1,212 12.1 14.4 12.8 2 (16) 13 1.9 12.1 3.4

980 HK Lianhua NR HKD 4.70 679 20.6 23.3 18.5 (40) (12) 26 1.2 4.4 1.9

814 HK Beijing Jingkelong NR HKD 2.15 114 11.4 12.2 10.3 (40) (7) 18 0.4 3.5 5.6

6808 HK Sun Art SELL HKD 9.00 11,287 24.6 23.4 21.9 15 5 7 3.5 15.2 1.3

Average 4 ,14 9 2 0 .5 2 1.2 18 .3 ( 11) ( 5) 16 1.7 7.8 2 .7

Fashion ret ai lers

238 HK Evergreen Int l U-PF HKD 1.04 125 10.2 13.8 12.7 (50) (26) 8 0.6 4.1 4.0

1880 HK Belle Int l BUY HKD 9.88 10,642 14.7 14.1 12.4 3 4 13 2.3 17.4 2.8

210 HK Daphne BUY HKD 3.89 828 16.8 13.9 11.6 (54) 21 20 1.3 9.8 2.9

1028 HK Hongguo NR HKD 2.55 658 15.6 13.8 11.9 (17) 13 16 2.6 18.5 2.4

891 HK Trinity O-PF HKD 2.01 429 11.4 16.6 12.3 (44) (31) 35 1.0 6.1 4.2

1234 HK Lilang SELL HKD 5.46 832 10.1 10.8 10.7 (18) (7) 1 1.9 18.5 4.7

Average 2 ,2 52 13 .1 13 .8 12 .0 ( 3 0 ) ( 4 ) 15 1.6 12 .4 3 .5

Co nsumer elect ronics

493 HK Gome BUY HKD 1.31 2,801 19.6 14.7 12.7 n.m. 33 16 1.1 7.3 2.0

002024 CH Suning NR CNY 8.11 9,730 119.3 n.m. n.m. (82) (224) (42) 2.1 (3.1) 0.5

751 HK Skyworth NR HKD 4.20 1,534 7.1 8.7 7.3 24 (18) 19 1.1 13.1 3.7

1169 HK Haier Electronics NR HKD 23.05 7,976 23.3 20.1 16.7 11 16 21 4.6 25.6 0.5

Average 5,510 4 2 .3 14 .5 12 .2 ( 15) ( 4 8 ) 3 2 .2 10 .7 1.7

Ap parel manuf act urers ( t ext ile and f oot wear)

551 HK Yue Yuen NR HKD 25 5,319 12.7 13.0 10.6 (10) (2) 22 1.2 9.2 3.9

2313 HK Shenzhou Int l BUY HKD 23.6 4,224 14.2 12.1 10.3 6 17 17 2.2 19.6 3.8

1836 HK Stella Internat ional U-PF HKD 21.95 2,224 18.7 17.4 15.4 (20) 8 13 2.3 13.5 4.0

1382 HK Pacif ic Textiles NR HKD 9.28 1,732 14.4 11.8 12.4 4 22 (5) 3.3 28.4 7.5

Average 3 ,3 75 15.0 13 .6 12 .2 ( 5) 11 12 2 .3 17.7 4 .8

Pr ice



Summary financialsYear to 31 December 2012A 2013A 2014CL 2015CL 2016CLSummary P&L forecast (HK$m)Revenue 126,236 146,413 165,976 187,490 205,430Op Ebitda 7,039 8,225 8,176 9,117 10,475Op Ebit 4,156 4,507 3,397 3,779 4,724Interest income 386 534 298 56 46Interest expense (361) (304) (434) (275) (200)Other items 2,472 309 25 25 25Profit before tax 6,653 5,046 3,286 3,585 4,595Taxation (1,631) (1,894) (1,265) (1,326) (1,700)Minorities/Pref divs (1,077) (1,244) (798) (881) (1,201)Net profit 3,945 1,908 1,223 1,378 1,694

Summary cashflow forecast (HK$m)Operating profit 4,156 4,507 3,397 3,779 4,724Operating adjustments - - - - -Depreciation/amortisation 2,883 3,718 4,779 5,338 5,751Working capital changes 0 0 0 0 0Net interest/taxes/other 1,900 2,555 (7,733) 1,819 996Net operating cashflow 8,939 10,780 442 10,936 11,471Capital expenditure (8,908) (7,191) (8,000) (7,200) (7,200)Free cashflow 31 3,589 (7,558) 3,736 4,271Acq/inv/disposals 254 (4,359) 142 - -Int, invt & associate div (2,334) 1,709 634 56 46Net investing cashflow (10,988) (9,841) (7,224) (7,144) (7,154)Increase in loans 1,363 5,104 (10,703) (2,000) (4,000)Dividends (1,239) (797) (968) (1,080) (1,398)Net equity raised/other (303) (316) (434) (275) (200)Net financing cashflow (179) 3,991 (12,105) (3,355) (5,598)Incr/(decr) in net cash (2,228) 4,930 (18,887) 437 (1,281)Exch rate movements (23) 265 0 0 0Opening cash 18,256 16,005 21,200 2,313 2,750Closing cash 16,005 21,200 2,313 2,750 1,469

Summary balance sheet forecast (HK$m)Cash & equivalents 16,005 21,200 2,313 2,750 1,469Debtors 1,466 2,308 2,046 2,312 2,533Inventories 21,242 25,021 27,899 31,556 34,614Other current assets 12,794 14,707 13,662 15,430 16,905Fixed assets 56,971 69,117 72,172 73,845 75,087Intangible assets 295 562 450 360 288Other term assets 18,715 22,374 21,381 21,406 21,431Total assets 127,488 155,289 139,923 147,659 152,326Short-term debt 4,374 3,357 2,000 2,000 2,000Creditors 20,288 25,822 26,156 29,584 32,450Other current liabs 33,522 44,511 38,362 43,390 47,594Long-term debt/CBs 13,352 19,346 10,000 8,000 4,000Provisions/other LT liabs 2,168 2,642 2,742 2,842 2,942Minorities/other equity 13,042 15,538 15,857 16,210 16,690Shareholder funds 40,742 44,073 44,807 45,633 46,649Total liabs & equity 127,488 155,289 139,923 147,659 152,326

Ratio analysisRevenue growth (% YoY) 14.6 16.0 13.4 13.0 9.6Ebitda growth (% YoY) 1.5 16.8 (0.6) 11.5 14.9Ebitda margin (%) 5.6 5.6 4.9 4.9 5.1Net profit margin (%) 3.1 1.3 0.7 0.7 0.8Dividend payout (%) 47.2 39.6 40.2 40.2 40.2Effective tax rate (%) 24.5 37.5 38.5 37.0 37.0Ebitda/net int exp (x) - - 60.3 41.6 68.2Net debt/equity (%) 3.2 2.5 16.0 11.7 7.2ROE (%) 10.0 4.5 2.8 3.0 3.7ROIC (%) 5.9 4.7 3.1 3.3 4.2EVA®/IC (%) (3.6) (4.6) (6.2) (6.0) (5.1)Source: CLSA



Companies mentionedCRE (291 HK - HK$23.25 - UNDERPERFORM)

Recommendation history of China Resources Enterprise Ltd 291 HK

Date Rec Target Date Rec Target27 May 2014 O-PF 26.30 20 Aug 2012 O-PF 27.9921 Mar 2014 BUY 26.60 22 Jul 2012 O-PF 23.6029 Jan 2014 BUY 29.50 05 Jun 2012 O-PF 27.5515 Nov 2013 O-PF 32.00 22 Mar 2012 O-PF 33.0822 Aug 2013 O-PF 27.80 06 Jan 2012 BUY 32.7226 Jun 2013 O-PF 26.76 18 Nov 2011 O-PF 31.8812 Apr 2013 O-PF 28.96 26 Oct 2011 O-PF 34.2422 Mar 2013 O-PF 26.67 29 Sep 2011 O-PF 34.4230 Nov 2012 O-PF 31.36 26 Aug 2011 O-PF 36.6622 Nov 2012 O-PF 28.62Source: CLSA

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Xiaopo Wei, CFAOther analystsNo coverage

BUYU-PFN-R

O-PFSELL

China ppsStrategy

China manufacturing PMI

Source: CEIC, CLSA

Find CLSA research on Bloomberg, Thomson Reuters, CapIQ and themarkets.com - and profit from our evalu@tor® proprietary database at clsa.com

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51

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60

2010 2011 2012 2013 2014

(%)

NBS

Markit

Francis Cheung, [email protected]+852 2600 8548

Jack Yu+852 2600 8393

21 August 2014

ChinaStrategy

www.clsa.com

August PMI - Past the peakq We had expected the manufacturing PMIs were near peak last month, but

the pace of decline is faster than expected. The flash August HSBC/MarkitPMI slowed significantly down 1.4ppts from July's 51.7 to 50.3, missing consensus estimate at 51.5 by a wide margin. This is also the sharpest pace of decline in 18 months since Feb-2013. There has been increasing volatility in PMIs as it is increasingly difficult to sustain high growth and the marginal impact of government stimulus is declining. The economic recovery is far from stable and we would be cautious on the market especially after the recent rally.

q The weak PMI followed the unexpected slowdown in July’s aggregate financing to Rmb273bn. The PBOC is likely a reluctant partner in the stimulus and will unlikely allow credit to significantly accelerate given already fast pace of growth. Credit availability could improve in August, but stimulus is temporary by definition. The gov’t cannot afford to repeat the same mistakes in the previous cycles.

q Property correction continues to be the major drag on the economy and loosening of home buying restrictions is not enough to offset the structural problems. We maintain our view since May that market would rally with stimulus and that rally would fade by 3Q.

q The flash PMI was weak across the board. Output, new orders, new export orders, backlogs of work and quantity of purchases all increased at a slower rate. Output index slowed from 52.8 in July to 51.3 in August, while new order index similarly declined to 51.3 (July: 53.3).

q Both input and output prices had turned into contraction. Manufacturers are also destocking both raw materials and finished goods. This is likely driven by weak commodity prices, as coal, cement, and steel prices continued to slide since July. This should imply renewed deflationary pressure in PPI, as coal, steel and cement prices at are currently about 2% to 9% lower than end-June levels.

q The through train could provide excitement, but we believe the market will still be driven more by strength and health of the economy than liquidity. The through train opportunity is for arbitrage and individual stocks, rather than the broad market.

Past the peak ChinaOpps

2 [email protected] 21 August 2014

Figure 1

HSCB/Markit flash manufacturing PMI summary

PMI Increase, slower rateOutput Increase, slower rateNew Orders Increase, slower rateNew Export Orders Increase, slower rateEmployment Decrease, faster rateBacklogs of Work Increase, slower rateOutput Prices Decrease, change of directionInput Prices Decrease, change of directionStocks of Purchases Decrease, change of directionStocks of Finished Goods Decrease, rate unchangedQuantity of Purchases Increase, slower rateSupplier’s Delivery Times Lengthening, faster rateSource: Market Economics

Figure 2

Markit PMI vs. Outstanding TSF growth

Source: CEIC, CLSA

Figure 3

HSBC/Markit manufacturing PMI: Sub-components

Source: CEIC, CLSA

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Key components including output, new orders and employment all slowed

Sub-components saw across-board declining

Weak PMI followed the unexpected slowdown in

July’s aggregate financing

Past the peak ChinaOpps


Figure 4

HSBC/Markit manufacturing PMI monthly change

Source: CEIC, CLSA



©2014 CLSA Limited (for research compiled by non-Taiwan analyst(s)) and/or Credit Agricole Securities Taiwan Co., Ltd (for research compiled by Taiwan analyst(s)). Note: In the interests of timeliness, this document has not been edited.The analyst/s who compiled this publication/communication hereby state/s and confirm/s that the contents hereof truly reflect his/her/their views and opinions on the subject matter and that the analyst/s has/have not been placed under any undue influence, intervention or pressure by any person/s in compiling such publication/communication.



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Pace of PMI decline is faster than expected


Kerry PropertiesHK$27.60 - UNDERPERFORM

FinancialsYear to 31 December 12A 13A 14CL 15CL 16CLRevenue (HK$m) 34,513 33,158 15,034 14,454 17,413Adjusted net profit (HK$m) 4,696 8,738 3,160 3,534 3,624NP forecast change (%) - - (1.1) 3.2 5.9Adjusted EPS (HK¢) 326.4 606.4 218.8 244.7 250.9CL/consensus (15) (EPS%) - - 88 97 96Adj EPS growth (% YoY) 28.3 85.8 (63.9) 11.8 2.6Adjusted PE (x) 8.5 4.6 12.6 11.3 11.0Dividend yield (%) 3.4 3.3 2.9 2.9 2.9Net debt/equity (%) 18.8 26.4 27.6 27.2 27.7Source: CLSA




Oliver Lam+852 2600 8296

22 August 2014

Hong KongProperty



12M hi/lo HK$31.15/22.75

12M price target HK$26.80±% potential -3%




Major shareholdersKerry Group 57.0%


Absolute 0.0 11.7 (0.5)Relative (6.4) 2.1 (13.2)Abs (US$) 0.0 11.8 (0.5)

0

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Aug-12 Feb-13 Aug-13 Feb-14Kerry Properties (LHS)

Rel to HS I (RHS)

(HK$) (%)

Source: Bloomberg

www.clsa.com

Resu

lts revie

w

Cheap for a reasonKerry’s more HK launches in 2H and the recent disposal of Lions Rise mallmay help close the funding gap as a result of weak China property sales but room for gearing to improve looks limited due to funding needs for its China rental properties under development. Meanwhile, its HK property sales will still be affected by policies given its high-end concentrated pipeline. Its wide disc is justified in our view, given an unappealing growth prospect with mediocre development earnings trend and relatively high gearing.

Earnings decline, higher gearing, another DPS cut Kerry’s 21% decline in 1H14 underlying profit was attributable to 78% YoY decrease in China development property profit and loss of income post the spin-off of logistics arm notwithstanding the booking of The Summa in HK (+29% YoY) and new China rental contributions. Interim DPS was cut the second time to HK$0.3 on earnings decline though payout ratio was higher at 24% vs. 22.0% in 1H13. Net gearing edged up marginally to 32% vs 31% end-13, one of the highest among the HK developers.

HK property sales on track to sales targetIncluding the latest launch of Ede Road project, Kerry has sold HK$5.1bn YTD, which is 78% of its HK$6.5bn FY14 target. While we expect the sale of Ede Road project to be steady given the hefty entry price of HK$50m at an ASP of ~HK$36k/sf, it should still be able to achieve its sales target with two more launches scheduled for launch in 2H14, LaSalle Road project (Sep) and Dragons Range (Kau To) by year end. The success of Dragons range launch is key to FY15 earnings as this is the only project on completion in next year.

Weak China property sales remain the dragIt contracted HK$2.1bn of residential sales in 1H and reached HK$2.6bn as of 18 Aug, just 47% of its FY14 target of HK$5.5bn. As the upcoming new launches are concentrated in 4Q, we believe there is a high possibility of missing the target, hence, we cut our sales forecast from HK$5.8bn to HK$4.8bn. The new Shanghai Jingan Kerry Centre mall is unlikely to give any positive surprises following our recent visit and weak luxury retail sales.

Maintain UnderperformWe think its wide NAV disc at 48%, 1 SD below 5-year average of 38%, is justified given the lack of earnings/growth visibility due to a high-end concentrated pipeline and relatively high gearing. Div yield is also unenticing given the lacklustre earnings profile. Our HK$26.8 PT is set at 50% disc(unchanged) to NAV of HK$53.53.



Cheap for a reason Kerry Properties - U-PF


Cheap for some reasonsFigure 1


(HK$m) 1H14(Restated)

1H13 y-y%

Turnover 6,174 17,254 (64.2)

Property rental 1,152 750 53.6

- PRC 815 394 107.0

- HK 337 356 (5.4)

Property sales 2,034 2,500 (18.7)

- PRC 252 1,122 (77.5)

- HK 1,782 1,378 29.3

Hotel operations 49 19 162.0

Logistics and warehouse - 1,448 (100.0)

Gross profit 3,234 4,716 (31.4)

Other income and net gains 171 189 (9.8)

Administrative and other operating expenses (601) (1,243) (51.7)

Finance costs (310) (229) 35.8

Operating profit 2,494 3,433 (27.4)

Share of results of associates 462 302 53.0

Profit before taxation 2,956 3,736 (20.9)

Taxation and minority interests (1,152) (1,441) (20.0)

Underlying net profit 1,804 2,295 (21.4)

FV gain in IPs, related tax & effects 586 3,080 (81.0)

Reported net profit 2,390 5,375 (55.5)Source: Company

Stripping out the revaluation gain, Kerry’s 1H14 underlying profit came down by 21% YoY to HK$1,804m, mainly due to lower development profit in China and loss of income due to the spin-off of logistics operations.

HK property development: Gross profit increased by 29% YoY (or HK$404m) to HK$1,782m, on the booking of higher profit-margin project, The Summa and inventories of The Altitude and Lions Rise, versus the booking of SOHO 189 and inventories of Lions Rise and The Altitude in 1H13.

China property development: China development property profit decreased by 78% YoY (or HK$870m) to HK$252m, mainly coming from recognised sales of completed properties including Parkview Residences (Phase II) in Hangzhou, Chengdu Metropolis-Arcadia Phase I.

China rental: China rental income and gross profit grew by 96% YoY to HK$1,037m and 107% YoY to HK$815m respectively on new contribution from Jingan Kerry Centre in Shanghai.

Hong Kong rental: Hong Kong rental income and profit came down by 3% YoY to HK$437m and 5% YoY to HK$337m respectively with the commencement of refurbishment works at Branksome Grande in April. End-Jun occupancy rates in residential portfolio (excluding Branksome Grande) increased to 97% (end-13: 93%); commercial at 97% (end-13/Jun-13:97%); and office at 95% (end-13/Jun-13: 98%).

Net gearing: Net gearing edged up to 32% at end-Jun, from 31% at Dec-13, on 3% increase in net debts.



Interim DPS was cut the second time to HK$0.3, from HK$0.35 in 1H13 (vs 1H12: HK$0.4), which implies underlying payout ratio of 24% (1H13: 22%).

Figure 2

Potential new project launches in 2014

Project Stake (%)

No. of units

Average size, approx. (sf)

1H14The Summa (launched) 71 168 753

1792H14One & Three Ede Road, Kowloon Tong 100 41 1,409-2,527;

4,412 (house)8 LaSalle Road, Homantin 100 56 1,087STTL 525, Kau To, Shatin 40 973 1,060Total 1,070Source: Company, CLSA

Figure 3 Figure 4

Outside Jing An Kerry Centre mall Still some empty space

Source: CLSA Source: CLSA

Mainly large units in the New Territories and

outlying islands



Figure 5 Figure 6

Hardly anyone The top floors


Figure 7

Kerry FY14CL NAV breakdown

(HK$mn) (HK$/sh) % of Total

Rental properties - Hong Kong 22,100 15.30 21.6

Residential 11,326 7.84 11.1

Office 3,634 2.52 3.6

Retail 6,227 4.31 6.1

Other Hong Kong rental 913 0.63 0.9

Rental properties - China 30,787 21.31 30.1

Residential 8,333 5.77 8.2

Office 10,733 7.43 10.5

Retail 7,155 4.95 7.0

Other China rental 3,736 2.59 3.7

Rental properties - Overseas 830 0.57 0.8

Development properties 37,761 26.14 37.0

Hong Kong 19,141 13.25 18.7

China 16,210 11.22 15.9

Residential 9,676 6.70 9.5

Commercial 6,534 4.52 6.4

Macau 1,212 0.84 1.2

Others 1,198 0.83 1.2

Infrastructure projects 1,459 1.01 1.4

Logistics division 9,252 6.41 9.1


Net debt (24,804) (17.17)

Net asset value 77,385 53.58 Source: CLSA



Figure 8

Kerry NAV discount chart

Source: CLSA

Figure 9

Hong Kong property valuation summary

Stock code

Rec Last close(LC)

Target(LC)

NAV(LC)

Disc to NAV(%)

FY14U/L PE

(x)

FY15U/L PE

(x)

FY16U/L PE

(x)

FY14Yield(%)

FY15Yield(%)

FY16Yield(%)

Developers

SHKP 16 HK U-PF 116.7 100.0 184.3 (36.7) 12.9 16.8 17.5 2.9 2.9 2.9

Cheung Kong 1 HK O-PF 146.9 165.0 196.7 (25.3) 9.0 10.1 8.6 6.2 2.8 3.1

Henderson Land 12 HK SELL 51.2 37.3 86.7 (40.9) 18.6 18.1 18.2 1.8 1.9 1.9

Sino Land 83 HK U-PF 14.1 11.3 20.5 (31.2) 20.7 14.4 15.5 3.6 3.6 3.6

Kerry Prop 683 HK U-PF 27.6 26.8 53.6 (48.5) 12.6 11.3 11.0 2.9 2.9 2.9

New World Dev 17 HK U-PF 9.9 9.0 17.6 (44.0) 9.3 11.4 10.6 4.3 4.3 4.3

CSI 497 HK BUY 0.4 0.4 0.9 (61.0) 4.1 3.1 3.4 3.2 4.8 4.4

Landlords

Hang Lung Prop 101 HK U-PF 24.7 24.5 34.9 (29.5) 22.1 19.1 17.8 3.0 3.0 3.0

HKLand HKL SP BUY 6.9 8.3 10.1 (31.6) 19.2 17.6 15.3 2.6 2.6 2.6

Hysan 14 HK O-PF 38.2 40.0 69.0 (44.7) 17.9 16.9 15.9 3.4 3.6 3.8

Great Eagle 41 HK U-PF 29.3 30.2 67.0 (56.3) 11.2 9.3 8.5 2.4 2.4 2.4

Wharf 4 HK U-PF 61.2 62.3 106.9 (42.8) 14.4 12.8 11.1 3.0 3.6 3.8

Swire Pac 19 HK U-PF 104.6 105.0 158.4 (34.0) 10.6 13.5 12.4 3.9 3.7 4.1

Swire Prop 1972 HK U-PF 26.8 26.5 38.0 (29.4) 17.7 24.7 24.7 2.1 2.0 2.0

Prop agents

Midland 1200 HK U-PF 3.9 4.3 N.A. N.A. 35.7 18.2 13.3 1.6 1.8 1.8

REITs

Link REIT 823 HK U-PF 45.3 41.6 43.4 4.3 27.3 25.1 22.8 3.7 4.0 4.4Source: CLSA

Not cheap relative to peers who are in stronger

financial position



Summary financialsYear to 31 December 2012A 2013A 2014CL 2015CL 2016CLSummary P&L forecast (HK$m)Revenue 34,513 33,158 15,034 14,454 17,413Op Ebitda 6,967 6,757 6,120 5,894 6,009Op Ebit 6,576 6,212 5,944 5,714 5,824Interest income 293 326 308 289 269Interest expense (560) (592) (487) (581) (560)Other items 3,597 12,832 886 2,293 1,433Profit before tax 9,906 18,779 6,651 7,714 6,967Taxation (1,796) (3,251) (1,784) (2,493) (1,581)Minorities/Pref divs (1,149) (2,374) (1,707) (1,687) (1,761)Net profit 6,961 13,154 3,160 3,534 3,624

Summary cashflow forecast (HK$m)Operating profit 6,576 6,212 5,944 5,714 5,824Operating adjustments - - - - -Depreciation/amortisation 391 544 176 180 185Working capital changes 2,835 (6,533) (5,141) (2,846) (3,984)Net interest/taxes/other (4,925) (10,066) (3,371) (2,542) (2,825)Net operating cashflow 4,877 (9,842) (2,393) 507 (800)Capital expenditure (12,644) (7,598) 0 0 0Free cashflow (7,767) (17,440) (2,393) 507 (800)Acq/inv/disposals 999 (252) 1,380 - -Int, invt & associate div 686 652 1,454 1,435 1,415Net investing cashflow (10,959) (7,198) 2,834 1,435 1,415Increase in loans 5,060 6,320 (2,465) 1,846 (1,283)Dividends (1,490) (1,832) (1,763) (1,691) (1,691)Net equity raised/other 911 7,834 0 - -Net financing cashflow 4,481 12,322 (4,228) 155 (2,974)Incr/(decr) in net cash (1,601) (4,718) (3,787) 2,096 (2,359)Exch rate movements 93 146 0 0 0Opening cash 17,574 16,066 11,494 7,707 9,803Closing cash 16,066 11,494 7,707 9,803 7,443

Summary balance sheet forecast (HK$m)Cash & equivalents 16,066 11,494 7,707 9,803 7,443Debtors 8,074 2,669 5,860 5,535 4,688Inventories 10,537 10,539 10,436 12,570 10,639Other current assets 547 617 617 617 617Fixed assets 85,199 96,143 95,157 95,437 97,188Intangible assets 1,896 123 123 123 123Other term assets 14,811 20,804 21,603 23,808 25,153Total assets 137,130 142,389 141,502 147,892 145,850Short-term debt 2,565 3,965 2,154 11,283 856Creditors 11,324 7,765 9,317 13,007 10,612Other current liabs 2,312 2,871 1,771 2,303 1,619Long-term debt/CBs 29,367 31,011 30,356 23,073 32,217Provisions/other LT liabs 7,340 7,903 7,903 7,903 7,903Minorities/other equity 13,470 13,120 14,828 16,515 18,276Shareholder funds 70,752 75,755 75,174 73,807 74,368Total liabs & equity 137,130 142,389 141,502 147,892 145,850

Ratio analysisRevenue growth (% YoY) 67.0 (3.9) (54.7) (3.9) 20.5Ebitda growth (% YoY) 97.6 (3.0) (9.4) (3.7) 1.9Ebitda margin (%) 20.2 20.4 40.7 40.8 34.5Net profit margin (%) 20.2 39.7 21.0 24.4 20.8Dividend payout (%) 29.1 14.8 36.6 32.7 31.9Effective tax rate (%) 18.1 17.3 26.8 32.3 22.7Ebitda/net int exp (x) 26.1 25.4 34.1 20.1 20.7Net debt/equity (%) 18.8 26.4 27.6 27.2 27.7ROE (%) 10.3 18.0 4.2 4.7 4.9ROIC (%) 6.2 5.3 4.3 3.9 4.5EVA®/IC (%) (0.6) (1.5) (2.5) (2.9) (2.3)Source: CLSA



Companies mentionedKerry Properties (683 HK - HK$27.60 - UNDERPERFORM)

Recommendation history of Kerry Properties Ltd 683 HK

Date Rec Target Date Rec Target18 Mar 2014 U-PF 26.40 17 Sep 2012 U-PF 33.1607 Jan 2014 U-PF 28.20 24 Aug 2012 U-PF 33.8422 Aug 2013 U-PF 27.19 16 Mar 2012 U-PF 31.0302 Jul 2013 U-PF 27.02 09 Jan 2012 U-PF 24.8915 Mar 2013 U-PF 33.24 25 Aug 2011 U-PF 31.6229 Oct 2012 U-PF 33.75Source: CLSA







25

30

35

Stoc

kprice

(HK

$)



BUYU-PFN-R

O-PFSELL


Great EagleHK$29.25 - UNDERPERFORM

FinancialsYear to 31 December 12A 13A 14CL 15CL 16CLRevenue (HK$m) 6,747 7,301 4,394 4,519 4,566Adjusted net profit (HK$m) 1,802 1,680 1,667 2,012 2,206NP forecast change (%) - - 7.1 1.9 2.9Adjusted EPS (HK¢) 285.5 263.1 260.7 314.8 345.0CL/consensus (10) (EPS%) - - 103 116 124Adj EPS growth (% YoY) 6.8 (7.8) (0.9) 20.7 9.6Adjusted PE (x) 10.2 11.1 11.2 9.3 8.5Dividend yield (%) 2.3 7.4 2.4 2.4 2.4Net debt/equity (%) 19.2 23.4 23.8 16.8 14.0Source: CLSA




Oliver Lam+852 2600 8296

22 August 2014

Hong KongProperty



12M hi/lo HK$29.95/24.15


Shares in issue 628.5mFree float (est.) 44.4%



Major shareholdersThe Lo Family 55.6%


Absolute 1.4 6.8 9.6Relative (5.1) (2.5) (4.4)Abs (US$) 1.4 6.8 9.6

-40

10

60

110

160

19

23

27

32

36

40

Aug-12 Feb-13 Aug-13 Feb-14Great Eagle (LHS)

Rel to HS I (RHS)

(HK$) (%)

Source: Bloomberg

www.clsa.com

Resu

lts revie

w

A mixed bagAfter spinning its HK hotels off into Langham Hotel Investments (LHI), Great Eagle’s key revenue contributor is Champion Reit, followed by overseas hotel portfolio and contribution from LHI. With steady-to-positive outlook across most markets, overseas hotels should grow, but rental pressure on Citibank Plaza is likely to drag on Champion’s contribution. Slowing mainland arrivals will also impact HK hotels, despite positive operating metrics YTD. Reiterate Underperform.

1H14 earnings boosted by treasury management incomeCore profit grew by 24%YoY to HK$966m driven by an HK$155m increase in interest income and HK$44m realised gains on securities portfolio. Operating income from core operations was up by just 1% YoY to HK$1,102m due toloss of hotel income from HK hotels post spin-off and weaker overseas hotel profit despite higher contribution from office rental and Champion Reit.

Limited upside from HK hotels; overseas hotels better LHI’s three HK hotels posted a 5% YoY average RevPAR growth in 1H14 on the back of +3.6pp occupancy and +0.9% in average room rates, comparing to 5.8%/6.6% growth in High Tariff A/B market. With Mainland tourist arrival growth slowing (16%/17%/24%YoY in 1H14/2013/2012) sustained growth is limited and likely to slow. Given Mainland tourists account for 23-31% of total customers and occupancy standing at 88%-96%, further growth will need to be driven by higher room rate from long-haul leisure travellers, which still has low visibility. Overseas outlook is more positive, with positive economic outlooks in both US and UK, while Australiasia should remain steady, and Langham Chicago and Eaton Chelsea likely to show improved performance, though Langham Sydney’s renovation from Aug-Nov 14 will drag this a bit.

Champion REIT – Citibank Plaza drag Langham Place’s positive performance was again diluted by Citibank Plaza. Langham Place office and mall NPI’s were up 14.3%YoY and 21.2%YoY respectively while mall’s 15.8%YoY tenant sales growth outperformed the market’s -1.3%YoY. Citibank Plaza NPI was down 1.3%YoY due to negative rental reversions, despite occupancy improvement. Citibank Plaza should continue to drag despite an improving Central office market, with rental pressure on higher expected vacancy to over 20%.

Maintain UnderperformOur earnings upgrade is mostly on higher interest income est. We lift our NAV est. to HK$67.01 to account for Pak Shek Kok site and market value of Champion Reit and LHI. Our PT HK$30.2 is set at 55% NAV disc (unchanged).



A mixed bag Great Eagle - U-PF


A mixed bagFigure 1


(HK$m) 1H14 1H13 YoY %


Hotel operation income - HK - 657 na

Hotel operation income - overseas 1,512 1,210 25.0

Hotel operation income - others 84 44 88.5

Management fee income from C.Reit 158 141 11.9

Distribution income from C.Reit 363 332 9.5

Distribution Income from Langham 148 21 600.0

Others 213 174 22.5

Revenue from core business 2,696 2,734 (1.4)


Hotel operation income – HK - 255 Na

Hotel operation income - overseas 140 166 (15.9)

Hotel operation income - others 63 22 191.7

Management fee income from C.Reit 158 141 11.9

Distribution income from C.Reit 363 332 9.5

Distribution Income from Langham 148 21 600.0

Others 95 63 51.1

Operating income from core business 1,102 1,092 0.9

Other income 219 19 1,033.2

Other charge (146) (148) (1.6)

EBITDA 1,175 964 21.9

Depreciation (71) (64) 11.8

EBIT 1,104 900 22.6

Finance costs (82) (61) 34.0

Share of results of associates and JVs (9) 2 (673.3)

Core profit before taxation 1,014 841 20.6

Taxation (47) (60) (21.7)

Core profit after taxation 967 781 23.8

Minority interests (1) (1) 100.0

Core profit 966 780 23.8Source: Company

Figure 2

Hotel portfolio - profit contribution

(HK$m) 1H14 1H13 YoY%Hong Kong(The Langham, Hong Kong, Langham Place, Hong Kong, and Eaton, Hong Kong from 01 Jan 13 to 29 May 13)*

- 254.8 n.a.

EuropeUK (The Langham, London) 55.4 61.0 (9.3)North AmericaU.S. (The Langham, Boston, The Langham, Chicago, Langham, Fifth Ave, NY, and The Langham, Huntington Hotel & Spa) and Canada (Eaton Chelsea)

21.2 41.9 (49.9)

AustralasiaAustralia (The Langham Melbourne and The Langham, Sydney) and New Zealand (The Langham, Auckland)

63.2 63.4 (0.5)

Total 139.8 421.1 (66.8)Total (excl. Hong Kong) 139.8 166.3 (15.9)*HK hotel portfolio was spun-off in late May-13. Source: Company



∑ Core profit: Great Eagle reported 1H14 core earnings came in at HK$966m, up 24% YoY, largely driven by increase in interest income and realised gains on securities portfolio. Operating income from core operations was up by just 1% YoY to HK$1,102m. Despite the loss of income from the HK hotels due to the spin-off, this was more than offset by full-period contribution of management fee and distribution income from LHI, the new contribution of New York hotels from 2H13 (though this was dragged by a loss booked from the new Langham Chicago), the new contribution of San Francisco office property 123 Mission Street(acquired in 2H13).

∑ Rental income: Net rental income increased 45% to HK$134m. This wasdriven by 13% YoY growth in HK portfolio on positive rental reversion despite lower office occupancy (excluding owner occupied space) Great Eagle Centre, as well as higher occupancy and positive rental reversion in the Eaton Service Apartments portfolio. Growth also came from a 135% YoY increase in US rental profit due to the new addition of 123 Mission Street in 2H13, as well as slightly positive rental reversion offsetting a drop in occupancy.

∑ Hotel Income. Hotel segment posted a 54%YoY decline mainly from the loss of income due to the HK portfolio spin-off. Overseas hotels still saw income decrease 16%YoY to HK$140m, with Langham Chicago booking a loss, the Eaton Chelsea (Toronto) hotel still impacted by the rebranding initiative, as well as increased share of corporate overhead expense (with HK hotels now no longer in the portfolio), dragging overall growth in RevPAR posted in all but Langham Chicago and Eaton Chelsea (Figure 5).

∑ Langham Hospitality Income: The contribution from LHI increased by 600% YoY to HK$148m, with the amount reflecting full-period, versus just 1-month in 1H13. With regards to operating metrics on the hotel level all-three hotels performed well with RevPAR up 5%/7%/4%YoY for The Langham/Langham Place/Eaton respectively, on higher average room rates achieved (+2%/+1%/+2%YoY) and occupancy (+2.7%/+4.8%/+2.4%), against a backdrop of improving room rates and occupancies for High Tariff A and B hotels in the market (Figure 6).

∑ Champion REIT income: The contribution from Champion REIT increased by 9% YoY to HK$363m, despite the continued performance of Langham Place being dragged by Citibank Plaza, due to increased units held by Great Eagle.

o Langham Place office NPI came in up 14.3% YoY to HK$303m while mall NPI was up 21.2% YoY to HK$126m, and continued to drive growth, while tenant sales growth came in +15.8% YoY, compared to -1.3% of the market given resilience to the luxury slowdown. Passing base retail rents came up to HK$146.01psf vs HK$144.26psf end-13 due to only 4% of the floor area rolling over, but up from HK$118.71psf a year ago, while turnover rent came up to HK$24.12psf from HK$23.20psf in 1H13.



o Citibank Plaza NPI came in down 1.3% YoY to HK$491m, and again dragged on growth posted by Langham Place. Occupancy rate rose to 88.6% from 85.3% end-13 while rental reversions were negative with passing rent at HK$82.07psf, compared to HK$84.6psf end-13 and HK$85.26psf 1H13, while face rent was at HK$75-80psf, compared to HK$80-85psf over the past year.

∑ Stronger balance sheet: Net gearing increased to 32.5% from 31.4% end-13 and 15.6% a year ago. Excluding the consolidated debts of both Champion REIT and LHIL, Great Eagle was in a net cash position of HK$3bn, compared to HK$3.8bn end-13 and HK$9.9bn a year ago.

∑ Dividends: An interim dividend of HK$0.27/share, up 17%YoY, implying a core payout ratio of 18.3% (1H13: 18.8%).

Figure 3

Occupancy rate

(%) 1H14 1H13 YoYpptLangham Hotel, Hong Kong 88.0 85.4 2.6Langham Place Hotel, Hong Kong 92.5 87.7 4.8Eaton Hotel, Hong Kong 95.7 93.3 2.4The Langham, London 78.5 76.0 2.5The Langham, Boston 77.6 66.9 10.7The Langham, Huntington Pasadena 79 74.6 4.4The Langham, Chicago 51.7 na naLangham Place, Fifth Avenue, New York 78.8 na naEaton Chelsea Toronto 65.9 69.1 (3.2)The Langham, Melbourne 86 85.6 0.4The Langham, Sydney 84.7 82.9 1.8The Langham, Auckland 80.9 72.5 8.4

High Tariff A hotels 86 84 2High Tariff B hotels 91 88 3Source: Company, HK Tourism Board

Figure 4

Average room rate

(Local currency) 1H14 1H13 YoY%Langham Hotel, Hong Kong (HK$) 2,291 2,254 1.6Langham Place Hotel, Hong Kong (HK$) 1,871 1,846 1.4Eaton Hotel, Hong Kong (HK$) 1,178 1,159 1.6The Langham, London (GBP) 260 267 (2.6)The Langham, Boston (US$) 243 243 -The Langham, Huntington Pasadena (US$) 242 228 6.1The Langham, Chicago (US$) 301 na naLangham Place, Fifth Avenue, New York (US$) 487 na naEaton Chelsea Toronto (CAD) 126 122 3.3The Langham, Melbourne (AUD) 282 273 3.3The Langham, Sydney (AUD) 297 281 5.7The Langham, Auckland (NZD) 175 184 (4.9)

High Tariff A hotels (HK$) 2,446 2,368 3.3High Tariff B hotels (HK$) 1,204 1,168 3.1Source: Company, HK Tourism Board

Hotel portfolio mostly saw improved occupancy ...

… along with better achieved room rates ...



Figure 5

RevPAR

(Local currency) 1H14 1H13 YoY%Langham Hotel, Hong Kong (HK$) 2,017 1,924 4.8Langham Place Hotel, Hong Kong (HK$) 1,731 1,619 6.9Eaton Hotel, Hong Kong (HK$) 1,159 1,082 7.1The Langham, London (GBP) 204 203 0.5The Langham, Boston (US$) 188 162 16.0The Langham, Huntington Pasadena (US$) 191 164 16.5The Langham, Chicago (US$) 155 na naLangham Place, Fifth Avenue, New York (US$) 383 na naEaton Chelsea Toronto (CAD) 83 85 (2.4)The Langham, Melbourne (AUD) 242 234 3.4The Langham, Sydney (AUD) 252 233 8.2The Langham, Auckland (NZD) 141 133 6.0

High Tariff A hotels (HK$) 2,104 1,989 5.8High Tariff B hotels (HK$) 1,096 1,028 6.6Source: Company, HK Tourism Board

Figure 6

HK hotel average achieved room rate growth by category

Source: HK Tourism Board

Figure 7

Mainland tourist arrivals to Hong Kong

Source: HK Tourism Board

… leading to RevPAR growth

HK High Tariff A & B hotels were up 3.3%y-y

and 3.1%y-y in 1H14, respectively

…but growth likely to be capped with slowing

Mainland tourist arrivals



Figure 8

end-FY14CL NAV estimate

HK$m HK$ %

Development China 3,114 4.87 9.7

Investment property- offices (Hong Kong) 2,800 4.38 8.7

Investment property- offices (Overseas) 1,394 2.18 4.3

Investment property- Retail 611 0.96 1.9

Investment property- Serviced Apts 797 1.25 2.5

Hotels (Overseas) 7,983 12.49 24.7

Langham Hotel Holdings (1270.HK) 4,269 6.68 13.2

Champion REIT (2778.HK) 11,300 17.68 35.0


Net Debt 10,568 16.53

Net asset value 42,837 67.01Source: Company, HK Tourism Board

Figure 9

Great Eagle’s NAV discount chart

Source: CLSA

(100)

(80)

(60)

(40)

(20)

0

20

1991

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2003

2004

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(%)NAV disc 5-yr avg +1 S.D.-1 S.D. +2 S.D. -2 S.D.

Wider –than-average disc is deserved as the two

largest growth drivers see slowing momentum

Target price set at 55% discount to end-FY14CL

NAV



Figure 10

Hong Kong property valuation summary

Stock code

Rec Last close(LC)

Target(LC)

NAV(LC)

Disc to NAV(%)

FY14U/L PE

(x)

FY15U/L PE

(x)

FY16U/L PE

(x)

FY14Yield(%)

FY15Yield(%)

FY16Yield(%)

Developers

SHKP 16 HK U-PF 116.7 100.0 184.3 (36.7) 12.9 16.8 17.5 2.9 2.9 2.9

Cheung Kong 1 HK O-PF 146.9 165.0 196.7 (25.3) 9.0 10.1 8.6 6.2 2.8 3.1

Henderson Land 12 HK SELL 51.2 37.3 86.7 (40.9) 18.6 18.1 18.2 1.8 1.9 1.9

Sino Land 83 HK U-PF 14.1 11.3 20.5 (31.2) 20.7 14.4 15.5 3.6 3.6 3.6

Kerry Prop 683 HK U-PF 27.6 26.8 53.6 (48.5) 12.6 11.3 11.0 2.9 2.9 2.9

New World Dev 17 HK U-PF 9.9 9.0 17.6 (44.0) 9.3 11.4 10.6 4.3 4.3 4.3

CSI 497 HK BUY 0.4 0.4 0.9 (61.0) 4.1 3.1 3.4 3.2 4.8 4.4

Landlords

Hang Lung Prop 101 HK U-PF 24.7 24.5 34.9 (29.5) 22.1 19.1 17.8 3.0 3.0 3.0

HKLand HKL SP BUY 6.9 8.3 10.1 (31.6) 19.2 17.6 15.3 2.6 2.6 2.6

Hysan 14 HK O-PF 38.2 40.0 69.0 (44.7) 17.9 16.9 15.9 3.4 3.6 3.8

Great Eagle 41 HK U-PF 29.3 30.2 67.0 (56.3) 11.2 9.3 8.5 2.4 2.4 2.4

Wharf 4 HK U-PF 61.2 62.3 106.9 (42.8) 14.4 12.8 11.1 3.0 3.6 3.8

Swire Pac 19 HK U-PF 104.6 105.0 158.4 (34.0) 10.6 13.5 12.4 3.9 3.7 4.1

Swire Prop 1972 HK U-PF 26.8 26.5 38.0 (29.4) 17.7 24.7 24.7 2.1 2.0 2.0

Prop agents

Midland 1200 HK U-PF 3.9 4.3 N.A. N.A. 35.7 18.2 13.3 1.6 1.8 1.8

REITs

Link REIT 823 HK U-PF 45.3 41.6 43.4 4.3 27.3 25.1 22.8 3.7 4.0 4.4Source: CLSA



Summary financialsYear to 31 December 2012A 2013A 2014CL 2015CL 2016CLSummary P&L forecast (HK$m)Revenue 6,747 7,301 4,394 4,519 4,566Op Ebitda 2,879 3,155 1,551 1,534 1,637Op Ebit 2,506 2,751 1,128 1,088 1,169Interest income - - - - -Interest expense (404) (545) (117) (15) (15)Other items 3,733 1,598 1,592 1,912 2,045Profit before tax 5,835 3,804 2,602 2,985 3,200Taxation (443) (426) (256) (294) (315)Minorities/Pref divs (1,840) (978) (679) (679) (679)Net profit 3,552 2,399 1,667 2,012 2,206

Summary cashflow forecast (HK$m)Operating profit 2,506 2,751 1,128 1,088 1,169Operating adjustments - - - - -Depreciation/amortisation 373 404 424 445 467Working capital changes 128 326 (2,898) 2,840 (3)Net interest/taxes/other (242) (575) (631) (527) (600)Net operating cashflow 2,764 2,905 (1,978) 3,847 1,034Capital expenditure (60,199) (7,534) 154 (1,090) (1,139)Free cashflow (57,435) (4,629) (1,824) 2,756 (105)Acq/inv/disposals 18,781 (844) 810 (44) (45)Int, invt & associate div 40,151 (656) 1,039 2,128 2,309Net investing cashflow (1,268) (9,034) 2,003 994 1,125Increase in loans 839 9,639 (7,042) (37) (473)Dividends (350) (899) (447) (447) (447)Net equity raised/other (767) 3,161 (117) (15) (15)Net financing cashflow (278) 11,900 (7,607) (499) (935)Incr/(decr) in net cash 1,218 5,772 (7,582) 4,342 1,224Exch rate movements 12 (22) 0 0 0Opening cash 3,732 4,962 10,712 3,130 7,472Closing cash 4,962 10,712 3,130 7,472 8,696

Summary balance sheet forecast (HK$m)Cash & equivalents 4,962 10,712 3,130 7,472 8,696Debtors 553 744 448 460 465Inventories 94 106 2,431 6 8Other current assets 0 1,852 1,865 1,856 1,858Fixed assets 74,846 81,977 81,399 82,044 82,716Intangible assets - - - - -Other term assets 1,460 2,381 1,580 1,634 1,689Total assets 81,916 97,772 90,852 93,473 95,432Short-term debt 6,381 7,042 37 473 -Creditors 2,480 2,934 2,077 2,497 2,503Other current liabs 474 367 64 73 79Long-term debt/CBs 10,372 19,389 19,364 18,891 18,891Provisions/other LT liabs 788 953 953 953 953Minorities/other equity 18,651 17,131 17,810 18,490 19,169Shareholder funds 42,771 49,956 50,547 52,095 53,837Total liabs & equity 81,916 97,772 90,852 93,473 95,432

Ratio analysisRevenue growth (% YoY) 42.1 8.2 (39.8) 2.9 1.0Ebitda growth (% YoY) 89.5 9.6 (50.8) (1.2) 6.7Ebitda margin (%) 42.7 43.2 35.3 33.9 35.8Net profit margin (%) 52.6 32.9 37.9 44.5 48.3Dividend payout (%) 23.1 82.1 26.8 22.2 20.3Effective tax rate (%) 7.6 11.2 9.8 9.8 9.8Ebitda/net int exp (x) 7.1 5.8 13.2 104.0 111.0Net debt/equity (%) 19.2 23.4 23.8 16.8 14.0ROE (%) 9.3 5.2 3.3 3.9 4.2ROIC (%) 5.3 3.2 1.2 1.2 1.3EVA®/IC (%) (2.6) (4.7) (6.6) (6.7) (6.6)Source: CLSA



Companies mentionedGreat Eagle (41 HK - HK$29.25 - UNDERPERFORM)

Recommendation history of Great Eagle Holdings Ltd 41 HK

Date Rec Target Date Rec Target27 Feb 2014 U-PF 28.60 29 Oct 2012 U-PF 23.5007 Jan 2014 U-PF 28.10 20 Aug 2012 U-PF 21.1020 Aug 2013 U-PF 28.40 18 Apr 2012 U-PF 23.0002 Jul 2013 U-PF 30.00 28 Feb 2012 U-PF 22.5028 Feb 2013 U-PF 31.90 09 Jan 2012 U-PF 17.50Source: CLSA







15

20

25

30

35

Stoc

kprice

(HK

$)



BUYU-PFN-R

O-PFSELL


TechtronicHK$24.25 - BUY

FinancialsYear to 31 December 12A 13A 14CL 15CL 16CLRevenue (US$m) 3,852 4,300 4,708 5,169 5,648Net profit (US$m) 212 250 300 358 425EPS (US$) 0.12 0.14 0.16 0.20 0.23CL/consensus (14) (EPS%) - - 96 93 91EPS growth (% YoY) 37.7 17.4 20.0 19.4 18.7PE (x) 27.0 22.9 19.1 16.0 13.5Dividend yield (%) 0.7 1.0 1.2 1.5 1.8FCF yield (%) 5.1 5.2 3.5 6.6 6.2PB (x) 3.6 3.3 2.9 2.6 2.3ROE (%) 15.2 15.2 16.2 17.1 17.8Net debt/equity (%) 29.8 14.6 9.6 (1.3) (8.0)Source: CLSA


Mohan [email protected]+852 2600 8787

22 August 2014

Hong KongConsumer



12M hi/lo HK$25.75/17.76





Major shareholdersHorst Julius Pudwill 19.9%FIL Ltd 8.0%


Absolute (3.4) 3.0 33.2Relative (9.6) (5.9) 16.3Abs (US$) (3.4) 3.0 33.3

0

50

100

150

200

250

0

5

10

15

20

25

30

Aug 12

Pr ice RelIndex

(HK$) (%)

Source: Bloomberg

www.clsa.com

Chan

ge in

targ

et p

rice

Positive momentumWe attended the investor presentation post the results announcement. As usual, CEO Joe Galli went through the new products range being launchedthis year apart from the normal financial presentation. Overall the mood remains of positive momentum. They remain a new product machine with a target of one-third new products every year. However, this year, withHoover, management’s goal is to replace nearly the full line of product by the end of 2014. We maintain BUY with a target of HK$28.88.

Broad-based revenue growthOn revenues, the key has been the geographical expansion. Nth America sales were up 7.2% YoY, EMEA (mainly Europe) revenues were up 15.4% YoY and ROW (mainly Canada, Australia and Mexico) was up 25.8% YoY. In Europe, with the Milwaukee brand, they were making inroads in the Nordiccountries, France and the UK. For Milwaukee, the new products they have this year include the Deep Cut Band Saw (used in offshore oilrigs), Hole Hawg (for making holes in wood), Rotary Hammers (for making holes in concrete), Right Angle Drill and the Polisher/Sander, amongst others.

Deliberate SGA pushOn gross margin improvement, TTI confirmed that that it was a combination of new products and productivity gains (automation focus to continue). On productivity, note that headcount is up only 5.8% YoY whilst revenues are up 10.2%. On SGA, the increase had been flagged ahead and the increase is all strategic given the new product launches being done which will lead to market share gains and margin expansion. Acquisitions (Index Measuring Co and Empire Level) also added to SGA in 1H14 but leverage should improve going forward. Overall SGA will lever down over the next few years.

Floor Care’s 2017 visionTTI management stated that by end-2016, they target to bring Floor Care margins in line with those of the Power Tools segment. They are focussing on increasing sales per store rather than adding new stores for their products. The Oreck acquisition which focusses on commercial grade floor care productsis fully integrated and the focus is to improve its bottom line.

Capex is strategicThey continue to invest in new products, productivity improvements by reducing labour intensity and improving logistics/warehousing capabilities. Overall TTI’s positive growth momentum remains in place. Maintain BUY.

ASIA’S MIGHTY MIDCAPS



Positive momentum Techtronic - BUY


Macro pictureFigure 1 Figure 2

US home improvement expenditures positive YoY growth

Source: Bloomberg, CLSA Source: Bloomberg, CLSA

Figure 3 Figure 4

PE band PB band


Figure 5

Given its positive momentum, TTI deserves to trade at a premium

Company Ticker Mkt Cap(US$m)

Price(lcy)

PEFY14

(x)

PEFY15

(x)

PBFY14

(x)

PBFY15

(x)

EV/EbitdaFY14

(x)

EV/EbitdaFY15

(x)

Makita 6586 JP 7,990 6,010.0 18.0 16.7 1.7 1.6 8.5 7.6

Stanley B&D SWK US 14,234 91.5 16.5 14.0 2.3 2.2 10.2 9.0

Tools Average 17.3 15.4 2.0 1.9 9.4 8.3

Whirlpool Corp WHR US 11,718 150.3 13.2 11.1 1.9 na 7.0 5.9

Electrolux ELUXB SS 7,923 175.8 16.9 12.7 3.6 3.1 8.0 6.6

Appliances Average 15.0 11.9 2.7 3.1 7.5 6.2

Techtronic 669 HK 5,729 24.3 19.1 16.0 2.9 2.6 11.8 10.0

Source: CLSA,Bloomberg. Note: all values are adjusted to CY.

50,000

70,000

90,000

110,000

130,000

150,000

Apr-

99

Apr-

00

Apr-

01

Apr-

02

Apr-

03

Apr-

04

Apr-

05

Apr-

06

Apr-

07

Apr-

08

Apr-

09

Apr-

10

Apr-

11

Apr-

12

Apr-

13

Apr-

14

Home Improvement Expenditures

US$, ('000)

-30

-20

-10

0

10

20

30

Apr-

99

Apr-

00

Apr-

01

Apr-

02

Apr-

03

Apr-

04

Apr-

05

Apr-

06

Apr-

07

Apr-

08

Apr-

09

Apr-

10

Apr-

11

Apr-

12

Apr-

13

Apr-

14

Home Improvement Expenditures

(YoY % change)

min6.3x

9.7x

avg13.2x

16.0x

max18.9x

0.4

0.9

1.4

1.9

2.4

2.9

3.4

Aug09 Mar10 Oct10 May11 Dec11 Jul12 Feb13 Sep13 Apr14 Nov14

min0.80x

1.27x

avg1.74x

2.34x

max2.94x

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Aug09 Mar10 Oct10 May11 Dec11 Jul12 Feb13 Sep13 Apr14 Nov14



Summary financialsYear to 31 December 2012A 2013A 2014CL 2015CL 2016CLSummary P&L forecast (US$m)Revenue 3,852 4,300 4,708 5,169 5,648Op Ebitda 396 435 505 574 652Op Ebit 267 297 355 413 481Interest income 9 12 13 11 12Interest expense (46) (37) (34) (27) (22)Other items 3 4 5 5 6Profit before tax 234 276 338 403 477Taxation (22) (29) (41) (48) (56)Minorities/Pref divs 1 3 3 4 4Net profit 212 250 300 358 425

Summary cashflow forecast (US$m)Operating profit 267 297 355 413 481Operating adjustments - - - - -Depreciation/amortisation 129 138 150 160 171Working capital changes 58 27 (113) (14) (119)Net interest/taxes/other (58) (59) (67) (66) (68)Net operating cashflow 397 404 325 493 466Capital expenditure (102) (105) (125) (115) (110)Free cashflow 294 299 200 378 356Acq/inv/disposals (80) (73) (74) (77) (75)Int, invt & associate div (2) 15 16 15 16Net investing cashflow (184) (163) (183) (177) (168)Increase in loans (36) (107) (200) (215) (121)Dividends (34) (56) (72) (93) (119)Net equity raised/other 2 0 - - -Net financing cashflow (68) (162) (272) (309) (241)Incr/(decr) in net cash 145 78 (131) 7 57Exch rate movements 12 (3) (3) (3) (5)Opening cash 468 624 699 565 569Closing cash 625 699 565 569 621

Summary balance sheet forecast (US$m)Cash & equivalents 624 699 565 569 621Debtors 645 752 895 913 1,062Inventories 689 884 1,052 1,074 1,249Other current assets 0 0 0 0 0Fixed assets 420 420 467 500 523Intangible assets 399 459 461 461 451Other term assets 805 798 798 798 798Total assets 3,581 4,013 4,238 4,313 4,705Short-term debt 739 579 458 327 253Creditors 710 1,040 1,238 1,263 1,469Other current liabs 114 157 157 157 157Long-term debt/CBs 349 375 296 212 164Provisions/other LT liabs 113 116 116 116 116Minorities/other equity 8 5 5 5 5Shareholder funds 1,549 1,741 1,969 2,234 2,541Total liabs & equity 3,581 4,013 4,239 4,313 4,705

Ratio analysisRevenue growth (% YoY) 5.1 11.6 9.5 9.8 9.3Ebitda growth (% YoY) 19.2 9.9 16.0 13.6 13.7Ebitda margin (%) 10.3 10.1 10.7 11.1 11.5Net profit margin (%) 5.5 5.8 6.4 6.9 7.5Dividend payout (%) 19.4 22.5 22.2 23.3 24.5Effective tax rate (%) 9.5 10.5 12.1 11.9 11.8Ebitda/net int exp (x) 10.7 17.5 23.5 36.3 67.9Net debt/equity (%) 29.8 14.6 9.6 (1.3) (8.0)ROE (%) 15.2 15.2 16.2 17.1 17.8ROIC (%) 11.4 12.6 14.3 15.9 17.9EVA®/IC (%) 2.6 3.9 5.6 7.2 9.2Source: CLSA

Continual improvement in margins expected

Inventory levels should normalise in 2H2014

Capex in 1H2014 amounted to US$64m

from US$47 previously

Effective tax rate in 1H2014 remained low at

8.5%



Companies mentionedTechtronic (669 HK - HK$24.25 - BUY)

Recommendation history of Techtronic Industries Co Ltd 669 HK

Date Rec Target Date Rec Target14 Apr 2014 BUY 28.88 16 Jan 2013 O-PF 16.5003 Apr 2014 BUY 26.50 29 Nov 2012 U-PF 16.0007 Feb 2014 BUY 24.00 05 Sep 2012 O-PF 13.5011 Nov 2013 BUY 23.00 25 Aug 2012 O-PF 12.8003 Apr 2013 U-PF 20.00 27 Jun 2012 BUY 11.20Source: CLSA







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ock

price

(HK

$)


Mohan SinghOther analystsNo coverage

BUYU-PFN-R

O-PFSELL


Sinopec KantonsHK$6.12 - BUY

FinancialsYear to 31 December 12A 13A 14CL 15CL 16CLRevenue (HK$m) 22,042 23,356 24,058 25,983 26,582Net profit (HK$m) 292 491 701 1,212 1,405EPS (HK$) 0.15 0.21 0.28 0.41 0.48CL/consensus (1) (EPS%) - - 90 86 100EPS growth (% YoY) (11.2) 35.6 34.4 46.6 15.9PE (x) 39.5 29.1 21.7 14.8 12.8Dividend yield (%) 0.6 0.6 0.6 0.6 0.6FCF yield (%) (13.4) (14.7) (0.4) (20.3) 10.7PB (x) 1.8 1.5 1.5 1.1 1.0ROE (%) 6.3 6.0 6.9 9.0 8.1Net debt/equity (%) (37.0) (16.5) (11.1) 3.6 (4.7)Source: CLSA


Nelson [email protected]+852 2600 8589

Simon Powell+852 2600 8626

22 August 2014

ChinaPetro/Chems



12M hi/lo HK$9.57/5.47





Major shareholdersChina International United Petroleum & Chemical 60.3%China Social Security Fund 6.0%


Absolute 10.5 (7.7) (23.9)Relative 4.5 (15.7) (31.4)Abs (US$) 10.5 (7.7) (23.8)

050100150200250300350400450500550600650

1.6

3.6

5.6

7.6

9.6

Aug 09 Dec 10 Apr 12 Aug 13Sinopec Kantons (LHS)

Rel to CEI (RHS)

(HK$) (%)

Source: Bloomberg

www.clsa.com

Com

pan

y u

pdate

A solid beatThe company reported upbeat 1H14 results, with net attributable profits came in at HK$377mn, up 63% on year, beating CL estimate by 14%. The company continued to deliver strong growth in crude throughputvolumes, and also expanded its net profit margin to north of 10% in 1H14. We continue to like the company with 30% earnings Cagr for 2013-18CL, underpinned by Yulin-Jinan gas pipeline and LNG vessels gradually phasing in starting 2015. Maintain BUY to a TP of HK$ 7.80 p.s.

A solid beat in 1H14The company recorded HK$3511mn revenue in 1H14, down 73% on year, net attributable profits at HK$377mn, up 63% on year, beating CL estimate by a solid 14% on stronger volume throughput, narrowing losses of its VLCC business and less corporate income tax due to previous provisions. Revenue was down massively as the company trimmed its loss-making crude trading business. Net margin expanded quite a bit to 10.7% in 1H14 from 1.8% in 1H13 and 2.5% in 2H13.

Riding on China’s craving for crudesThe company posted a 12% growth in crude throughput for its 7 oil jetties in 1H14, higher than China’s total crude import growth standing at 10% for the same period. We are not in a rush to lift our 14CL earnings as we believe the crude import will slightly cool off in 2H14 on still weak fundamentals, evidenced by a 9% decline in Jul crude import data. We are still comfortable with our 3-4% assumption for throughput growth in 14CL.

Gas pipeline injection in progressThe focal point for the company is Yulin-Jinan gas pipeline, which underpinned a big chunk of the earnings growth in 15/16CL. According to mgmt, the transferring of ownership is well on track and tops the list of priorities for the mgmt at the moment. Though no official guidance on timelines is given, we expect the deal to be closed by 1Q15 and we see very slim chances that it will be delayed.

Maintain BUY for a 30% earnings CagrWe like the company as it is a safe bet on China’s rising crude imports, alsoit’s a growth story with earnings Cagr at 30% for 2013-18CL, with further upside from future asset injections which we think are highly likely. Maintain BUY with 27% upside to our HK$ 7.80 TP.



A solid beat Sinopec Kantons - BUY


A solid beat in 1H14The company recorded HK$3511mn revenue in 1H14, down 73% on year, net attributable profits at HK$377mn, up 63% on year, beating CL estimate by a solid 14% on stronger volume throughput, narrowing losses of its VLCC business and less corporate income tax due to previous provisions. Revenue was down massively as the company trimmed its loss-making crude trading business. Net margin expanded quite a bit to 10.7% in 1H14 from 1.8% in 1H13 and 2.5% in 2H13.

EPS came in at HK$ 15.2 cents per share, up 44% and lower than earnings growth due to the dilutions in mid-2013.

Figure 1

Sinopec Kantons semi-annual financials

HK$mn 1H13 2H13 1H14 YoY HoH

Revenue 13,049 10,306 3,511 (73%) (66%)

Cost of sales (12,978) (10,223) (3,357)

Gross profit 71 84 153 115% 83%

Gross profit % 0.5% 0.8% 4.4%

Other income and other gains, net 52 22 12

Distribution costs (9) (11) (15)

Administration expenses (66) (46) (41)

Operating profits 48 49 109 125% 122%

Operating profits % 0.4% 0.5% 3.1%

Finance income 7 (4) 3

Finance costs (4) 0 -

Finance costs, net 3 (4) 3

Share from associated companies 64 45 56 (11%) 25%

Share from Joint Ventures 166 291 260 57% (11%)

Profit before tax 281 381 429 53% 13%

Income tax expense (50) (120) (52)

Profits for the year 231 261 377

Non-controlling interests (0) 0 (0)

Net profits attributable to shareholders 231 261 377 63% 45%

Net profits margin % 1.8% 2.5% 10.7%

Basic eps, HK fen per share 10.52 10.48 15.18 44% 45%Source: Company

Riding on China’s craving for crudesThe company posted a 12% growth in crude throughput for its 7 oil jetties in 1H14, higher than China’s total crude import growth standing at 10% for the same period. We are not in a rush to lift our 14CL earnings as we believe the crude import will slightly cool off in 2H14 on still weak fundamentals, evidenced by a 9% decline in Jul crude import data. We are still comfortable with our 3-4% assumption for throughput growth in 14CL.

Net attributable profits up 63% in 1H14

EPS up to a less extent due to dilutions in 2013

Throughput volume grew 12% in 1H14 for the

company



Figure 2

Sinopec Kantons oil jetty throughput in 1H14

*Qingdao includes the new contribution from its liquid petrochemical business starting from May 2013. **Sinopec Kantons total refers to the gross total volume growth, not volume net to the company on Working Interest basis. Source: Company

China’s overall crude imports grew 10% in 1H14, in contrast to a flattish oil demand during the same period. The notable divergence is attributed to China’s continuous filling of its SPR (Strategic Petroleum Reserve).

Figure 3

China’s oil demand growth v’s oil imports growth

Source: CEIC

Gas pipeline injection in progressThe focal point for the company is Yulin-Jinan gas pipeline, which underpinned a big chunk of the earnings growth in 15/16CL. According to mgmt, the transferring of ownership is well on track and tops the list of priorities for the mgmt at the moment. Though no official guidance on timelines is given, we expect the deal to be closed by 1Q15 and we see very slim chances that it will be delayed.

17%

10%

18%

15%

-9%-7.10%

23%

12%10%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Huizhou Ningbo Rizhao Tianjin Caofeidian Zhanjiang Qingdao* SinopecKantons total**

Chinatotal

(%)

-9%

4%1%

3% 1%3%

12% 11%

2%

21%

9%

5%

-9%-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14

(%)China's oil demand growth

China's oil imports growth

We expect crude imports to slow down in 2H14

Robust volume throughput growth in

1H14

SPR is the driver

All well on track



Figure 4

Sinopec Kantons pre-tax profits breakdown by business

Source: CLSA

Maintain BUY for a 30% earnings CagrWe like the company as it is a safe bet on China’s rising crude imports, also it’s a growth story with earnings Cagr at 30% for 2013-18CL, with further upside from future asset injections which we think are highly likely. Maintain BUY with 25% upside to our HK$ 7.80 TP.

Figure 5

Sinopec Kantons (934 HK) DCF-based SoTP valuation, 12M forward

Value,HK$mn

Value,HK$ p.s.

Comments

Crude trading -250 -0.09 Based on 10x 15CL earnings7 Oil Jetties 9,970 3.40 DCF based, implied 8x 15CL earningsBatam (PT West) Project 601 0.21 DCF based, 6x normalized earningsFujairah Project 510 0.17 DCF based, 6x normalized earningsVesta Project 600 0.20 DCF based, 6x normalized earningsAPLNG JV (LNG Vessel) 2,868 0.98 DCF based, 10x earnings at full capacityPNGLNG JV (LNG Vessel) 171 0.06 DCF based, 10x earnings at full capacityYulin-Jinan Gas Pipeline 9,000 3.07 Based on 3.0x book value

Total asset value 23,469 8.01

Net debt as of 15CL end -599 -0.20NAV 22,870 7.80Last closing price 6.12Upside 27%Source: CLSA

(500)

0

500

1,000

1,500

2,000

2,500

3,000

2012 2013 2014CL 2015CL 2016CL 2017CL 2018CL

(HK$ mn)Gas pipelineLNG vesselCrude jetty - Equity Accounted (Overseas)Crude jetty - Equity Accounted (Domestic)Crude jetty - ConsolidatedVLCC vessel charteringCrude trading

Switching into the right business and exiting the

loss making VLCC chartering

A growth story



Figure 6

Global ports operators comp – PEG ratio

Source: Bloomberg

Figure 7 Figure 8

Sinopec Kantons (934 HK) PER bands, 12M forward Sinopec Kantons (934 HK) PB bands, 12M forward


2015E PEG ratio 2014E PEG ratio

0.2

0.4

0.4

0.8

1.1

1.3

1.4

2.0

5.0

5.6

0 1 2 3 4 5 6

WAN HAI LINES

SITC INTERNATIONAL

SINOPEC KANTONS

SHANGHAI INT'L PORT

CHINA MERCHANTS

TIANJIN PORT

COSCO PACIFIC

TIANJIN PORT

DP WORLD

PORT OF TAURANGA

(x)

0.2

0.3

1.0

1.0

1.3

1.3

1.8

1.9

2.3

3.0

3.4

4.2

0 1 1 2 2 3 3 4 4 5

SINOPEC KANTONS

SITC INTERNATIONAL

CHINA MERCHANTS

COSCO PACIFIC

DALIAN PORT

RIZHAO PORT

SHANGHAI INT'L PORT

DP WORLD

TIANJIN PORT

SHENZHEN CHIWAN WHARF

TIANJIN PORT

PORT OF TAURANGA

(x)

-1sd7.9x

avg16.5x

+1sd25.2x

3.4

8.4

13.4

18.4

23.4

28.4

33.4

Aug04 Aug06 Aug08 Aug10 Aug12

-1sd0.62x

avg1.07x

+1sd1.52x

0.3

0.50.7

0.91.11.3

1.5

1.71.9

2.1

Aug04 Aug06 Aug08 Aug10 Aug12



Figure 9

Global port operator comp table

Ticker Company Name Market cap

P/E(x)

P/B(x)

ROE(%)

Div. Yield(%)

(US$bn) 13A 14E 15E 13A 14E 15E 13A 14E 15E 13A 14E 15E

China/HK

934 HK SINOPEC KANTONS 2.0 25.1 19.1 12.7 1.5 1.4 1.1 7.3 7.8 10.9 0.7 0.8 1.1

144 HK CHINA MERCHANTS 8.6 16.4 15.5 14.1 1.4 1.2 1.1 8.6 8.4 8.5 2.8 2.9 3.3

1199 HK COSCO PACIFIC 4.3 13.8 12.0 11.3 0.9 0.9 0.8 13.7 7.0 7.6 6.9 3.1 3.6

3382 HK TIANJIN PORT 1.0 10.2 9.8 9.5 1.0 0.7 0.6 9.4 7.4 7.4 3.8 4.2 4.2

2880 HK DALIAN PORT 2.0 11.1 11.2 10.5 0.6 0.6 0.6 5.6 5.7 5.9 3.5 3.5 3.9

1308 HK SITC INTERNATIONAL 1.2 11.0 8.9 6.9 1.5 1.4 1.3 14.5 16.9 19.1 4.4 4.7 6.2

000022 CH SHENZHEN CHIWAN WHARF 1.3 17.2 17.4 16.3 2.2 2.1 1.9 13.0 12.3 12.0 2.8 3.2 3.3

600017 CH RIZHAO PORT 1.5 10.6 10.8 10.3 1.0 0.9 0.8 9.2 8.1 8.1 - - -

600717 CH TIANJIN PORT 2.3 - - - - 1.1 1.0 - 8.9 8.7 - 2.3 2.3

600018 CH SHANGHAI INT'L PORT 17.2 20.0 16.8 15.3 2.1 2.0 1.9 10.6 11.9 12.0 2.8 3.3 3.5

Average 4.1 15.0 13.5 11.9 1.4 1.2 1.1 10.2 9.4 10.0 3.5 3.1 3.5

Global Peers

HPHT SP HUTCHISON PORT 5.0 25.2 28.6 27.7 0.7 0.8 0.8 2.8 2.7 2.7 7.3 7.4 7.4

DPW DU DP WORLD 4.5 27.6 25.9 23.1 2.0 1.8 1.7 7.1 7.1 7.5 1.2 1.2 1.4

POT NZ PORT OF TAURANGA 1.8 27.1 26.2 24.6 2.6 2.6 2.5 9.6 9.6 9.7 3.0 3.2 3.4

2615 TT WAN HAI LINES 1.3 26.6 15.7 16.9 1.3 - - 7.3 - - 1.2 3.8 1.8

Average 3.1 26.6 24.1 23.1 1.6 1.7 1.7 6.7 6.5 6.7 3.2 3.9 3.5

Source: Bloomberg



Summary financialsYear to 31 December 2012A 2013A 2014CL 2015CL 2016CLSummary P&L forecast (HK$m)Revenue 22,042 23,356 24,058 25,983 26,582Op Ebitda 386 283 378 1,070 1,994Op Ebit 207 97 182 844 939Interest income 0 3 16 12 18Interest expense (2) (4) (3) (84) (49)Other items 152 566 712 788 930Profit before tax 357 662 908 1,560 1,838Taxation (66) (171) (206) (348) (434)Minorities/Pref divs - 0 0 0 0Net profit 292 491 701 1,212 1,405

Summary cashflow forecast (HK$m)Operating profit 207 97 182 844 939Operating adjustments - - - - -Depreciation/amortisation 178 186 196 226 1,055Working capital changes (19) 197 631 687 421Net interest/taxes/other (64) (71) (71) (200) (194)Net operating cashflow 302 408 937 1,557 2,221Capital expenditure (1,850) (2,508) (1,000) (5,200) (300)Free cashflow (1,548) (2,100) (63) (3,643) 1,921Acq/inv/disposals 0 (1,361) (386) (405) (425)Int, invt & associate div 54 82 75 77 90Net investing cashflow (1,796) (3,787) (1,311) (5,528) (635)Increase in loans (267) 0 0 2,400 (1,000)Dividends (73) (87) (87) (103) (103)Net equity raised/other 3,461 2,654 (3) 2,316 (49)Net financing cashflow 3,122 2,567 (90) 4,613 (1,152)Incr/(decr) in net cash 1,628 (811) (464) 643 434Exch rate movements 5 29 0 0 0Opening cash 772 2,405 1,622 1,158 1,801Closing cash 2,405 1,622 1,158 1,801 2,235

Summary balance sheet forecast (HK$m)Cash & equivalents 2,405 1,622 1,158 1,801 2,235Debtors 629 730 752 775 798Inventories 48 47 49 50 51Other current assets 5 0 0 0 0Fixed assets 1,930 2,682 2,876 11,070 10,765Intangible assets - - - - -Other term assets 2,848 6,108 7,812 8,630 10,253Total assets 7,865 11,191 12,647 22,327 24,102Short-term debt - - - - -Creditors 1,345 1,223 2,042 3,076 4,493Other current liabs 10 13 16 27 34Long-term debt/CBs - - - 2,400 1,400Provisions/other LT liabs 2 98 118 199 248Minorities/other equity 0 10 10 10 10Shareholder funds 6,508 9,847 10,461 16,615 17,917Total liabs & equity 7,865 11,191 12,647 22,327 24,102

Ratio analysisRevenue growth (% YoY) 12.0 6.0 3.0 8.0 2.3Ebitda growth (% YoY) (17.0) (26.6) 33.5 183.4 86.3Ebitda margin (%) 1.7 1.2 1.6 4.1 7.5Net profit margin (%) 1.3 2.1 2.9 4.7 5.3Dividend payout (%) 22.6 16.7 12.4 8.5 7.3Effective tax rate (%) 18.4 25.8 22.7 22.3 23.6Ebitda/net int exp (x) 247.9 256.0 - 14.8 64.3Net debt/equity (%) (37.0) (16.5) (11.1) 3.6 (4.7)ROE (%) 6.3 6.0 6.9 9.0 8.1ROIC (%) 10.7 4.1 7.3 12.6 9.0EVA®/IC (%) 0.6 (5.9) (2.8) 2.5 (1.0)Source: CLSA

Margin expansion

Zero debt for the company

Capex will peak in 2015CL

Revenue driven by new business



Companies mentionedSinopec Kantons (934 HK - HK$6.12 - BUY)

Recommendation history of Sinopec Kantons Holdings Ltd 934 HK

Date Rec Target Date Rec Target10 Jul 2014 BUY 7.80Source: CLSA







4

6

8

10St

ock

price

(HK

$)


Nelson WangOther analystsNo coverage

BUYU-PFN-R

O-PFSELL


China & Hong Kong - Upcoming results (1)

Ticker Stock Name Date Confirmed/ Reporting Fiscal CLSA Ccy CLSA vs Est. AnalystExpected Estimated Period Year end Rec CLSA CONS CONS(%) YoY (%)

Financial Services: Derek Ovington/Patricia Cheng/Marcus Liu5 HK HSBC 11/4/2014 Estimated 3Q FY2014 12/2013 U-PF USD 16,078 16,957 94.8 2.9 Derek Ovington

2888 HK Standard Chartered 3/5/2015 Estimated FY FY2013 12/2012 BUY USD 5,706 4,898 116.5 21.1 Derek Ovington2388 HK Bank of China (HK) 3/26/2015 Estimated FY FY2014 12/2013 BUY HKD 24,756 24,263 102.0 11.3 Derek Ovington

23 HK BEA 2/18/2015 Estimated FY FY2014 12/2013 U-PF HKD 6,695 6,463 103.6 6.6 Derek Ovington11 HK Hang Seng Bank 2/24/2015 Estimated FY FY2014 12/2013 SELL HKD 17,093 17,101 100.0 (35.9) Derek Ovington

302 HK Wing Hang Bank 8/21/2014 Confirmed 1H FY2014 12/2013 U-PF HKD 2,138 2,059 103.8 (2.3) Derek Ovington1288 HK Agricultural Bank 8/26/2014 Confirmed 2Q FY2014 12/2013 U-PF CNY 183,357 183,357 100.0 10.2 Patricia Cheng3988 HK Bank of China 10/30/2014 Estimated 3Q FY2014 12/2013 BUY CNY 168,658 169,986 99.2 7.5 Patricia Cheng939 HK CCB 8/29/2014 Confirmed 2Q FY2014 12/2013 BUY CNY 230,707 229,718 100.4 7.5 Patricia Cheng

1398 HK ICBC 8/28/2014 Confirmed 2Q FY2014 12/2013 U-PF CNY 282,303 280,900 100.5 7.5 Patricia Cheng3328 HK Bocom 8/21/2014 Confirmed 2Q FY2014 12/2013 U-PF CNY 64,814 65,478 99.0 4.0 Patricia Cheng3968 HK CMB 8/29/2014 Confirmed 2Q FY2014 12/2013 U-PF CNY 56,901 57,414 99.1 10.0 Patricia Cheng1988 HK Minsheng 8/28/2014 Confirmed 2Q FY2014 12/2013 U-PF CNY 46,268 46,368 99.8 9.4 Patricia Cheng1299 HK AIA 2/23/2015 Estimated FY FY2014 11/2013 SELL USD 3,204 3,199 100.2 n.a. Patricia Cheng2628 HK China Life 8/27/2014 Confirmed 2Q FY2014 12/2013 U-PF CNY 31,187 30,715 101.5 n.a. Patricia Cheng966 HK China Taiping 8/21/2014 Confirmed 1H FY2014 12/2013 U-PF HKD 2,639 2,331 113.2 n.a. Patricia Cheng

2601 HK CPIC 8/24/2014 Tentative 2Q FY2014 12/2013 U-PF CNY 11,745 11,406 103.0 n.a. Patricia Cheng1336 HK New China Life 8/26/2014 Confirmed 2Q FY2014 12/2013 U-PF CNY 5,465 5,637 96.9 n.a. Patricia Cheng1339 HK PICC Group 8/22/2014 Confirmed 1H FY2014 12/2013 SELL CNY 10,758 9,757 110.3 n.a. Patricia Cheng2328 HK PICC P&C 8/22/2014 Confirmed 1H FY2014 12/2013 U-PF CNY 12,910 11,834 109.1 n.a. Patricia Cheng2318 HK Ping An 10/27/2014 Estimated 3Q FY2014 12/2013 BUY CNY 34,828 33,408 104.2 n.a. Patricia Cheng388 HK HK Exchanges 11/6/2014 Estimated 3Q FY2014 12/2013 SELL HKD 4,966 5,149 96.4 9.1 Marcus Liu

China Property: Nicole Wong/Susanna Leung3383 HK Agile Property 8/26/2014 Confirmed 1H FY2014 12/2013 BUY CNY 3,342 4,650 71.9 (30.8) Nicole Wong

81 HK Cogo 10/16/2014 Estimated 3Q FY2014 12/2013 U-PF HKD 2,069 2,586 80.0 (33.8) Nicole Wong688 HK Coli 10/22/2014 Estimated 3Q FY2014 12/2013 BUY HKD 22,292 22,907 97.3 (3.3) Nicole Wong

2007 HK Country Garden 2/24/2015 Estimated FY FY2014 12/2013 SELL CNY 9,406 9,974 94.3 10.5 Susanna Leung1109 HK CR Land 3/23/2015 Estimated FY FY2014 12/2013 BUY HKD 10,880 11,239 96.8 (26.0) Nicole Wong3333 HK Evergrande 8/26/2014 Confirmed 1H FY2014 12/2013 U-PF CNY 8,537 10,026 85.1 (32.3) Nicole Wong2777 HK Guangzhou R&F 8/26/2014 Confirmed 1H FY2014 12/2013 U-PF CNY 5,694 6,402 88.9 (25.4) Nicole Wong1813 HK KWG Property 8/28/2014 Confirmed 1H FY2014 12/2013 BUY CNY 2,924 2,824 103.5 6.3 Susanna Leung960 HK Longfor 3/23/2015 Estimated FY FY2014 12/2013 BUY CNY 6,775 6,820 99.3 (15.8) Nicole Wong813 HK Shimao Property 8/26/2014 Confirmed 1H FY2014 12/2013 BUY CNY 8,492 8,868 95.7 14.9 Nicole Wong410 HK Soho China 8/21/2014 Confirmed 1H FY2014 12/2013 U-PF CNY 1,574 2,062 76.3 (78.7) Susanna Leung

1918 HK Sunac 8/25/2014 Confirmed 1H FY2014 12/2013 BUY CNY 5,232 4,430 118.1 64.6 Susanna Leung2202 HK Vanke 8/14/2015 Estimated 2Q FY2014 12/2013 BUY CNY 18,083 18,200 99.4 19.6 Nicole Wong

HK Property: Nicole Wong/Susanna Leung/Danie Schutte/Jonathan Galligan/Jackson Hui1 HK Cheung Kong 2/27/2015 Estimated FY FY2014 12/2013 O-PF HKD 37,964 35,073 108.2 9.0 Danie Schutte, CFA

497 HK CSI Properties 11/27/2014 Estimated 1H FY2015 03/2014 BUY HKD 1,045 1,167 89.6 (9.7) Jackson Hui41 HK Great Eagle 8/21/2014 Confirmed 1H FY2014 12/2013 U-PF HKD 1,556 1,632 95.4 (35.1) Susanna Leung

101 HK Hang Lung Prop 1/23/2015 Estimated FY FY2014 12/2013 U-PF HKD 5,001 5,505 90.8 (30.7) Susanna Leung12 HK Henderson Land 8/26/2014 Confirmed 1H FY2014 12/2013 SELL HKD 7,783 8,622 90.3 (51.2) Nicole Wong

HKL SP Hongkong Land 2/27/2015 Estimated FY FY2014 12/2013 BUY USD 848 875 96.8 (28.7) Susanna Leung14 HK Hysan 3/9/2015 Estimated FY FY2014 12/2013 O-PF HKD 2,273 2,167 104.9 (63.1) Susanna Leung

683 HK Kerry Properties 8/21/2014 Confirmed 1H FY2014 12/2013 U-PF HKD 3,195 3,601 88.7 (75.7) Susanna Leung823 HK Link Reit 11/13/2014 Estimated 1H FY2015 03/2014 U-PF HKD 4,515 4,186 107.9 (17.8) Jackson Hui

1200 HK Midland 8/26/2014 Confirmed 1H FY2014 12/2013 U-PF HKD 77 54 144.4 n.a. Susanna Leung17 HK New World Dev 9/26/2014 Estimated FY FY2014 06/2013 U-PF HKD 7,269 7,281 99.8 (48.6) Susanna Leung16 HK SHKP 9/12/2014 Confirmed FY FY2014 06/2013 U-PF HKD 23,731 21,683 109.4 (41.2) Nicole Wong83 HK Sino Land 8/27/2014 Confirmed FY FY2014 06/2013 U-PF HKD 4,052 4,778 84.8 (65.3) Susanna Leung

1972 HK Swire Properties 3/13/2015 Estimated FY FY2014 12/2013 U-PF HKD 8,840 6,784 130.3 (29.4) Danie Schutte, CFA4 HK Wharf 3/27/2015 Estimated FY FY2014 12/2013 U-PF HKD 12,863 12,155 105.8 (56.2) Susanna Leung

Oil & Gas: Simon Powell/Nelson Wang857 HK PetroChina 8/28/2014 Confirmed 2Q FY2014 12/2013 BUY CNY 141,903 136,158 104.2 9.5 Simon Powell386 HK Sinopec 8/24/2014 Tentative 2Q FY2014 12/2013 U-PF CNY 68,453 71,205 96.1 3.5 Simon Powell883 HK CNOOC 8/28/2014 Confirmed 1H FY2014 12/2013 U-PF CNY 59,687 56,820 105.0 5.7 Simon Powell

2883 HK COSL 8/26/2014 Confirmed 2Q FY2014 12/2013 #N/A CNY n.a. n.a. n.a. n.a.2386 HK SEG 3/17/2015 Estimated FY FY2014 12/2013 BUY CNY 4,020 4,138 97.2 9.9 Simon Powell934 HK Sinopec Kantons 8/21/2014 Confirmed 1H FY2014 12/2013 BUY HKD 701 791 88.6 42.7 Nelson Wang338 HK Shanghai Petrochem 8/28/2014 Confirmed 2Q FY2014 12/2013 SELL CNY 1,428 1,166 122.5 (30.5) Nelson Wang

3337 HK Antonoil 8/27/2014 Confirmed 1H FY2014 12/2013 U-PF CNY 450 403 111.5 17.5 Simon PowellResources: Andrew Driscoll/Daniel Meng

1088 HK Shenhua 8/22/2014 Tentative 2Q FY2014 12/2013 BUY CNY 40,080 40,286 99.5 (11.1) Andrew Driscoll, CFA1898 HK China Coal 10/27/2014 Estimated 3Q FY2014 12/2013 SELL CNY 821 2,315 35.5 (78.4) Andrew Driscoll, CFA1171 HK Yanzhou Coal 8/24/2014 Tentative 2Q FY2014 12/2013 U-PF CNY 1,464 1,442 101.5 88.3 Andrew Driscoll, CFA2600 HK Chalco 8/28/2014 Confirmed 2Q FY2014 12/2013 SELL CNY (4,352) (4,538) 95.9 (546.2) Andrew Driscoll, CFA486 HK Rusal 8/26/2014 Confirmed 2Q FY2014 12/2013 U-PF USD 235 541 43.5 n.a. Andrew Driscoll, CFA

1378 HK Hongqiao 3/16/2015 Estimated FY FY2014 12/2013 BUY CNY 4,734 5,405 87.6 (15.4) Andrew Driscoll, CFA358 HK Jiangxi Copper 8/27/2014 Confirmed 2Q FY2014 12/2013 O-PF CNY 3,110 2,841 109.5 (12.5) Andrew Driscoll, CFA639 HK Shougang Fushan 8/28/2014 Confirmed 1H FY2014 12/2013 U-PF HKD 191 562 34.0 (82.9) Andrew Driscoll, CFA

1393 HK Hidili Industry 3/31/2015 Estimated FY FY2014 12/2013 SELL CNY (1,100) (792) 138.8 n.a. Andrew Driscoll, CFA975 HK Mongolian Mining 3/11/2015 Estimated FY FY2014 12/2013 SELL USD (104) (50) 208.2 n.a. Daniel Meng914 HK Conch 8/21/2014 Confirmed 2Q FY2014 12/2013 BUY CNY 12,217 12,188 100.2 30.1 Daniel Meng

3323 HK CNBM 8/22/2014 Confirmed 2Q FY2014 12/2013 U-PF CNY 7,042 6,517 108.1 22.2 Daniel Meng1893 HK Sinoma 8/26/2014 Confirmed 2Q FY2014 12/2013 BUY CNY 808 643 125.6 103.2 Daniel Meng1313 HK CR Cement 3/9/2015 Estimated FY FY2014 12/2013 BUY HKD 4,367 4,251 102.7 30.8 Daniel Meng2009 HK BBMG 8/26/2014 Tentative 2Q FY2014 12/2013 O-PF CNY 3,704 3,750 98.8 15.2 Daniel Meng691 HK Shanshui Cement 8/22/2014 Confirmed 1H FY2014 12/2013 U-PF CNY 1,080 968 111.6 6.2 Daniel Meng

2899 HK Zijin 10/24/2014 Estimated 3Q FY2014 12/2013 SELL CNY 2,440 2,208 110.5 14.8 Daniel Meng1818 HK Zhaojin 3/22/2015 Estimated FY FY2014 12/2013 SELL CNY 719 662 108.6 1.2 Daniel Meng1051 HK G-Resources 8/29/2014 Confirmed FY FY2014 12/2013 BUY USD 60 n.a. n.a. (17.9) Daniel Meng

Conglomerates: Danie Schutte/Jonathan Galligan/Rajesh Panjwani13 HK Hutchison Whampoa 3/2/2015 Estimated FY FY2014 12/2013 O-PF HKD 47,564 33,644 141.4 52.9 Danie Schutte, CFAJM SP Jardine Matheson 2/27/2015 Estimated FY FY2014 12/2013 BUY USD 1,551 1,558 99.6 (1.0) Jonathan GalliganJS SP Jardine Strategic 2/27/2015 Estimated FY FY2014 12/2013 BUY USD 1,787 1,674 106.8 5.1 Jonathan Galligan

JCNC SP Jardine C&C 11/6/2014 Estimated 3Q FY2014 12/2013 O-PF USD 931 876 106.3 1.8 Jonathan GalliganDFI SP Dairy Farm 2/27/2015 Estimated FY FY2014 12/2013 O-PF USD 516 515 100.1 9.4 Jonathan Galligan66 HK MTRC 8/25/2014 Confirmed 1H FY2014 12/2013 U-PF HKD 9,517 9,977 95.4 (26.9) Danie Schutte, CFA19 HK Swire Pacific 3/13/2015 Estimated FY FY2014 12/2013 U-PF HKD 14,782 9,973 148.2 11.2 Danie Schutte, CFA54 HK Hopewell Hldgs 8/26/2014 Confirmed FY FY2014 06/2013 O-PF HKD 1,460 1,284 113.7 (88.0) Danie Schutte, CFA

737 HK Hopewell Highway 8/26/2014 Confirmed FY FY2014 06/2013 U-PF HKD 769 707 108.7 2.9 Danie Schutte, CFA142 HK First Pacific 8/27/2014 Confirmed 1H FY2014 12/2013 U-PF USD 379 398 95.2 61.0 Danie Schutte, CFA392 HK Beijing Ent 8/29/2014 Confirmed 1H FY2014 12/2013 SELL HKD 4,864 5,023 96.8 16.8 Rajesh Panjwani

Healthcare: Heather HsuMR US Mindray 11/4/2014 Estimated 3Q FY2014 12/2013 BUY USD 225 222 101.3 0.1 Mohan Singh

Machinery, Trucks & Construction: Alexious Lee1800 HK CCCC 8/26/2014 Confirmed 2Q FY2014 12/2013 BUY CNY 14,615 13,733 106.4 16.3 Alexious Lee1186 HK CRCC 8/29/2014 Confirmed 2Q FY2014 12/2013 SELL CNY 10,764 11,430 94.2 4.1 Alexious Lee390 HK China Railway 8/29/2014 Confirmed 2Q FY2014 12/2013 SELL CNY 9,443 10,328 91.4 0.7 Alexious Lee

3339 HK Lonking 8/26/2014 Confirmed 1H FY2014 12/2013 SELL CNY 493 558 88.5 2.8 Alexious Lee631 HK Sany Intl 8/29/2014 Confirmed 1H FY2014 12/2013 U-PF CNY 389 390 99.6 9.1 Alexious Lee

3808 HK Sinotruk 8/26/2014 Confirmed 1H FY2014 12/2013 BUY CNY 574 510 112.6 52.8 Alexious Lee2338 HK Weichai Power 8/29/2014 Confirmed 2Q FY2014 12/2013 BUY CNY 4,236 4,552 93.1 18.6 Alexious Lee

200581 CH Weifu High-Tech 8/29/2014 Tentative 2Q FY2014 12/2013 BUY CNY 2,036 1,626 125.2 83.7 Alexious Lee564 HK ZMJ 8/21/2014 Tentative 1H FY2014 12/2013 SELL CNY 398 924 43.1 (54.1) Alexious Lee

1157 HK Zoomlion 8/29/2014 Confirmed 2Q FY2014 12/2013 O-PF CNY 2,066 3,594 57.5 (46.2) Alexious LeeTelecoms & Internet: Elinor Leung/Dawei Feng/Terry Chen/Man Ho Lam

941 HK China Mobile 10/21/2014 Estimated 3Q FY2014 12/2013 BUY CNY 106,117 105,659 100.4 (12.8) Elinor Leung, CFA728 HK China Telecom 8/27/2014 Confirmed 2Q FY2014 12/2013 U-PF CNY 19,220 18,327 104.9 9.5 Elinor Leung, CFA762 HK Unicom 10/24/2014 Estimated 3Q FY2014 12/2013 SELL CNY 13,044 12,685 102.8 25.3 Elinor Leung, CFA215 HK Hutchison Telecom 3/17/2015 Estimated FY FY2014 12/2013 SELL HKD 705 794 88.8 (23.0) Terry Chen

BIDU US Baidu 10/29/2014 Estimated 3Q FY2014 12/2013 BUY CNY 12,594 12,758 98.7 19.7 Elinor Leung, CFA700 HK Tencent 11/13/2014 Estimated 3Q FY2014 12/2013 BUY CNY 23,974 24,005 99.9 54.7 Elinor Leung, CFA

JD US JD.com 11/14/2014 Estimated 3Q FY2014 12/2013 BUY CNY (5,595) (228) 2458.9 n.a. Elinor Leung, CFAQIHU US Qihoo 360 8/25/2014 Confirmed 2Q FY2014 12/2013 BUY USD 221 332 66.5 121.6 Man Ho LamCTRP US Ctrip 11/5/2014 Estimated 3Q FY2014 12/2013 BUY CNY 724 675 107.3 (27.5) Elinor Leung, CFAVIPS US Vipshop 11/11/2014 Estimated 3Q FY2014 12/2013 BUY USD 136 168 81.2 169.8 Dawei Feng, CFA

Please see important notice on last page

Net Income (LC'm)

China & Hong Kong - Upcoming results (2)

Ticker Stock Name Date Confirmed/ Reporting Fiscal CLSA Ccy CLSA vs Est. AnalystExpected Estimated Period Year end Rec CLSA CONS CONS(%) YoY (%)

Steel & Autos: Scott Laprise489 HK Dongfeng 8/29/2014 Confirmed 1H FY2014 12/2013 BUY CNY 11,060 11,753 94.1 5.1 Scott Laprise

1211 HK BYD 8/24/2014 Tentative 2Q FY2014 12/2013 SELL CNY 640 1,257 50.9 15.8 Scott Laprise1114 HK Brilliance Auto 3/27/2015 Estimated FY FY2014 12/2013 BUY CNY 4,672 4,369 106.9 38.5 Scott Laprise2238 HK GAC 8/26/2014 Confirmed 2Q FY2014 12/2013 BUY CNY 4,325 4,042 107.0 63.1 Scott Laprise2333 HK Great Wall Motor 8/22/2014 Confirmed 2Q FY2014 12/2013 BUY CNY 8,895 9,004 98.8 8.2 Scott Laprise1728 HK Zhengtong Auto 8/29/2014 Confirmed 1H FY2014 12/2013 BUY CNY 1,108 1,047 105.8 22.4 Scott Laprise

Technology: Nicolas Baratte/CK Cheng/Cherry Ma2018 HK AAC 8/27/2014 Confirmed 2Q FY2014 12/2013 O-PF CNY 2,580 2,568 100.4 0.3 Nicolas Baratte522 HK ASM Pacific 11/3/2014 Estimated 3Q FY2014 12/2013 SELL HKD 1,096 1,643 66.7 96.2 Nicolas Baratte992 HK Lenovo 11/7/2014 Estimated 2Q FY2015 03/2014 O-PF USD 967 911 106.1 28.6 Nicolas Baratte

3315 HK Goldpac 8/25/2014 Confirmed 1H FY2014 12/2013 BUY CNY 210 224 94.0 49.1 Cherry Ma327 HK Pax Global 3/6/2015 Estimated FY FY2014 12/2013 O-PF HKD 376 363 103.6 66.0 Cherry Ma

2382 HK Sunny Optical 3/11/2015 Estimated FY FY2014 12/2013 BUY CNY 546 587 93.0 23.9 Billy Feng763 HK ZTE 10/22/2014 Estimated 3Q FY2014 12/2013 SELL CNY 2,305 2,611 88.3 18.0 Billy Feng

Consumer staples: Xiaopo Wei/Dawei Feng151 HK Want Want 8/26/2014 Confirmed 1H FY2014 12/2013 BUY USD 766 756 101.4 11.5 Xiaopo Wei, CFA322 HK Tingyi 11/14/2014 Estimated 3Q FY2014 12/2013 SELL USD 496 527 94.2 21.5 Xiaopo Wei, CFA220 HK Uni-President China 3/18/2015 Estimated FY FY2014 12/2013 U-PF CNY 716 636 112.7 (12.0) Dawei Feng, CFA

2319 HK Mengniu Dairy 8/27/2014 Confirmed 1H FY2014 12/2013 BUY CNY 2,036 2,052 99.2 26.7 Xiaopo Wei, CFA6863 HK Huishan Dairy 11/27/2014 Estimated 1H FY2015 03/2014 BUY CNY 1,743 1,790 97.4 32.1 Xiaopo Wei, CFA1044 HK Hengan 8/27/2014 Confirmed 1H FY2014 12/2013 BUY HKD 4,183 4,182 100.0 12.4 Dawei Feng, CFA3331 HK Vinda 3/27/2015 Estimated FY FY2014 12/2013 BUY HKD 494 494 100.0 (9.0) Dawei Feng, CFA1068 HK Yurun Food 8/22/2014 Confirmed 1H FY2014 12/2013 SELL HKD (263) (260) 101.4 (703.7) Dawei Feng, CFA6808 HK Sun Art 11/14/2014 Estimated 3Q FY2014 12/2013 SELL CNY 2,909 3,082 94.4 4.8 Xiaopo Wei, CFA291 HK CRE 8/21/2014 Confirmed 2Q FY2014 12/2013 O-PF HKD 1,712 1,802 95.0 (10.3) Xiaopo Wei, CFA168 HK Tsingtao 8/28/2014 Confirmed 2Q FY2014 12/2013 U-PF CNY 2,236 2,150 104.0 13.3 Xiaopo Wei, CFA

Consumer Discretionary: Aaron Fischer/Xiaopo Wei/Mariana Kou/Dawei Feng1913 HK Prada 9/19/2014 Confirmed 2Q FY2015 01/2014 U-PF EUR 641 622 103.0 0.3 Aaron Fischer, CFA1910 HK Samsonite 8/27/2014 Confirmed 1H FY2014 12/2013 BUY USD 210 222 94.8 19.3 Aaron Fischer, CFA787 HK GBG 8/21/2014 Confirmed 1H FY2014 12/2013 BUY USD 74 94 78.6 (35.0) Aaron Fischer, CFA494 HK Li & Fung 8/21/2014 Confirmed 1H FY2014 12/2013 O-PF USD 465 608 76.5 (24.0) Aaron Fischer, CFA973 HK L'Occitane 11/25/2014 Estimated 1H FY2015 03/2014 U-PF EUR 118 118 99.9 (27.2) Mariana Kou, CFA330 HK Esprit 9/23/2014 Confirmed FY FY2014 06/2013 SELL HKD 55 120 45.7 n.a. Aaron Fischer, CFA

1929 HK Chow Tai Fook 11/26/2014 Estimated 1H FY2015 03/2014 BUY HKD 6,941 7,601 91.3 32.1 Aaron Fischer, CFA3636 HK Poly Culture 8/25/2014 Confirmed 1H FY2014 12/2013 BUY CNY 344 344 100.0 25.1 Aaron Fischer, CFA3389 HK Hengdeli 3/25/2015 Estimated FY FY2014 12/2013 U-PF CNY 600 532 112.9 4.4 Mariana Kou, CFA887 HK Emperor Watch 8/27/2014 Confirmed 1H FY2014 12/2013 U-PF HKD 248 308 80.6 (14.5) Mariana Kou, CFA398 HK Oriental Watch 11/20/2014 Estimated 1H FY2015 03/2014 SELL HKD 75 35 218.4 (84.5) Mariana Kou, CFA999 HK I.T 10/27/2014 Estimated 1H FY2015 02/2014 U-PF HKD 314 321 97.9 (27.1) Mariana Kou, CFA

1212 HK Lifestyle 2/24/2015 Estimated FY FY2014 12/2013 U-PF HKD 2,167 2,167 100.0 (11.5) Mariana Kou, CFA178 HK Sa Sa 11/18/2014 Estimated 1H FY2015 03/2014 SELL HKD 704 1,006 69.9 10.6 Mariana Kou, CFA

3308 HK Golden Eagle 8/25/2014 Confirmed 1H FY2014 12/2013 O-PF CNY 1,222 1,223 99.9 (1.0) Xiaopo Wei, CFA3368 HK Parkson Retail Grp 11/14/2014 Estimated 3Q FY2014 12/2013 SELL CNY 359 358 100.5 1.6 Xiaopo Wei, CFA1833 HK Intime 3/25/2015 Estimated FY FY2014 12/2013 O-PF CNY 943 1,112 84.8 (11.5) Xiaopo Wei, CFA493 HK Gome 8/25/2014 Confirmed 2Q FY2014 12/2013 BUY CNY 1,189 1,223 97.2 33.2 Xiaopo Wei, CFA

2020 HK Anta Sports 2/26/2015 Estimated FY FY2014 12/2013 BUY CNY 1,539 1,605 95.9 17.1 Xiaopo Wei, CFA3818 HK Dongxiang 8/21/2014 Confirmed 1H FY2014 12/2013 SELL CNY 227 227 100.0 7.8 Xiaopo Wei, CFA2331 HK Li Ning 3/24/2015 Estimated FY FY2014 12/2013 SELL CNY (485) (367) 132.2 n.a. Xiaopo Wei, CFA1880 HK Belle Intl 10/31/2014 Estimated 1H FY2015 02/2014 BUY CNY 5,312 5,148 103.2 4.4 Xiaopo Wei, CFA210 HK Daphne 3/25/2015 Estimated FY FY2014 12/2013 BUY HKD 516 423 121.9 56.6 Dawei Feng, CFA

2313 HK Shenzhou Intl 8/27/2014 Confirmed 1H FY2014 12/2013 BUY CNY 2,154 2,088 103.2 19.5 Dawei Feng, CFA1836 HK Stella International 3/19/2015 Estimated FY FY2014 12/2013 U-PF USD 129 134 96.4 7.7 Dawei Feng, CFA891 HK Trinity 3/16/2015 Estimated FY FY2014 12/2013 U-PF HKD 210 240 87.4 (31.1) Dawei Feng, CFA

1234 HK Lilang 3/12/2015 Estimated FY FY2014 12/2013 SELL CNY 481 535 90.0 (6.8) Dawei Feng, CFA238 HK Evergreen Intl 8/28/2014 Confirmed 1H FY2014 12/2013 U-PF CNY 57 57 100.0 (26.1) Dawei Feng, CFA

Hotels & Leisure: Aaron Fischer/Richard Huang/Mariana Kou (* Announcement date of parent company is shown below)1928 HK Sands China * 10/17/2014 Estimated 3Q FY2014 12/2013 BUY USD 2,974 3,057 97.3 32.7 Aaron Fischer, CFA1128 HK Wynn Macau * 10/24/2014 Estimated 3Q FY2014 12/2013 BUY HKD 8,212 8,250 99.5 7.3 Aaron Fischer, CFA880 HK SJM 11/11/2014 Estimated 3Q FY2014 12/2013 BUY HKD 8,125 8,256 98.4 6.3 Aaron Fischer, CFA27 HK Galaxy 11/7/2014 Estimated 3Q FY2014 12/2013 BUY HKD 12,821 13,114 97.8 22.1 Aaron Fischer, CFA

MPEL US Melco Crown 11/5/2014 Estimated 3Q FY2014 12/2013 BUY USD 806 911 88.4 26.5 Aaron Fischer, CFA2282 HK MGM China * 10/31/2014 Estimated 3Q FY2014 12/2013 BUY HKD 6,375 6,466 98.6 21.1 Aaron Fischer, CFA577 HK Louis XIII 11/24/2014 Estimated 1H FY2015 03/2014 BUY HKD (50) (50) 100.0 (385.4) Aaron Fischer, CFA

1680 HK Macau Legend 2/18/2015 Estimated FY FY2014 12/2013 BUY HKD 537 889 60.4 5.3 Aaron Fischer, CFA703 HK Future Bright 8/22/2014 Confirmed 1H FY2014 12/2013 BUY HKD 169 177 95.7 17.0 Richard Huang511 HK TVB 3/26/2015 Estimated FY FY2014 12/2013 U-PF HKD 1,691 1,732 97.6 (2.6) Richard Huang242 HK Shun Tak 8/29/2014 Confirmed 1H FY2014 12/2013 BUY HKD 1,860 1,610 115.6 377.7 Richard Huang

Utilities/Power Equipment: Rajesh Panjwani/Charles Yonts2 HK CLP 2/27/2015 Estimated FY FY2014 12/2013 SELL HKD 9,444 10,009 94.4 1.5 Rajesh Panjwani6 HK Power Assets 2/25/2015 Estimated FY FY2014 12/2013 O-PF HKD 61,648 60,995 101.1 452.2 Rajesh Panjwani

2638 HK HK Electric 7/21/2015 Estimated 1H FY2014 12/2013 SELL HKD 3,054 3,046 100.3 (41.0) Rajesh Panjwani1038 HK Cheung Kong Infra 2/25/2015 Estimated FY FY2014 12/2013 O-PF HKD 30,183 10,048 300.4 159.3 Rajesh Panjwani2727 HK Shanghai Electric 10/30/2014 Estimated 3Q FY2014 12/2013 SELL CNY 2,073 2,604 79.6 (13.4) Rajesh Panjwani1072 HK Dongfang 8/29/2014 Confirmed 2Q FY2014 12/2013 SELL CNY 1,873 2,086 89.8 (20.3) Rajesh Panjwani1133 HK Harbin Electric 3/23/2015 Estimated FY FY2014 12/2013 SELL CNY 587 722 81.2 (16.9) Rajesh Panjwani902 HK Huaneng Power 10/22/2014 Estimated 3Q FY2014 12/2013 O-PF CNY 11,919 12,232 97.4 14.3 Charles Yonts991 HK Datang Power 8/27/2014 Confirmed 2Q FY2014 12/2013 O-PF CNY 5,023 4,483 112.0 42.3 Charles Yonts836 HK CR Power 3/17/2015 Estimated FY FY2014 12/2013 BUY HKD 12,779 11,846 107.9 16.0 Charles Yonts

1071 HK Huadian Power 8/29/2014 Tentative 2Q FY2014 12/2013 O-PF CNY 3,528 4,958 71.1 (13.9) Charles Yonts2380 HK China Power 3/18/2015 Estimated FY FY2014 12/2013 BUY CNY 2,585 2,484 104.1 12.9 Charles Yonts1330 HK Dynagreen 4/30/2015 Estimated FY FY2014 12/2013 BUY CNY 165 134 123.5 9.5 Charles Yonts2688 HK ENN Energy 8/22/2014 Confirmed 1H FY2014 12/2013 U-PF CNY 2,236 2,236 100.0 78.6 Rajesh Panjwani1193 HK CR Gas 8/22/2014 Confirmed 1H FY2014 12/2013 O-PF HKD 2,548 2,729 93.4 17.9 Rajesh Panjwani

3 HK HK & China Gas 8/25/2014 Confirmed 1H FY2014 12/2013 SELL HKD 6,693 7,323 91.4 (2.4) Rajesh PanjwaniAlternative Energy: Charles Yonts

916 HK Longyuan Power 10/31/2014 Estimated 3Q FY2014 12/2013 U-PF CNY 3,580 3,226 111.0 77.9 Charles Yonts1798 HK Datang Renewable 8/22/2014 Confirmed 1H FY2014 12/2013 U-PF CNY 856 323 265.5 80.3 Charles Yonts958 HK HN Renewables 3/18/2015 Estimated FY FY2014 12/2013 BUY CNY 1,824 1,223 149.2 40.0 Charles Yonts257 HK Everbright Intl 2/27/2015 Estimated FY FY2014 12/2013 U-PF HKD 1,720 1,720 100.0 29.8 Charles Yonts816 HK Huadian Fuxin 8/22/2014 Confirmed 1H FY2014 12/2013 BUY CNY 1,995 1,950 102.3 35.9 Charles Yonts

3800 HK GCL-Poly 8/28/2014 Confirmed 1H FY2014 12/2013 SELL HKD 1,381 1,763 78.4 n.a. Charles YontsTransport: Paul Wan/Ansel Lin

293 HK Cathay Pacific 3/12/2015 Estimated FY FY2014 12/2013 BUY HKD 4,072 3,497 116.4 55.4 Paul Wan2866 HK CSCL 8/28/2014 Confirmed 2Q FY2014 12/2013 SELL CNY (32) (228) 14.3 n.a. Paul Wan316 HK OOIL 3/10/2015 Estimated FY FY2014 12/2013 O-PF USD 306 261 117.2 551.1 Paul Wan

1138 HK China Shipping Dev 8/29/2014 Confirmed 2Q FY2014 12/2013 BUY CNY 301 371 81.2 n.a. Paul Wan1919 HK China Cosco 8/28/2014 Confirmed 2Q FY2014 12/2013 SELL CNY (355) (1,121) 31.6 n.a. Paul Wan2343 HK Pacific Basin 2/27/2015 Estimated FY FY2014 12/2013 O-PF USD (59) (12) 494.7 (4098.0) Paul WanHPHT SP HPH Trust 10/21/2014 Estimated 3Q FY2014 12/2013 U-PF HKD 1,777 1,675 106.1 6.1 Ansel Lin1199 HK Cosco Pacific 8/26/2014 Confirmed 1H FY2014 12/2013 O-PF USD 328 327 100.1 (53.4) Ansel Lin144 HK China Merchants 8/28/2014 Confirmed 1H FY2014 12/2013 BUY HKD 4,715 4,630 101.8 11.9 Ansel Lin636 HK Kerry Logistics 3/16/2015 Estimated FY FY2014 12/2013 O-PF HKD 939 1,002 93.7 7.4 Paul Wan

Small & Mid Caps: Mohan Singh/Timothy Lee1599 HK Beijing Construction 8/27/2014 Confirmed 1H FY2014 12/2013 BUY CNY 340 338 100.8 44.4 Timothy Lee, CFA1882 HK Haitian 8/27/2014 Confirmed 1H FY2014 12/2013 U-PF CNY 1,309 1,364 95.9 10.6 Timothy Lee, CFA2314 HK Lee & Man Paper 3/17/2015 Estimated FY FY2014 12/2013 U-PF HKD 2,027 1,995 101.6 9.7 Timothy Lee, CFA2128 HK Lesso 3/17/2015 Estimated FY FY2014 12/2013 BUY CNY 1,464 1,653 88.6 1.0 Timothy Lee, CFA425 HK Minth 8/29/2014 Confirmed 1H FY2014 12/2013 BUY CNY 1,147 1,143 100.3 31.7 Timothy Lee, CFA

2689 HK Nine Dragons 9/26/2014 Estimated FY FY2014 06/2013 SELL CNY 1,837 1,805 101.7 35.2 Timothy Lee, CFA869 HK Playmates Toys 8/29/2014 Confirmed 1H FY2014 12/2013 BUY HKD 505 548 92.3 (5.2) Mohan Singh750 HK Singyes Solar 8/28/2014 Confirmed 1H FY2014 12/2013 BUY CNY 679 696 97.6 38.5 Timothy Lee, CFA669 HK Techtronic 3/19/2015 Estimated FY FY2014 12/2013 BUY USD 300 311 96.4 19.8 Mohan Singh303 HK VTech 11/13/2014 Estimated 1H FY2015 03/2014 O-PF USD 223 221 101.0 0.9 Mohan Singh868 HK Xinyi Glass 2/26/2015 Estimated FY FY2014 12/2013 O-PF HKD 1,433 1,627 88.1 (55.8) Timothy Lee, CFA968 HK Xinyi Solar 2/26/2015 Estimated FY FY2014 12/2013 BUY HKD 461 462 99.8 51.7 Timothy Lee, CFA


Net Income (LC'm)

China & Hong Kong - Price and valuation data (1)

Ticker Stock Name Upside CLSA21-Aug Target (%) total free-flow 14CL 15CL 14CL 15CL 14CL 15CL 14CL 15CL Rec

Financial Services: Derek Ovington/Patricia Cheng/Marcus Liu5 HK HSBC HKD 82.45 85.00 3.1 203,195 203,195 12.7 11.6 0.1 9.6 5.1 5.5 1.1 1.1 U-PF

2888 HK Standard Chartered HKD 157.50 208.00 32.1 50,199 50,199 10.4 8.9 20.1 16.3 4.2 4.4 1.1 1.0 BUY2388 HK Bank of China (HK) HKD 26.05 30.00 15.2 35,538 35,538 11.1 9.9 11.3 11.9 4.4 4.8 1.6 1.5 BUY

23 HK BEA HKD 33.60 35.50 5.7 10,097 10,097 11.6 11.5 3.9 1.4 3.5 3.8 1.1 1.1 U-PF11 HK Hang Seng Bank HKD 132.50 118.00 -10.9 32,686 32,686 14.8 14.0 (35.9) 6.1 4.2 4.2 2.2 2.1 SELL

302 HK Wing Hang Bank HKD 121.80 125.00 2.6 4,846 4,846 17.5 16.4 (3.1) 6.7 1.8 2.0 1.6 1.5 U-PF1288 HK Agricultural Bank HKD 3.66 3.80 3.8 133,005 14,516 5.1 4.7 10.2 8.8 6.8 7.4 1.0 0.9 U-PF3988 HK Bank of China HKD 3.65 4.40 20.5 124,936 39,383 4.8 4.5 7.5 5.5 7.3 7.7 0.8 0.7 BUY939 HK CCB HKD 5.83 6.50 11.5 187,198 180,854 5.0 4.7 7.5 6.4 7.0 7.4 0.9 0.8 BUY

1398 HK ICBC HKD 5.18 5.50 6.2 208,489 58,011 5.1 4.8 7.1 6.6 6.9 7.3 1.0 0.9 U-PF3328 HK Bocom HKD 5.68 6.20 9.2 52,764 25,660 5.2 4.9 4.0 4.9 5.8 6.1 0.7 0.7 U-PF3968 HK CMB HKD 15.06 15.30 1.6 44,450 8,921 5.3 4.8 (1.9) 10.5 4.7 5.2 1.0 0.8 U-PF1988 HK Minsheng HKD 7.56 7.70 1.9 34,598 6,764 4.0 4.0 (0.5) (0.0) 5.0 4.9 0.9 0.7 U-PF1299 HK AIA HKD 43.15 35.00 -18.9 67,062 67,062 20.9 18.2 13.5 15.1 1.2 1.4 2.2 2.0 SELL2628 HK China Life HKD 22.60 24.00 6.2 72,484 21,699 16.2 14.7 25.9 10.6 2.2 2.4 2.0 1.8 U-PF966 HK China Taiping HKD 18.26 17.00 -6.9 5,725 5,725 16.9 15.9 39.6 6.4 0.0 0.0 2.0 1.7 U-PF

2601 HK CPIC HKD 29.60 30.00 1.4 31,019 10,600 18.1 15.9 26.8 13.6 1.4 1.4 1.9 1.7 U-PF1336 HK New China Life HKD 27.45 29.00 5.6 11,910 3,663 12.4 10.7 23.6 15.8 0.0 0.0 1.5 1.3 U-PF1339 HK PICC Group HKD 3.26 3.20 -1.8 17,845 3,671 10.2 8.8 32.5 16.4 0.0 0.0 1.3 1.1 SELL2328 HK PICC P&C HKD 12.40 12.70 2.4 21,766 6,752 10.9 9.6 13.4 13.3 4.4 4.4 2.1 1.8 U-PF2318 HK Ping An HKD 64.50 80.00 24.0 59,122 26,047 11.6 10.4 23.7 11.9 1.2 1.3 1.9 1.6 BUY388 HK HK Exchanges HKD 182.40 135.00 -26.0 27,468 27,468 42.7 35.7 8.0 19.6 2.1 2.5 9.5 8.7 SELL

China Property: Nicole Wong/Susanna Leung3383 HK Agile Property HKD 6.21 8.50 36.9 2,790 2,790 5.1 4.1 (24.8) 26.5 4.9 6.2 0.5 0.5 BUY

81 HK Cogo HKD 4.94 5.90 19.4 1,455 1,455 5.4 4.0 (33.8) 36.2 3.7 4.3 0.9 0.7 U-PF688 HK Coli HKD 23.00 29.50 28.3 24,258 24,258 8.4 7.0 9.1 20.1 2.4 2.8 1.5 1.3 BUY

2007 HK Country Garden HKD 3.66 3.00 -18.0 9,010 9,010 5.8 4.9 5.9 18.8 6.2 7.3 1.0 0.9 SELL1109 HK CR Land HKD 18.56 23.00 23.9 13,965 13,965 9.9 9.0 15.4 10.7 2.4 3.0 1.1 1.0 BUY3333 HK Evergrande HKD 3.24 3.30 1.9 6,164 6,164 4.5 3.9 (11.2) 16.0 6.7 7.8 1.0 0.9 U-PF2777 HK Guangzhou R&F HKD 10.76 10.50 -2.4 4,474 1,410 4.8 3.9 (2.2) 22.7 7.3 9.0 0.8 0.8 U-PF1813 HK KWG Property HKD 5.84 6.30 7.9 2,220 2,220 4.6 3.7 6.3 23.4 5.4 6.9 0.6 0.5 BUY960 HK Longfor HKD 10.48 13.80 31.7 7,359 7,359 6.7 5.3 8.2 27.5 3.0 3.8 1.0 0.9 BUY813 HK Shimao Property HKD 16.92 20.20 19.4 7,581 7,581 5.5 4.5 15.8 22.5 5.1 6.3 1.0 0.9 BUY410 HK Soho China HKD 6.40 6.50 1.6 4,294 4,294 17.0 18.1 (80.0) (5.9) 4.9 4.9 0.5 0.4 U-PF

1918 HK Sunac HKD 6.38 7.70 20.7 2,774 2,774 3.2 2.4 62.3 35.6 4.0 4.6 0.9 0.7 BUY2202 HK Vanke HKD 15.28 20.00 30.9 17,297 2,593 7.4 6.1 19.6 21.8 4.1 5.0 1.6 1.4 BUY

HK Property: Nicole Wong/Susanna Leung/Danie Schutte/Jonathan Galligan/Jackson Hui1 HK Cheung Kong HKD 146.90 165.00 12.3 43,902 43,902 9.0 10.1 9.0 (11.3) 6.2 2.8 0.8 0.7 O-PF

497 HK CSI Properties HKD 0.36 0.41 15.9 421 421 4.1 3.1 (16.4) 31.6 3.1 4.8 0.4 0.4 BUY41 HK Great Eagle HKD 29.25 28.60 -2.2 2,475 2,475 12.0 9.5 (35.5) 26.8 2.3 2.3 0.4 0.4 U-PF

101 HK Hang Lung Prop HKD 24.65 24.50 -0.6 14,266 14,266 22.1 19.1 (30.7) 15.4 3.0 3.0 0.8 0.7 U-PF12 HK Henderson Land HKD 51.20 37.27 -27.2 19,819 19,819 18.6 18.1 (21.4) 3.2 1.8 1.9 0.6 0.6 SELL

HKL SP Hongkong Land USD 6.93 8.30 19.8 16,305 16,305 19.2 17.7 (9.3) 8.9 2.6 2.6 0.6 0.6 BUY14 HK Hysan HKD 38.20 40.00 4.7 5,243 5,243 17.9 16.9 11.2 5.9 3.4 3.6 0.6 0.6 O-PF

683 HK Kerry Properties HKD 27.60 26.40 -4.3 5,144 5,144 12.5 11.6 (75.8) 7.2 2.5 2.8 0.5 0.5 U-PF823 HK Link Reit HKD 45.25 41.60 -8.1 13,491 13,491 27.3 25.1 13.2 8.9 3.7 4.0 1.1 1.1 U-PF

1200 HK Midland HKD 3.85 4.30 11.7 357 357 35.7 18.2 n.a. 95.8 1.6 1.8 1.7 1.6 U-PF17 HK New World Dev HKD 9.86 9.00 -8.7 11,023 11,023 9.3 11.4 (53.6) (17.8) 4.3 4.3 0.5 0.5 U-PF16 HK SHKP HKD 116.70 100.00 -14.3 41,037 41,037 12.9 16.8 (41.2) (23.3) 2.9 2.9 0.7 0.7 U-PF83 HK Sino Land HKD 14.08 11.30 -19.7 10,930 10,930 20.7 14.4 (65.5) 44.3 3.6 3.6 0.8 0.7 U-PF

1972 HK Swire Properties HKD 26.80 26.50 -1.1 20,229 20,229 17.7 24.7 (29.4) (28.3) 2.1 2.0 0.8 0.7 U-PF4 HK Wharf HKD 61.20 62.30 1.8 23,928 23,928 14.4 12.8 13.8 12.9 3.0 3.6 0.6 0.6 U-PF

Oil & Gas: Simon Powell/Nelson Wang857 HK PetroChina HKD 10.74 12.00 11.7 236,553 29,239 11.0 9.9 9.5 11.0 4.1 4.6 1.2 1.1 BUY386 HK Sinopec HKD 7.59 7.50 -1.2 103,890 24,986 10.3 9.9 3.5 3.5 3.9 4.0 1.2 1.1 U-PF883 HK CNOOC HKD 15.18 12.00 -20.9 87,450 87,450 9.0 8.1 5.7 11.2 2.8 3.1 1.4 1.2 U-PF

2883 HK COSL HKD 19.68 n.a. n.a. 13,363 4,599 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. #N/A2386 HK SEG HKD 8.73 12.30 40.9 4,988 1,645 7.6 6.7 (2.9) 13.4 3.9 4.5 1.3 1.1 BUY934 HK Sinopec Kantons HKD 6.12 7.80 27.5 1,963 1,963 21.7 14.8 34.4 46.6 0.6 0.6 1.5 1.1 BUY338 HK Shanghai Petrochem HKD 2.59 2.23 -13.9 5,334 1,168 15.5 13.0 (30.5) 18.9 1.6 1.9 1.2 1.1 SELL

3337 HK Antonoil HKD 4.05 4.98 22.8 1,156 1,156 15.6 13.7 15.4 14.1 1.9 2.2 2.7 2.4 U-PFResources: Andrew Driscoll/Daniel Meng

1088 HK Shenhua HKD 22.95 28.00 22.0 50,577 10,064 9.0 8.8 (11.1) 2.0 4.4 4.5 1.2 1.1 BUY1898 HK China Coal HKD 4.70 3.50 -25.5 9,004 2,490 60.1 18.1 (78.4) 231.5 0.5 1.7 0.6 0.5 SELL1171 HK Yanzhou Coal HKD 6.68 6.20 -7.2 5,377 1,688 17.8 14.1 88.3 25.7 1.7 2.1 0.6 0.6 U-PF2600 HK Chalco HKD 3.43 2.20 -35.9 7,816 1,746 (8.4) (24.3) n.a. n.a. 0.0 0.0 0.9 1.0 SELL486 HK Rusal HKD 4.05 3.00 -25.9 7,939 7,939 33.8 11.4 n.a. 197.0 0.0 1.8 1.2 1.0 U-PF

1378 HK Hongqiao HKD 6.74 7.50 11.3 5,118 5,118 6.6 4.7 (15.4) 40.0 3.4 4.7 1.0 0.9 BUY358 HK Jiangxi Copper HKD 14.38 16.00 11.3 7,204 2,574 12.7 11.3 (12.5) 11.8 3.2 3.5 0.9 0.8 O-PF639 HK Shougang Fushan HKD 2.13 2.30 8.0 1,457 1,457 60.0 14.3 (82.9) 318.9 0.7 3.1 0.6 0.6 U-PF

1393 HK Hidili Industry HKD 0.93 0.80 -14.0 245 245 (1.4) (7.5) n.a. n.a. 0.0 0.0 0.3 0.3 SELL975 HK Mongolian Mining HKD 0.68 0.40 -41.2 325 325 (3.1) (12.7) n.a. n.a. 0.0 0.0 0.7 0.8 SELL914 HK Conch HKD 28.65 35.00 22.2 16,210 4,804 9.8 9.4 30.1 5.1 2.0 2.1 1.8 1.6 BUY

3323 HK CNBM HKD 7.51 7.50 -0.1 5,232 2,790 4.6 4.4 22.2 4.5 3.3 3.4 0.8 0.7 U-PF1893 HK Sinoma HKD 1.87 2.20 17.6 862 281 6.6 5.9 103.2 10.9 2.7 3.0 0.4 0.4 BUY1313 HK CR Cement HKD 5.61 6.70 19.4 4,729 4,729 8.4 7.9 30.8 6.3 2.4 2.6 1.3 1.1 BUY2009 HK BBMG HKD 6.10 6.60 8.2 4,709 920 5.9 5.6 8.8 6.1 4.8 5.4 0.7 0.7 O-PF691 HK Shanshui Cement HKD 2.90 3.00 3.4 1,054 1,054 6.0 5.2 6.2 14.8 3.4 3.9 0.6 0.6 U-PF

2899 HK Zijin HKD 2.01 1.80 -10.4 7,549 1,515 14.2 12.2 15.1 16.2 5.8 4.1 1.2 1.2 SELL1818 HK Zhaojin HKD 4.90 4.20 -14.3 1,843 553 16.0 13.8 1.2 16.2 2.4 2.8 1.3 1.2 SELL1051 HK G-Resources HKD 0.20 0.26 28.1 694 694 11.6 9.4 (29.6) 22.8 2.2 2.6 0.6 0.6 BUY

Conglomerates: Danie Schutte/Jonathan Galligan/Rajesh Panjwani13 HK Hutchison Whampoa HKD 104.40 119.00 14.0 57,431 57,431 9.4 12.1 52.9 (22.9) 9.2 2.7 1.0 0.9 O-PFJM SP Jardine Matheson USD 59.28 74.00 24.8 40,779 40,779 14.1 12.0 (1.0) 17.2 2.3 2.7 1.1 1.1 BUYJS SP Jardine Strategic USD 35.87 42.00 17.1 40,192 40,192 12.2 10.6 5.1 15.0 0.8 0.8 0.9 0.9 BUY

JCNC SP Jardine C&C SGD 44.61 48.00 7.6 12,685 12,685 13.6 10.4 1.8 30.5 2.9 3.8 2.6 2.3 O-PFDFI SP Dairy Farm USD 10.36 11.15 7.6 14,008 14,008 27.2 23.9 9.2 13.5 3.1 2.5 8.9 8.2 O-PF66 HK MTRC HKD 31.10 32.00 2.9 23,335 23,335 18.9 17.3 (26.9) 9.4 3.0 3.2 1.1 1.1 U-PF19 HK Swire Pacific HKD 104.60 105.00 0.4 19,681 12,222 10.6 13.5 11.2 (21.2) 3.9 3.7 0.7 0.7 U-PF54 HK Hopewell Hldgs HKD 28.50 28.50 0.0 3,204 3,204 17.5 16.5 (88.0) 6.1 3.6 3.7 0.6 0.6 O-PF

737 HK Hopewell Highway HKD 4.07 3.50 -14.0 1,618 1,618 16.3 13.6 0.9 19.6 6.0 7.1 1.3 1.3 U-PF142 HK First Pacific HKD 9.09 9.87 8.6 5,045 5,045 13.3 12.1 52.0 10.6 1.9 2.1 1.3 1.2 U-PF392 HK Beijing Ent HKD 75.05 68.00 -9.4 12,437 12,437 19.8 17.3 15.4 14.4 1.3 1.4 1.6 1.5 SELL

Healthcare: Heather HsuMR US Mindray USD 32.07 44.79 39.7 3,795 2,845 16.6 14.3 1.7 16.3 1.8 2.1 2.2 2.0 BUY

Machinery, Trucks & Construction: Alexious Lee1800 HK CCCC HKD 5.88 7.04 19.8 11,166 3,359 5.2 4.7 16.3 9.3 4.8 5.2 0.7 0.6 BUY1186 HK CRCC HKD 7.74 6.08 -21.4 10,593 2,074 7.0 6.9 4.1 2.5 2.2 2.3 0.8 0.8 SELL390 HK China Railway HKD 4.22 3.00 -28.9 10,150 2,291 7.5 7.4 0.7 2.3 2.0 2.0 0.8 0.7 SELL

3339 HK Lonking HKD 1.40 1.30 -7.1 773 773 9.6 7.7 2.8 24.2 3.1 3.9 0.7 0.6 SELL631 HK Sany Intl HKD 1.71 2.20 28.7 671 671 10.6 9.2 9.1 14.7 3.0 3.4 0.7 0.6 U-PF

3808 HK Sinotruk HKD 4.21 5.06 20.1 1,500 1,500 16.0 11.6 52.8 37.9 1.7 2.3 0.5 0.5 BUY2338 HK Weichai Power HKD 33.25 44.00 32.3 7,074 2,084 12.4 10.2 18.6 22.4 1.0 1.2 1.7 1.4 BUY

200581 CH Weifu High-Tech HKD 27.10 32.20 18.8 4,343 603 10.8 10.5 83.7 2.1 2.6 3.1 1.9 1.7 BUY564 HK ZMJ HKD 5.05 4.14 -18.0 1,441 158 16.3 14.6 (54.1) 11.9 1.9 2.1 0.7 0.6 SELL

1157 HK Zoomlion HKD 4.98 5.10 2.4 5,803 919 14.7 11.7 (46.2) 25.9 3.8 2.1 0.7 0.7 O-PFTelecoms & Internet: Elinor Leung/Dawei Feng/Terry Chen/Man Ho Lam

941 HK China Mobile HKD 94.40 100.00 5.9 247,861 247,861 14.2 14.2 (12.8) 0.0 3.1 3.1 1.8 1.7 BUY728 HK China Telecom HKD 4.30 4.20 -2.3 44,904 7,700 14.3 13.3 9.5 8.0 2.0 2.1 0.9 0.9 U-PF762 HK Unicom HKD 13.32 12.00 -9.9 41,052 41,052 19.1 16.3 25.3 17.2 1.5 1.7 1.1 1.0 SELL215 HK Hutchison Telecom HKD 3.37 2.80 -16.9 2,095 2,095 23.0 21.2 (23.0) 8.8 3.3 3.5 1.4 1.4 SELL

BIDU US Baidu USD 219.02 250.00 14.1 76,746 60,280 37.4 29.9 19.7 24.9 0.0 0.0 9.2 7.0 BUY700 HK Tencent HKD 130.70 160.00 22.4 157,898 157,898 39.6 31.2 54.5 26.7 0.3 0.3 11.6 8.5 BUY

JD US JD.com USD 30.93 35.80 15.7 37,982 33,681 (46.9) (123.9) n.a. n.a. 0.0 0.0 9.1 9.5 BUYQIHU US Qihoo 360 USD 101.99 130.00 27.5 12,843 9,119 40.4 24.8 43.4 63.1 0.0 0.0 12.2 8.1 BUYCTRP US Ctrip USD 66.05 78.00 18.1 8,548 8,548 75.3 45.1 (29.0) 67.0 0.0 0.0 5.6 4.7 BUYVIPS US Vipshop USD 215.91 265.00 22.7 12,202 12,202 97.5 46.0 156.5 112.0 0.0 0.0 35.0 20.0 BUY


Price PE(x) EPSg(%)MktCap (US$m)

21 August, 2014

Yield(%) PB(x)

China & Hong Kong - Price and valuation data (2)

Ticker Stock Name Upside CLSA21-Aug Target (%) total free-flow 14CL 15CL 14CL 15CL 14CL 15CL 14CL 15CL Rec

Steel & Autos: Scott Laprise489 HK Dongfeng HKD 13.84 15.56 12.5 15,387 5,100 8.5 7.1 5.1 20.1 0.0 0.0 1.3 1.1 BUY

1211 HK BYD HKD 51.20 6.36 -87.6 18,967 6,045 156.8 148.5 10.1 5.6 0.1 0.1 3.6 3.5 SELL1114 HK Brilliance Auto HKD 14.38 16.90 17.5 9,325 9,325 12.3 10.2 37.9 20.5 1.2 1.1 3.4 2.6 BUY2238 HK GAC HKD 8.61 10.44 21.2 8,049 2,459 10.1 7.4 63.1 36.7 3.0 4.0 1.2 1.1 BUY2333 HK Great Wall Motor HKD 30.45 44.10 44.8 13,974 4,059 8.3 7.1 8.2 16.9 2.6 3.0 2.1 1.7 BUY1728 HK Zhengtong Auto HKD 4.14 6.93 67.3 1,181 1,181 6.5 5.4 22.4 21.6 0.0 0.0 0.8 0.7 BUY

Technology: Nicolas Baratte/CK Cheng/Cherry Ma2018 HK AAC HKD 47.75 47.26 -1.0 7,566 7,566 18.0 15.0 0.3 20.0 2.2 2.8 4.9 4.1 O-PF522 HK ASM Pacific HKD 81.65 62.55 -23.4 4,221 4,221 29.8 23.1 96.2 29.2 2.5 3.2 4.4 4.2 SELL992 HK Lenovo HKD 11.82 12.84 8.6 15,873 15,873 19.3 17.5 29.0 10.1 2.0 2.3 5.2 4.7 O-PF

3315 HK Goldpac HKD 7.80 8.70 11.6 835 835 24.4 15.4 (4.2) 59.0 0.9 1.6 3.3 2.8 BUY327 HK Pax Global HKD 7.10 7.85 10.5 1,005 1,005 20.7 15.9 58.0 30.1 0.0 0.0 3.1 2.6 O-PF

2382 HK Sunny Optical HKD 10.86 12.75 17.4 1,537 1,537 17.3 12.4 23.9 39.5 2.2 3.1 2.9 2.5 BUY763 HK ZTE HKD 17.10 10.80 -36.8 7,922 1,389 20.2 19.1 18.0 5.8 1.6 1.7 2.0 1.8 SELL

Consumer staples: Xiaopo Wei/Dawei Feng151 HK Want Want HKD 10.76 13.68 27.1 18,321 18,321 23.9 20.0 11.7 19.6 2.5 3.0 8.2 7.0 BUY322 HK Tingyi HKD 22.40 19.51 -12.9 16,187 16,187 32.7 28.1 20.1 16.3 1.5 1.8 5.1 4.6 SELL220 HK Uni-President China HKD 7.20 6.20 -13.9 4,013 4,013 32.0 28.9 (21.2) 10.6 0.6 0.7 2.1 2.0 U-PF

2319 HK Mengniu Dairy HKD 37.45 46.90 25.2 9,463 9,463 28.5 22.1 17.9 29.0 0.8 1.0 2.7 2.5 BUY6863 HK Huishan Dairy HKD 1.80 2.85 58.3 3,346 3,346 13.1 11.4 24.4 15.8 1.5 2.1 1.6 1.4 BUY1044 HK Hengan HKD 84.15 95.00 12.9 13,320 13,320 24.8 21.2 12.4 16.9 2.4 2.8 5.6 5.0 BUY3331 HK Vinda HKD 12.38 14.60 17.9 1,595 1,595 25.0 18.6 (9.0) 34.3 0.9 1.5 2.4 2.2 BUY1068 HK Yurun Food HKD 4.02 3.70 -8.0 945 945 (27.8) 30.0 n.a. n.a. 0.0 0.8 0.5 0.5 SELL6808 HK Sun Art HKD 9.00 7.77 -13.7 11,078 11,078 23.4 21.9 4.8 6.9 1.3 1.4 3.5 3.1 SELL291 HK CRE HKD 23.25 26.30 13.1 7,237 7,237 32.8 27.9 3.7 17.7 1.2 1.4 1.2 1.2 O-PF168 HK Tsingtao HKD 58.70 61.42 4.6 9,475 4,962 28.1 24.0 13.3 16.9 1.1 1.3 4.0 3.6 U-PF

Consumer Discretionary: Aaron Fischer/Xiaopo Wei/Mariana Kou/Dawei Feng1913 HK Prada HKD 53.85 53.50 -0.6 17,779 17,779 21.3 20.0 0.3 2.0 2.1 2.3 5.0 4.2 U-PF1910 HK Samsonite HKD 24.35 30.80 26.5 4,424 4,424 19.4 15.9 21.3 21.8 2.1 2.6 3.3 3.0 BUY787 HK GBG HKD 2.04 2.80 37.3 2,201 2,201 29.8 17.5 (35.0) 70.4 0.0 0.0 0.9 0.8 BUY494 HK Li & Fung HKD 10.48 11.20 6.9 11,305 11,305 24.3 18.1 (24.0) 34.0 3.6 4.6 4.1 3.9 O-PF973 HK L'Occitane HKD 18.70 16.80 -10.2 3,564 3,564 29.6 21.7 (27.2) 31.8 1.2 1.6 3.5 3.1 U-PF330 HK Esprit HKD 12.58 10.00 -20.5 3,153 3,153 446.0 19.4 n.a. 2204.6 0.2 3.1 1.5 1.4 SELL

1929 HK Chow Tai Fook HKD 11.34 15.00 32.3 14,632 14,632 15.6 16.3 32.1 (4.6) 3.2 3.1 3.1 2.8 BUY3636 HK Poly Culture HKD 28.50 39.20 37.5 906 329 16.2 13.6 (16.2) 19.1 1.9 2.2 1.6 1.5 BUY3389 HK Hengdeli HKD 1.37 1.40 2.2 848 848 8.7 7.9 4.4 9.7 3.5 3.8 0.9 0.8 U-PF887 HK Emperor Watch HKD 0.49 0.55 13.4 431 431 13.4 9.0 (14.5) 49.4 2.2 3.3 0.7 0.7 U-PF398 HK Oriental Watch HKD 1.81 1.20 -33.7 133 133 41.0 13.7 (84.5) 199.2 0.6 1.8 0.5 0.4 SELL999 HK I.T HKD 2.80 2.40 -14.3 444 444 12.3 10.9 (27.2) 12.4 3.6 4.1 1.2 1.2 U-PF

1212 HK Lifestyle HKD 14.38 15.20 5.7 3,023 3,023 10.9 9.5 (10.7) 14.4 3.7 4.2 2.0 1.8 U-PF178 HK Sa Sa HKD 6.22 4.25 -31.7 2,283 2,283 19.3 25.1 10.4 (23.1) 3.6 2.8 7.9 7.3 SELL

3308 HK Golden Eagle HKD 10.28 10.70 4.1 2,388 2,388 12.2 10.9 2.1 11.9 2.5 2.8 2.4 2.1 O-PF3368 HK Parkson Retail Grp HKD 2.69 1.85 -31.2 965 965 16.5 15.5 2.6 7.0 2.7 2.9 1.0 1.0 SELL1833 HK Intime HKD 7.45 8.05 8.1 2,144 2,144 16.7 14.6 (17.2) 14.4 2.2 2.5 1.3 1.2 O-PF493 HK Gome HKD 1.31 1.66 26.7 2,867 2,867 14.7 12.7 33.3 15.8 2.0 2.4 1.1 1.0 BUY

2020 HK Anta Sports HKD 15.26 16.60 8.8 4,914 4,914 19.6 17.1 17.0 15.0 3.1 3.5 3.9 3.5 BUY3818 HK Dongxiang HKD 1.71 1.30 -24.0 1,222 1,222 33.0 31.8 (4.8) 3.9 2.1 2.2 0.9 0.9 SELL2331 HK Li Ning HKD 4.44 4.40 -0.9 785 785 (11.5) 30.6 n.a. n.a. 0.0 1.3 2.6 2.4 SELL1880 HK Belle Intl HKD 9.88 10.59 7.2 10,752 10,752 14.1 12.4 4.4 13.3 2.8 3.2 2.3 2.1 BUY210 HK Daphne HKD 3.89 4.20 8.0 828 828 13.8 11.7 41.3 18.0 2.9 3.4 1.3 1.2 BUY

2313 HK Shenzhou Intl HKD 23.60 32.00 35.6 4,260 4,260 12.1 10.3 16.6 17.5 3.8 4.4 2.2 2.0 BUY1836 HK Stella International HKD 21.95 19.90 -9.3 2,250 2,250 17.4 15.4 7.7 12.6 4.0 4.5 2.3 2.2 U-PF891 HK Trinity HKD 2.01 1.80 -10.4 449 449 16.6 12.3 (31.1) 34.4 4.2 5.7 1.0 1.0 U-PF

1234 HK Lilang HKD 5.46 5.00 -8.4 846 846 10.8 10.7 (6.8) 0.6 4.7 4.7 1.9 1.8 SELL238 HK Evergreen Intl HKD 1.04 1.02 -1.5 127 127 13.8 12.7 (26.1) 7.9 4.0 4.4 0.6 0.5 U-PF

Hotels & Leisure: Aaron Fischer/Richard Huang/Mariana Kou 1928 HK Sands China HKD 53.30 74.50 39.8 55,472 55,472 18.6 15.2 32.7 22.2 4.7 5.3 10.8 8.5 BUY1128 HK Wynn Macau HKD 32.00 61.00 90.6 21,452 21,452 20.2 18.3 7.3 10.5 3.9 3.9 16.1 12.8 BUY880 HK SJM HKD 20.05 34.30 71.1 14,632 14,632 13.7 11.1 6.3 23.7 5.1 6.3 4.8 4.1 BUY27 HK Galaxy HKD 61.50 100.00 62.6 33,668 33,668 20.5 17.9 22.1 14.7 1.5 1.5 6.9 5.5 BUY

MPEL US Melco Crown USD 29.33 59.00 101.2 16,292 16,292 20.2 16.6 26.5 21.7 1.5 1.8 3.5 3.0 BUY2282 HK MGM China HKD 27.00 48.00 77.8 13,240 13,240 16.1 14.4 21.1 11.4 3.7 3.7 11.7 8.5 BUY577 HK Louis XIII HKD 5.52 11.00 99.3 320 320 (38.7) (38.9) n.a. n.a. 0.0 0.0 0.5 0.5 BUY

1680 HK Macau Legend HKD 4.38 6.30 43.8 3,637 3,637 52.5 23.7 (5.7) 121.5 0.0 0.0 3.8 3.3 BUY703 HK Future Bright HKD 4.31 5.60 29.9 386 386 17.7 14.8 6.0 19.2 1.2 1.4 2.3 2.1 BUY511 HK TVB HKD 49.65 49.00 -1.3 2,806 2,806 12.9 12.3 (2.6) 4.4 5.2 5.4 2.4 2.3 U-PF242 HK Shun Tak HKD 3.99 5.90 47.9 1,563 1,563 6.4 9.5 377.7 (32.3) 5.5 3.7 0.5 0.5 BUY

Utilities/Power Equipment: Rajesh Panjwani/Charles Yonts2 HK CLP HKD 67.45 57.00 -15.5 21,988 21,988 18.0 16.9 1.5 6.6 3.9 3.9 1.7 1.7 SELL6 HK Power Assets HKD 74.45 75.00 0.7 20,502 20,502 19.4 17.7 (26.7) 9.5 3.6 3.8 1.3 1.2 O-PF

2638 HK HK Electric HKD 5.21 4.40 -15.5 5,940 5,940 15.1 15.0 (41.0) 0.2 7.0 7.7 1.0 1.0 SELL1038 HK Cheung Kong Infra HKD 58.70 58.00 -1.2 18,478 18,478 15.2 15.3 (17.4) (0.1) 3.3 3.3 1.5 1.4 O-PF2727 HK Shanghai Electric HKD 3.44 2.20 -36.0 7,866 1,320 16.9 16.9 (13.4) (0.5) 2.4 2.4 1.0 1.0 SELL1072 HK Dongfang HKD 13.34 10.00 -25.0 4,013 585 11.3 12.4 (20.3) (8.9) 1.5 1.5 1.1 1.0 SELL1133 HK Harbin Electric HKD 4.78 4.50 -5.9 849 417 8.9 10.2 (16.9) (12.6) 2.1 2.1 0.4 0.4 SELL902 HK Huaneng Power HKD 8.80 9.70 10.2 13,966 4,037 8.2 8.4 14.3 (2.2) 6.2 6.1 1.4 1.3 O-PF991 HK Datang Power HKD 4.01 4.20 4.7 7,886 1,716 8.4 8.1 42.3 4.1 5.4 5.6 0.9 0.8 O-PF836 HK CR Power HKD 23.80 28.50 19.7 14,725 14,725 8.9 8.1 14.8 10.7 3.6 4.0 1.5 1.4 BUY

1071 HK Huadian Power HKD 5.26 5.90 12.2 5,290 1,165 9.6 9.7 (21.5) (1.7) 3.8 4.1 1.0 1.0 O-PF2380 HK China Power HKD 3.47 4.00 15.3 3,007 3,007 7.0 7.0 (1.3) (0.6) 4.9 4.8 0.9 0.8 BUY1330 HK Dynagreen HKD 4.09 5.20 27.1 551 182 20.5 14.6 (26.7) 40.5 0.0 0.0 1.5 1.3 BUY2688 HK ENN Energy HKD 58.05 56.00 -3.5 8,112 8,112 22.3 21.2 78.6 5.0 1.1 1.3 4.4 3.3 U-PF1193 HK CR Gas HKD 26.00 27.00 3.8 7,461 7,461 22.4 19.4 19.3 15.8 0.8 0.9 3.5 3.2 O-PF

3 HK HK & China Gas HKD 18.06 15.00 -16.9 24,505 24,505 28.4 26.5 (2.4) 7.1 2.1 2.3 3.6 3.4 SELLAlternative Energy: Charles Yonts

916 HK Longyuan Power HKD 8.40 9.16 9.0 8,710 3,620 14.9 11.9 77.9 25.3 0.0 0.0 1.6 1.4 U-PF1798 HK Datang Renewable HKD 1.22 1.84 51.2 1,145 394 10.8 7.3 80.3 47.4 0.0 0.0 0.7 0.6 U-PF958 HK HN Renewables HKD 2.80 3.73 33.3 3,262 1,262 11.0 8.9 31.7 23.9 0.0 0.0 1.2 1.1 BUY257 HK Everbright Intl HKD 10.84 11.58 6.8 6,271 6,271 25.6 21.3 29.8 20.3 0.8 0.8 3.0 2.7 U-PF816 HK Huadian Fuxin HKD 4.20 5.10 21.4 4,324 1,161 13.3 10.6 29.8 25.8 1.5 2.1 1.9 1.6 BUY

3800 HK GCL-Poly HKD 2.82 2.10 -25.5 5,635 5,635 31.6 16.0 n.a. 97.3 0.0 0.0 2.6 2.3 SELLTransport: Paul Wan/Ansel Lin

293 HK Cathay Pacific HKD 14.90 17.65 18.4 7,563 7,563 14.4 9.2 55.4 56.1 2.4 3.8 0.9 0.8 BUY2866 HK CSCL HKD 2.26 1.55 -31.2 4,561 1,094 (643.8) 31.7 n.a. n.a. 0.0 0.0 0.9 0.9 SELL316 HK OOIL HKD 46.70 48.10 3.0 3,771 3,771 12.3 10.3 551.1 19.9 2.0 2.4 0.8 0.8 O-PF

1138 HK China Shipping Dev HKD 5.54 6.10 10.1 2,663 926 49.6 18.3 n.a. 171.8 0.6 1.6 0.7 0.7 BUY1919 HK China Cosco HKD 3.40 3.30 -2.9 5,388 1,132 (77.6) 8.1 n.a. n.a. 0.0 3.7 1.1 1.0 SELL2343 HK Pacific Basin HKD 4.72 5.40 14.4 1,180 1,180 (19.8) 15.5 n.a. n.a. 0.0 3.2 0.9 0.9 O-PFHPHT SP HPH Trust USD 0.71 0.71 0.0 6,228 6,185 27.0 30.1 6.1 (10.4) 7.5 7.5 0.7 0.8 U-PF1199 HK Cosco Pacific HKD 11.34 12.00 5.8 4,300 4,300 13.0 10.8 (54.9) 20.5 3.1 3.7 0.9 0.9 O-PF144 HK China Merchants HKD 26.05 32.00 22.8 8,560 8,560 15.5 14.3 0.8 8.3 1.9 2.6 1.2 1.1 BUY636 HK Kerry Logistics HKD 13.20 14.80 12.1 2,880 2,880 23.7 21.9 (16.9) 8.6 0.8 0.9 1.6 1.5 O-PF

Small & Mid Caps: Mohan Singh/Timothy Lee1599 HK Beijing Construction HKD 4.55 4.40 -3.3 747 228 11.6 10.6 3.5 9.8 2.2 2.8 1.8 1.6 BUY1882 HK Haitian HKD 18.78 16.20 -13.7 3,867 3,867 18.1 16.6 10.6 9.4 1.9 2.1 3.4 3.0 U-PF2314 HK Lee & Man Paper HKD 4.65 4.60 -1.1 2,805 2,805 10.8 10.4 10.1 4.3 1.7 1.9 1.2 1.1 U-PF2128 HK Lesso HKD 4.46 6.00 34.5 1,790 1,790 7.5 6.1 0.0 24.2 2.7 3.3 1.3 1.1 BUY425 HK Minth HKD 15.98 18.40 15.1 2,254 2,254 12.1 10.5 31.7 14.8 3.3 3.8 1.7 1.5 BUY

2689 HK Nine Dragons HKD 6.38 5.80 -9.1 3,841 3,841 12.8 11.5 35.2 11.3 1.7 1.8 1.0 0.9 SELL869 HK Playmates Toys HKD 2.81 4.20 49.5 437 437 6.8 7.6 (5.2) (10.6) 5.8 5.0 3.4 2.8 BUY750 HK Singyes Solar HKD 13.26 15.00 13.1 1,188 1,188 10.9 9.6 31.0 13.8 0.9 1.0 2.3 1.9 BUY669 HK Techtronic HKD 24.25 28.88 19.1 5,729 5,729 19.2 16.0 19.8 19.5 1.2 1.5 2.9 2.6 BUY303 HK VTech HKD 96.15 113.00 17.5 3,116 3,116 15.3 14.0 0.7 9.5 6.5 7.0 5.4 5.4 O-PF868 HK Xinyi Glass HKD 4.81 5.15 7.0 2,434 2,434 13.5 11.5 (56.3) 18.1 3.3 4.4 1.5 1.4 O-PF968 HK Xinyi Solar HKD 2.26 2.76 22.1 1,773 1,773 28.0 13.5 10.2 107.8 1.2 2.5 4.8 3.7 BUY


Price

21 August, 2014

Yield(%) PB(x)EPSg(%)PE(x)MktCap (US$m)

Tickers Stock Name Share price H/A A/HH-share A/B-share Total Free flow H Free flow A/B H-share A/B-share H-share A/B-share premium/ premium/

(discount) (discount)US$m US$m US$m US$m US$m % %

1288 HK 601288 CH Agricultural Bank 133,005 12,057 114,504 68.1 37.3 HKD 3.66 CNY 2.48 17.2 (14.7)753 HK 601111 CH Air China 7,942 1,100 4,886 3.9 8.8 HKD 5.00 CNY 3.61 10.0 (9.1)347 HK 000898 CH Angang 4,295 759 3,497 6.9 8.9 HKD 5.70 CNY 3.50 29.3 (22.7)995 HK 600012 CH Anhui Expressway 1,157 272 858 0.6 2.6 HKD 4.70 CNY 4.53 (17.6) 21.4

3988 HK 601988 CH Bank of China 124,936 34,374 85,553 135.6 15.7 HKD 3.65 CNY 2.69 7.8 (7.2)2009 HK 601992 CH BBMG 4,709 920 3,261 6.3 21.8 HKD 6.10 CNY 6.45 (24.9) 33.1588 HK 601588 CH Beijing North Star 1,382 202 1,180 0.4 3.2 HKD 2.21 CNY 2.73 (35.7) 55.5187 HK 600860 CH Beiren Printing 407 54 353 0.6 1.5 HKD 4.20 CNY 6.75 (50.6) 102.4

3328 HK 601328 CH Bocom 52,764 6,994 22,587 18.4 73.5 HKD 5.68 CNY 4.25 6.1 (5.8)1211 HK 002594 CH BYD 18,967 6,045 5,462 31.5 43.3 HKD 51.20 CNY 50.95 (20.2) 25.3939 HK 601939 CH CCB 187,198 56,239 6,344 151.0 19.3 HKD 5.83 CNY 4.07 13.8 (12.1)

1800 HK 601800 CH CCC 11,166 3,359 897 11.3 12.2 HKD 5.88 CNY 4.09 14.2 (12.4)6818 HK 601818 CH CEB Bank 20,532 2,234 17,271 3.8 44.4 HKD 3.68 CNY 2.67 9.5 (8.6)2600 HK 601600 CH Chalco 7,816 1,247 6,071 8.3 37.4 HKD 3.43 CNY 3.90 (30.2) 43.21898 HK 601898 CH China Coal 9,004 1,628 6,513 13.3 11.0 HKD 4.70 CNY 4.38 (14.8) 17.31919 HK 601919 CH China Cosco 5,388 1,132 4,255 4.4 6.3 HKD 3.40 CNY 3.43 (21.3) 27.0670 HK 600115 CH China Eastern Airlines 4,901 534 3,186 1.4 5.4 HKD 2.64 CNY 2.52 (16.8) 20.2

2628 HK 601628 CH China Life 72,484 21,699 50,785 80.7 27.3 HKD 22.60 CNY 15.01 19.6 (16.4)3993 HK 603993 CH China Moly 5,476 786 2,392 6.9 18.7 HKD 5.32 CNY 7.48 (43.5) 77.01186 HK 601186 CH China Railway Const 10,593 1,885 8,520 10.6 18.6 HKD 7.74 CNY 5.11 20.3 (16.9)390 HK 601390 CH China Railway Group 10,150 2,083 7,859 8.0 16.7 HKD 4.22 CNY 2.83 18.4 (15.6)

1766 HK 601766 CH China South Loco 11,571 1,757 8,598 13.4 35.6 HKD 7.08 CNY 5.08 10.7 (9.7)1055 HK 600029 CH China Southern Airlines 3,815 549 2,853 3.0 9.1 HKD 2.67 CNY 2.50 (15.2) 17.91053 HK 601005 CH Chongqing Iron & Steel 1,782 123 509 1.1 4.1 HKD 1.77 CNY 2.62 (46.3) 86.42039 HK 000039 CH CIMC 6,157 1,004 2,889 1.2 16.4 HKD 17.70 CNY 14.44 (2.7) 2.76030 HK 600030 CH Citics 23,421 2,447 20,492 15.7 181.1 HKD 18.94 CNY 12.85 17.1 (14.6)3968 HK 600036 CH CMB 44,450 8,921 35,529 34.5 91.5 HKD 15.06 CNY 10.60 12.8 (11.4)998 HK 601998 CH CNCB 32,061 5,053 22,498 20.5 28.5 HKD 4.98 CNY 4.34 (8.9) 9.7914 HK 600585 CH Conch 16,209 4,373 11,405 39.9 52.4 HKD 28.65 CNY 17.55 29.6 (22.9)

2883 HK 601808 CH COSL 13,363 4,598 8,764 16.7 20.4 HKD 19.68 CNY 18.22 (14.2) 16.62601 HK 601601 CH CPIC 31,019 7,955 20,419 35.1 48.5 HKD 29.60 CNY 19.99 17.6 (15.0)1138 HK 600026 CH CS Dev 2,663 814 1,737 5.9 4.7 HKD 5.54 CNY 5.07 (13.2) 15.22866 HK 601866 CH CSCL 4,561 1,094 3,467 6.8 16.0 HKD 2.26 CNY 2.69 (33.3) 49.92880 HK 601880 CH Dalian Port 2,049 286 1,727 3.3 19.7 HKD 2.35 CNY 3.16 (40.9) 69.3991 HK 601991 CH Datang Power 7,886 1,398 6,171 9.4 8.1 HKD 4.01 CNY 3.80 (16.2) 19.3

1072 HK 600875 CH Dongfang 4,013 585 3,428 2.2 23.8 HKD 13.34 CNY 12.68 (16.5) 19.7895 HK 002672 CH Dongjiang 1,679 299 643 1.4 11.1 HKD 30.95 CNY 31.29 (21.4) 27.338 HK 601038 CH First Tractor 1,123 299 208 2.6 9.1 HKD 5.76 CNY 8.54 (46.4) 86.7

2238 HK 601238 CH GAC 8,049 2,459 800 7.0 7.0 HKD 8.61 CNY 8.15 (16.1) 19.22208 HK 002202 CH Goldwind Sci & Tech 3,950 535 3,277 2.4 27.4 HKD 9.22 CNY 9.41 (22.2) 28.52333 HK 601633 CH Great Wall Motor 13,974 4,059 1,501 37.9 29.8 HKD 30.45 CNY 30.37 (20.4) 25.6525 HK 601333 CH GSRC 3,192 611 2,581 2.3 14.1 HKD 3.31 CNY 2.81 (6.5) 6.9874 HK 600332 CH Guangzhou Pharma 5,179 738 4,297 4.4 51.2 HKD 26.00 CNY 25.51 (19.1) 23.5317 HK 600685 CH Guangzhou Shipyard Intl 1,825 380 -- n.a. n.a. HKD 13.73 CNY n.a. n.a. n.a.

6837 HK 600837 CH Haitong 15,404 2,127 -- 20.4 95.5 HKD 12.60 CNY 9.87 1.4 (1.4)1071 HK 600027 CH Huadian Power 5,290 1,107 3,420 9.6 20.8 HKD 5.26 CNY 3.58 16.7 (14.3)902 HK 600011 CH Huaneng Power 13,966 3,501 9,929 27.8 16.9 HKD 8.80 CNY 5.82 20.1 (16.7)

1398 HK 601398 CH ICBC 208,489 46,954 150,479 146.9 36.5 HKD 5.18 CNY 3.50 17.5 (14.9)177 HK 600377 CH Jiangsu Expway 5,302 1,465 3,815 4.0 4.7 HKD 9.29 CNY 6.19 19.2 (16.1)358 HK 600362 CH Jiangxi Copper 7,204 2,334 4,630 14.6 33.8 HKD 14.38 CNY 13.73 (16.8) 20.2350 HK 000666 CH Jingwei Textile 1,114 169 529 1.2 7.2 HKD 7.32 CNY 11.09 (47.6) 90.8921 HK 000921 CH Kelon Elec 1,894 508 1,316 2.0 4.8 HKD 9.70 CNY 9.03 (14.7) 17.2300 HK 600806 CH Kunming Machine Tool 368 58 310 0.4 2.7 HKD 3.20 CNY 4.89 (48.0) 92.4

1513 HK 000513 CH Livzon Pharma 2,043 618 1,347 0.7 5.5 HKD 44.95 CNY 46.67 (23.5) 30.71108 HK 600876 CH Luoyang Glass Co 417 122 -- 1.7 3.6 HKD 3.80 CNY n.a. n.a. n.a.323 HK 600808 CH Magang 2,090 394 1,697 2.0 4.1 HKD 1.76 CNY 1.75 (20.1) 25.2

1618 HK 601618 CH MCC 5,744 678 5,066 2.7 12.5 HKD 1.83 CNY 1.92 (24.3) 32.11988 HK 600016 CH Minsheng 34,598 5,747 27,835 45.0 96.3 HKD 7.56 CNY 6.32 (5.0) 5.3553 HK 600775 CH Nanjing Panda 1,202 162 946 2.8 12.1 HKD 6.32 CNY 9.20 (45.4) 83.3

1336 HK 601336 CH New China Life 11,910 3,410 4,353 16.7 25.0 HKD 27.45 CNY 24.34 (10.4) 11.742 HK 000585 CH Northeast Elec 503 78 421 2.1 11.2 HKD 2.34 CNY 4.25 (56.3) 128.7

857 HK 601857 CH PetroChina 236,553 28,835 207,316 96.6 22.0 HKD 10.74 CNY 7.88 8.2 (7.6)2318 HK 601318 CH Ping An 59,122 13,432 33,075 101.7 204.3 HKD 64.50 CNY 42.53 20.4 (17.0)1812 HK 200488 CH Shandong Chenming Paper 1,195 126 289 0.7 0.5 HKD 3.77 HKD 3.78 (0.3) 0.31812 HK 000488 CH Shandong Chenming Paper 1,195 126 788 0.7 4.2 HKD 3.77 CNY 4.39 (31.8) 46.6568 HK 002490 CH Shandong Molong 957 132 396 3.3 20.6 HKD 4.48 CNY 9.19 (61.3) 158.3719 HK 000756 CH Shandong Xinhua 427 82 337 1.0 3.7 HKD 4.69 CNY 6.74 (44.7) 81.0

2727 HK 601727 CH Shanghai Electric 7,866 1,241 6,546 5.1 5.5 HKD 3.44 CNY 4.09 (33.2) 49.72196 HK 600196 CH Shanghai Fosun Pharm 7,105 1,109 5,755 9.3 56.0 HKD 25.70 CNY 18.60 9.7 (8.9)338 HK 600688 CH Shanghai Petrochem 5,334 1,112 1,360 7.0 23.5 HKD 2.59 CNY 3.51 (41.4) 70.6

2607 HK 601607 CH Shanghai Pharma 5,550 1,204 4,034 4.9 23.4 HKD 15.34 CNY 12.91 (5.6) 6.01088 HK 601088 CH Shenhua 50,577 10,033 40,514 40.9 33.2 HKD 22.95 CNY 15.12 20.5 (17.0)548 HK 600548 CH Shenzhen Expway 1,626 467 1,146 1.4 2.7 HKD 4.98 CNY 4.92 (19.6) 24.4107 HK 601107 CH Sichuan Expressway 1,351 303 -- 0.9 1.7 HKD 2.66 CNY 2.97 (28.9) 40.6386 HK 600028 CH Sinopec 103,890 23,433 78,904 73.2 48.1 HKD 7.59 CNY 5.32 13.3 (11.7)

1065 HK 600874 CH TCEP 1,707 220 1,461 3.3 9.3 HKD 5.61 CNY 8.27 (46.1) 85.6168 HK 600600 CH Tsingtao 9,475 2,484 -- 6.3 17.9 HKD 58.70 CNY 39.92 16.8 (14.4)

2338 HK 000338 CH Weichai Power 7,074 2,084 3,201 10.2 35.7 HKD 33.25 CNY 20.29 30.1 (23.2)1171 HK 600188 CH Yanzhou Coal 5,377 1,533 3,689 11.4 16.4 HKD 6.68 CNY 7.67 (30.8) 44.63948 HK 900948 CH Yitai Coal 5,431 273 362 0.1 0.5 HKD 12.44 USD 1.68 (4.2) 4.41033 HK 600871 CH Yizheng Chemical 1,370 479 -- 0.2 0.2 HKD 1.77 CNY n.a. n.a. n.a.1057 HK 002703 CH Zhejiang Shibao 760 106 51 3.0 2.5 HKD 9.45 CNY 21.08 (64.4) 180.9564 HK 601717 CH Zhengzhou Coal Mining 1,441 112 1,283 0.3 13.5 HKD 5.05 CNY 5.73 (30.0) 42.9

2899 HK 601899 CH Zijin 7,549 1,515 6,034 7.3 24.2 HKD 2.01 CNY 2.35 (32.1) 47.21157 HK 000157 CH Zoomlion 5,803 809 4,873 4.6 27.9 HKD 4.98 CNY 4.79 (17.4) 21.1763 HK 000063 CH ZTE 7,922 1,389 6,518 7.5 71.5 HKD 17.10 CNY 14.32 (5.2) 5.4

Simple average (11.9) 24.0

Market cap weighted average 8.6 (6.2)

Market Cap (US$m) Avg 3M daily T/O

China & Hong Kong - Price and valuation data (3) 21 August, 2014

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