15 March 2016 

EQUITIES China Hongqiao (1378 HK) METALS & MINING

Buy: Competitively positioned to withstand downturn Hong Kong

 We think 2015 results demonstrate the company’s progress in MAINTAIN BUY improving cost competitiveness  While aluminium price is lower y-o-y, it is showing signs of TARGET PRICE (HKD) PREVIOUS TARGET (HKD) bottoming 6.30 6.80  DCF-based TP cut to HKD6.3 (HKD6.8); we also lower our SHARE PRICE (HKD) UPSIDE/DOWNSIDE 2016e/17e EPS due to lower aluminium prices 4.88 +29.1% (as of 11 Mar 2016)

2015 results demonstrate the company’s progress in improving cost MARKET DATA Market cap (HKDm) 35,428 Free float 19% competitiveness: Reported net income of RMB3.6bn was in line with management’s Market cap (USDm) 4,565 BBG 1378 HK previous guidance. The company demonstrated progress on improving its 3m ADTV (USDm) 6.34 RIC 1378.HK competitiveness with peers by expanding aluminium scale to 5.2mt, improving self- FINANCIALS AND RATIOS (CNY) sufficiency in power to 85%, starting-up bauxite production in Guinea and targeting Year to 12/2015a 12/2016e 12/2017e 12/2018e commercial operation of alumina production from Indonesia in 1H16. China Hongqiao HSBC EPS 0.58 0.60 0.64 1.00 HSBC EPS (prev) 0.72 0.98 1.16 - marginally lowered pressure on its balance sheet with a 7:50 rights issue and lowered Change (%) -19.4 -38.8 -44.8 - Consensus EPS 0.58 0.66 0.87 1.00 average interest cost by 1% to 5% replacing some of its high-cost borrowings. While 2015 PE (x) 7.1 6.8 6.3 4.1 results were impacted with RMB1bn (pre-tax) forex loss on USD-denominated debt, the Dividend yield (%) 3.0 3.6 3.9 6.1 EV/EBITDA (x) 6.2 5.9 5.5 4.2 company plans to replace some of this debt with local currency debt. ROE (%) 10.8 11.0 10.7 15.0

The company should be able to sustain downturn: We believe China Hongqiao can 52-WEEK PRICE (HKD) withstand the current downturn due to its strong competitive position. The company regularly achieves integrated aluminium costs that rank in the second quartile globally and 9.10 the first quartile in China (source: Wood Mackenzie Metals Cost Curves). We think the 5.75

cost position is sustainable due to the company’s high degree of upstream integration into 2.40 Mar 15 Sep 15 Mar 16 alumina and power (which together are c80% of aluminium production costs) and its Target price: 6.30 High: 8.40 Low: 3.15 Current: 4.88 proximity to customers. The company confirmed its 1mt aluminium expansion planned in Source: Thomson Reuters IBES, HSBC estimates 2016 and was also successful in raising RMB3.2bn through rights issue and RMB10bn through medium-term bonds at a competitive interest rate of 4-5%, reflecting lenders’ and Jeff Yuan* investors’ confidence. Analyst, Metals & Mining The Hongkong and Shanghai Banking Corporation Limited Forecasts cut on lower aluminium prices: We incorporate c4% cut in our 2016-17e jeffsyuan@hsbc.com.hk +852 3941 7010 SHFE aluminium prices and 15% cut in our 2016-17e Shanxi (QHD 555kcal) coal prices. Kirtan Mehta*, CFA This results in 40%/45% reductions to our 2016e/17e net income due to high sensitivity of Analyst net income to change in aluminium prices. Our 2016e forecast includes RMB0.5bn of HSBC Bank plc [email protected] forex loss assuming lowered exposure. Our 2016e/17e net income forecasts are 6%/21% +9180 3001 3779 below consensus, reflecting our lower aluminium price forecasts. We roll-forward our forecasts to 2018e and see a c70% increase in 2018e net income (over 2016e) and a * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is 4pp improvement in ROE to 15% with a modest 10% increase in aluminium price. not registered/ qualified pursuant to FINRA regulations

Reiterate Buy with a lower TP to HKD6.3 (from HKD6.8): We cut our DCF-based target price to HKD6.3 from HKD6.8.

Disclaimer & Disclosures Issuer of report: The Hongkong and Shanghai Banking Corporation Limited This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. View HSBC Global Research at: https://www.research.hsbc.com

EQUITIES  METALS & MINING 15 March 2016 abc

Financials & valuation

Financial statements Valuation data Year to 12/2015a 12/2016e 12/2017e 12/2018e Year to 12/2015a 12/2016e 12/2017e 12/2018e Profit & loss summary (CNYm) EV/sales 1.7 1.6 1.5 1.3 Revenue 44,110 49,500 52,547 57,175 EV/EBITDA 6.2 5.9 5.5 4.2 EBITDA 12,006 13,253 14,224 17,684 EV/IC 1.0 0.9 0.9 0.8 Depreciation & amortisation -4,564 -5,234 -5,629 -5,877 PE* 7.1 6.8 6.3 4.1 Operating profit/EBIT 7,442 8,019 8,594 11,807 PB 0.7 0.7 0.7 0.6 Net interest -2,183 -2,359 -2,401 -2,214 FCF yield (%) -42.4 -19.8 4.8 19.2 PBT 5,259 5,659 6,194 9,593 Dividend yield (%) 3.0 3.6 3.9 6.1 HSBC PBT 5,259 5,659 6,194 9,593 * Based on HSBC EPS (diluted) Taxation -1,639 -1,415 -1,548 -2,398 Net profit 3,649 4,274 4,675 7,225 HSBC net profit 3,649 4,274 4,675 7,225 Price relative Cash flow summary (CNYm) Cash flow from operations 5,587 9,109 9,404 12,400 Capex -17,620 -15,000 -8,000 -6,750 9.10 Cash flow from investment -17,396 -15,000 -8,000 -6,750 Dividends -1,368 -1,061 -1,161 -1,799 Change in net debt 13,189 3,750 -243 -3,852 5.75 FCF equity -12,576 -5,861 1,434 5,680 Balance sheet summary (CNYm) 2.40 Mar 15 Sep 15 Mar 16 Intangible fixed assets 0 0 0 0 Target price: 6.30 High: 8.40 Low: 3.15 Current: 4.88 Tangible fixed assets 69,828 78,896 81,267 82,140 Current assets 32,728 33,341 31,861 29,637 Cash & others 9,090 8,538 6,275 2,852 Total assets 106,438 116,038 117,027 115,773 Source: HSBC Operating liabilities 16,120 16,863 16,904 17,559 Note: Priced at close of 11 Mar 2016 Gross debt 53,863 57,062 54,556 47,281 Net debt 44,773 48,523 48,281 44,429 Shareholders' funds 35,509 41,924 45,438 50,864 Invested capital 77,346 86,836 89,949 91,365

Ratio, growth and per share analysis Year to 12/2015a 12/2016e 12/2017e 12/2018e Y-o-y % change Revenue 22.2 12.2 6.2 8.8 EBITDA -1.4 10.4 7.3 24.3 Operating profit -17.8 7.7 7.2 37.4 PBT -28.2 7.6 9.4 54.9 HSBC EPS -32.8 3.4 7.6 54.5 Ratios (%) Revenue/IC (x) 0.6 0.6 0.6 0.6 ROIC 7.4 7.3 7.3 9.8 ROE 10.8 11.0 10.7 15.0 ROA 5.4 5.5 5.6 7.6 EBITDA margin 27.2 26.8 27.1 30.9 Operating profit margin 16.9 16.2 16.4 20.7 EBITDA/net interest (x) 5.5 5.6 5.9 8.0 Net debt/equity 123.6 113.8 104.6 86.1 Net debt/EBITDA (x) 3.7 3.7 3.4 2.5 CF from operations/net debt 12.5 18.8 19.5 27.9 Per share data (CNY) EPS reported (diluted) 0.58 0.60 0.64 1.00 HSBC EPS (diluted) 0.58 0.60 0.64 1.00 DPS 0.12 0.15 0.16 0.25 Book value 5.58 5.77 6.26 7.01

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China Hongqiao: 2015 results in line with company guidance Rmb m 2014 2015 y-o-y 2H14 1H15 2H15 y-o-y h-o-h Revenue 36,086 44,110 22% 18,718 22,453 21,657 16% -4% Cost of sales 26,789 35,158 31% 13,232 17,217 17,942 36% 4% Gross profit 9,296 8,951 -4% 5,486 5,236 3,715 -32% -29% Gross margin 26% 20% 29% 23% 17% Operating expenses (705) (967) 37% (383) (476) (491) 28% 3% Operating profit 8,591 7,984 -7% 5,103 4,760 3,224 -37% -32% Operating margin 24% 18% 27% 21% 15% Interest expenses (1,798) (2,217) 23% (1,056) (968) (1,249) 18% 29% Interest income 66 35 -48% 38 15 20 -47% 38% Others 468 -542 417 125 -667 Income before tax 7,328 5,259 -28% 4,503 3,931 1,328 -71% -66% Tax charges (2,026) (1,639) -19% (1,227) (1,222) (417) -66% -66% Effective tax rate -28% -31% -27% -31% -31% Minority interests -12 -29 -24 9 -38 Net income 5,314 3,649 -31% 3,252 2,718 874 -73% -68% Net margin 15% 8% 17% 12% 4%

Aluminium Capacity (mt) 4.0 5.2 29% 4.0 4.5 5.2 29% 14% Production (mt) 3.3 4.6 38% 1.7 2.2 2.4 37% 7% Sales (mt) 3.1 4.3 37% 1.6 2.0 2.3 42% 11% Realisation (RMB/t) 11,488 10,289 -10% 11,786 11,050 9,603 -19% -13% EBITDA/ ton of sales 3,898 3,123 -20% 4,527 3,538 2,750 -39% -22% Captive power capacity (GW) 6.6 9.3 42% 6.6 8.0 9.3 42% 17% Source: Company data, HSBC calculations 2015 results in line with guidance

Results in line with guidance. China Hongqiao reported 2015 net profit of RMB3.6bn, in line with its previous guidance. The results included RMB1bn (pre-tax) of forex loss on USD- denominated debt due to depreciation of RMB. Excluding forex loss, underlying net profit at RMB4.4bn was down 18% y-o-y mainly reflecting lower aluminium prices.

Improving cost competitiveness. The company is improving integration of electricity, alumina and bauxite to lower its cost position. During 2015, self-sufficiency of electricity improved to 85% from 71% in 1H14. While the company commenced bauxite production from Guinea in 2H15, alumina production from Indonesia (1mt) is scheduled for 1H16.

Still pursuing growth. Despite weak aluminium prices, the company is progressing on its expansion plan of aluminium capacity from 5.2mt (end 2015) to 6mt by end-2016. Management has planned a capital spend of RMB15bn in 2016 (vs RMB17bn in 2015).

Improving capital structure. With successful completion of the 7:50 rights issue, we expect the gearing ratio (net debt to equity) of the company to marginally improve to 115% in 2016e from 124% in 2015e, even after accounting for higher capex plan for 2016e. The company has also lowered average interest cost from 6.1% (end-2014) to 5.1% (end-2015) by replacing high- cost financing during construction stage with lower cost facilities. Management further plans to reduce the company’s exposure to short-term debt and USD-debt in its capital structure.

Aluminium prices are showing some positive signs

Since we last published our revised SHFE aluminium price forecasts (please refer to Aluminum Corp of China (2600 HK/601600 CH): Hold H-share, Reduce A-share: Long road ahead, 18 February 2016), aluminium prices have continued their upward movement. SHFE aluminium prices have now recovered by 16% from a low in November 2015 along with LME aluminium price (9%). Spot prices are now 2.6% above our 2016e. We attribute the improvement to increased visibility on execution of previously committed shutdown of 4-5mt. Chinese aluminium production was down 3.3mt (annualised) in January from its peak in June 2015.

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We forecast a 10% y-o-y decline in aluminium price. We believe aluminium prices need to remain lower for longer to help rebalance China’s aluminium market. We forecast a 10% y-o-y decline in aluminium price to RMB10,939/t in 2016e and see prices remaining flat in 2017e at RMB10,968/t.

Cut in 2016-17e coal price forecasts means lower cost of aluminium production for China Hongqiao

We cut our 2016-17e coal prices (QHD 5500kcal) to RMB365/t and RMB376/t, respectively in our report China Coal Sector: Under Stress, 24 February 2016. We believe that China would take a considerable amount of time to address high over-capacity in the system due to high social and financial costs. In addition, the continued decline in coal demand is likely to add to the time this imbalance will take to be corrected.

Aluminium and coal price forecast changes (RMB/t) Actual _____ Old ______New ______Change _____ (RMB/t) 2015 2016e 2017e 2016e 2017e 2018e 2016e2017e SHFE aluminium 12,167 11,350 11,400 10,939 10,968 12,066 -3.6% -3.8% Shanxi (QHD 5500kcal) coal price 411 430 443 365 376 404 -15.1% -15.1% Source: sxcoal, Thomson Reuters Datastream, HSBC estimates

China Hongqiao should sustain downturn

2016-17e forecasts lowered. We cut 2016e/17e net profits by 40%/45%, mainly factoring in our 3-4% lower aluminium price forecasts. The higher change at the bottom line reflects higher sensitivity of net income to change in aluminium prices due to higher operational and financial gearing. Our 2016e/17e net income forecasts are 6%/21% below consensus, reflecting our lower aluminium price forecasts.

China Hongqiao: Lower forecasts factoring in our lower aluminium price forecasts ______Old ______New ______Change ______2016e 2017e 2016e 2017e 2018e 2016e 2017e Revenues 52,748 58,894 49,500 52,547 57,175 -6% -11% Net income 7,132 8,439 4,274 4,675 7,225 -40% -45% EPS, Rmb 0.98 1.16 0.60 0.64 1.00 -39% -45% Source: HSBC estimates

The impact of a 10% y-o-y decline in aluminium prices in 2016e is partially offset by cost savings. This includes higher aluminium production from planned 1mt expansion, lower costs of own power generation factoring in a 15% cut in our coal price forecasts, and a 1% reduction in average interest rate. While the company is planning to replace some of its USD debt with RMB debt, we still account for RMB0.5bn of forex loss in 2016e (vs RMB1.0bn in 2015) assuming partial exposure.

We see a c.70% increase in 2018e net income (over 2016) with a modest 10% recovery in aluminium prices. We roll forward our forecasts to 2018e. With a modest 10% recovery in aluminium price between 2016e and 2018e, we see the company’s net income increasing by c70% and its ROE improving by 4pp to 15%. Our 2018e estimates also account for benefit of further improvement in bauxite, alumina and power integration.

Competitive cost position helps in sustaining downturn. We believe China Hongqiao can sustain the current downturn due to its strong competitive position. The company regularly achieves integrated aluminium costs that rank in the second quartile globally and the first

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quartile in China, according to Wood Mackenzie Metals Cost Curves. We believe the cost position is sustainable due to the company’s high degree of upstream integration into alumina and power (which together are c80% of aluminium production costs) and its proximity to customers.

We expect reduction in gearing but at a slower rate. We expect the gearing ratio (net-debt to equity) to reduce to 77% in 2018e from 124% in 2015 as the company delivers on its growth phase.

Reiterate Buy, TP cut to HKD6.3 (from HKD6.8)

We lower our fair-value TP to HKD6.3 from HKD6.8 based on a DCF valuation, reflecting the cut in our estimates and dilution of equity base due to the rights issue. Our target price sees a lower cut as the cut in aluminium price is limited to only a two-year period of 2016-17e.

Our DCF valuation uses a cost of capital of 12.75% and an assumption of no debt in the long- run financing mix. We assume a relatively high beta of 1.5 to reflect the relatively short trading history of the company. Our TP implies 29.1% upside to the current share price; thus, we reiterate our Buy rating.

The stock looks inexpensive in absolute terms if we factor in implied upside in earnings from recovery in aluminium prices. On our 2018e aluminium price, which is 10% higher than our 2016e assumption, we see the stock trading at 2018e PE of 4.1x, and 2018e EV/EBITDA of 4.2x. The stock is currently trading at a 2016e PB of 0.7x. We forecast ROE to improve from 11% in 2016e to 15% in 2018e.

Global base metal universe valuation Companies Bloomberg codePrice Last Target HSBC Market ____ P/E (x) ______P/BV (x) __ EV/EBITDA (x) ___ ROE (%) __ currency price price rating cap USDm 2016e 2017e 2016e 2017e 2016e 2017e 2016e 2017e Diversified Anglo American* AAL LN GBP 5.16 5.20 H 10,403 16.0 9.1 0.4 0.4 5.2 4.1 3.1% 4.6% BHP Billiton BLT LN GBP 8.16 NR NR 67,489 46.5 19.8 1.1 1.1 7.6 6.1 2.1% 5.9% Glencore GLEN LN GBP 1.42 NR NR 29,360 43.4 23.7 0.6 0.6 7.4 6.2 1.7% 2.1% Vedanta Ltd.* VEDL IN INR 87.35 100.00 B 3,862 15.6 10.5 0.4 0.4 3.6 2.6 2.9% 4.5% Vedanta PLC VED LN GBP 3.35 NR NR 1,333 nm nm 1.3 2.5 3.3 2.6 nm nm South 32* S32 LN GBP 0.86 0.70 H 6,551 52.4 nm 0.7 0.7 6.6 5.8 nm 2.3% Base Metal pure plays Alcoa AA US USD 9.52 NR NR 12,553 27.8 16.8 1.0 0.9 7.4 6.0 3.3% 6.1% Alumina Ltd AWC AU AUD 1.40 NR NR 3,045 nm 20.0 1.6 1.5 nm 15.0 2.7% 5.4% Aluminum Corp of China* 2600 HK HKD 2.70 2.75 H 8,862 nm nm 1.0 1.0 16.3 13.7 nm nm Antofagasta ANTO LN GBP 5.24 NR NR 7,436 nm 27.3 1.1 1.1 7.4 5.7 1.5% 3.0% Aurubis NDA GR EUR 43.36 NR NR 2,167 11.7 9.7 0.9 0.9 5.3 4.6 8.0% 8.9% Boliden BOL SS SEK 136.90 NR NR 4,487 13.9 10.7 1.3 1.2 5.6 4.4 9.1% 12.7% China Hongqio* 1378 HK HKD 4.88 6.30 B 4,585 6.8 6.3 0.7 0.7 5.9 5.5 11.0% 10.7% Chinalco Mining Corp Intl* 3668 HK HKD 0.81 1.24 B 1,234 19.4 2.3 1.5 0.9 4.3 2.0 8.1% 49.1% First Quantum FM CN CAD 7.37 NR NR 3,795 32.3 16.7 0.4 0.4 10.8 8.7 1.4% 1.7% Freeport FCX US USD 9.55 NR NR 11,955 nm 12.3 1.3 1.1 6.6 4.8 1.9% 9.3% Grupo Mexico* GMEXICOB MM MXN 42.76 40.00 H 18,791 16.2 10.3 1.7 1.6 7.6 5.5 11.2% 16.0% Hindalco* HNDL IN INR 83.50 91.00 B 2,572 6.8 4.3 0.4 0.3 6.8 5.7 5.9% 8.3% Jiangxi Copper A* 600362 CH CNY 14.40 8.02 R 6,328 nm 40.7 1.1 1.1 17.9 14.3 1.7% 2.6% Jiangxi Copper* 358 HK HKD 9.67 9.06 H 6,328 36.4 22.9 0.6 0.6 17.9 14.3 1.7% 2.6% KAZ Minerals KAZ LN GBP 1.76 NR NR 1,132 nm 12.3 0.6 0.5 18.9 10.3 4.5% 2.0% KGHM KGH PW PLN 72.51 NR NR 3,767 15.3 12.4 0.6 0.5 5.4 5.3 2.6% 3.9% NALCO* NACL IN INR 38.55 27.00 R 1,482 18.4 25.8 0.8 0.8 7.1 12.9 4.3% 3.1% Norsk Hydro NHY NO NOK 34.09 NR NR 8,362 18.7 14.0 0.9 0.9 6.4 5.3 4.4% 5.3% Oz Minerals OZL AU AUD 5.22 NR NR 1,196 22.8 20.4 0.7 0.7 2.5 2.3 3.0% 2.9% Rusal 486 HK HKD 2.72 NR NR 5,326 5.8 6.2 2.0 1.5 8.1 8.9 30.0% 31.2% Southern Copper* SCCO US USD 26.85 26.00 H 20,774 27.1 15.9 3.4 3.0 12.7 8.8 13.3% 20.3% Notes: NR: Not rated, * denotes the stocks covered by HSBC Source: Thomson Reuters Datastream, Consensus from IBES, HSBC estimates for covered companies. Prices as of 11 March market close

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In the interim period over 2016-17e, when we expect aluminium prices to remain low, we see China Hongqiao as attractively valued across the global universe.

Downside risks to our rating include worsening aluminium market fundamentals beyond our current assumptions which could result in lower-than-expected selling prices, potential difficulties in securing raw materials, higher-than-expected capex costs as the company initiates projects overseas, delay in implementation of integration in power and alumina than our current assumptions. Mark-to-market adjustments on its dollar-denominated loss poses risk to near- term earnings.

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Disclosure appendix

Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Jeff Yuan and Kirtan Mehta

Important disclosures Equities: Stock ratings and basis for financial analysis HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations and that investors utilise various disciplines and investment horizons when making investment decisions. Ratings should not be used or relied on in isolation as investment advice. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations and therefore investors should carefully read the definitions of the ratings used in each research report. Further, investors should carefully read the entire research report and not infer its contents from the rating because research reports contain more complete information concerning the analysts' views and the basis for the rating.

From 23rd March 2015 HSBC has assigned ratings on the following basis: The target price is based on the analyst’s assessment of the stock’s actual current value, although we expect it to take six to 12 months for the market price to reflect this. When the target price is more than 20% above the current share price, the stock will be classified as a Buy; when it is between 5% and 20% above the current share price, the stock may be classified as a Buy or a Hold; when it is between 5% below and 5% above the current share price, the stock will be classified as a Hold; when it is between 5% and 20% below the current share price, the stock may be classified as a Hold or a Reduce; and when it is more than 20% below the current share price, the stock will be classified as a Reduce.

Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation or resumption of coverage, change in target price or estimates).

Upside/Downside is the percentage difference between the target price and the share price.

Prior to this date, HSBC’s rating structure was applied on the following basis: For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate, regional market established by our strategy team. The target price for a stock represented the value the analyst expected the stock to reach over our performance horizon. The performance horizon was 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, had to exceed the required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock was expected to underperform its required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands were classified as Neutral.

*A stock was classified as volatile if its historical volatility had exceeded 40%, if the stock had been listed for less than 12 months (unless it was in an industry or sector where volatility is low) or if the analyst expected significant volatility. However, stocks which we did not consider volatile may in fact also have behaved in such a way. Historical volatility was defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility had to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.

As of 14 March 2016, the distribution of all ratings published is as follows: Buy 47% (27% of these provided with Investment Banking Services) Hold 39% (28% of these provided with Investment Banking Services) Sell 14% (19% of these provided with Investment Banking Services)

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For the purposes of the distribution above the following mapping structure is used during the transition from the previous to current rating models: under our previous model, Overweight = Buy, Neutral = Hold and Underweight = Sell; under our current model Buy = Buy, Hold = Hold and Reduce = Sell. For rating definitions under both models, please see “Stock ratings and basis for financial analysis” above.

Share price and rating changes for long-term investment opportunities China Hongqiao (1378.HK) share price performance HKD Rating & target price history Vs HSBC rating history From To Date N/A Overweight 03 December 2014 Overweight Hold 14 April 2015 9 Hold Buy 09 July 2015

8 Target price Value Date Price 1 8.80 03 December 2014 7 Price 2 9.00 22 January 2015 6 Price 3 7.50 14 April 2015 Price 4 8.00 09 July 2015 5 Price 5 6.80 31 August 2015 Source: HSBC 4

3 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Source: HSBC

HSBC & Analyst disclosures Disclosure checklist Company Ticker Recent price Price date Disclosure

CHINA HONGQIAO 1378.HK 4.90 14-Mar-2016 5, 6, 7

Source: HSBC

1 HSBC has managed or co-managed a public offering of securities for this company within the past 12 months. 2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. 3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this company. 4 As of 29 February 2016 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 31 January 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of investment banking services. 6 As of 31 January 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-investment banking securities-related services. 7 As of 31 January 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-securities services. 8 A covering analyst/s has received compensation from this company in the past 12 months. 9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as detailed below. 10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this company, as detailed below. 11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in securities in respect of this company

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HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt (including derivatives) of companies covered in HSBC Research on a principal or agency basis.

Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking, sales & trading, and principal trading revenues.

Whether, or in what time frame, an update of this analysis will be published is not determined in advance.

Economic sanctions imposed by the EU and OFAC prohibit transacting or dealing in new debt or equity of Russian SSI entities. This report does not constitute advice in relation to any securities issued by Russian SSI entities on or after July 16 2014 and as such, this report should not be construed as an inducement to transact in any sanctioned securities.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research.

Additional disclosures 1 This report is dated as at 15 March 2016.

2 All market data included in this report are dated as at close 11 March 2016, unless otherwise indicated in the report.

3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

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Disclaimer

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Global Natural Resources & Energy Research Team

Latam Asia Metals and Mining Luiz F Carvalho +55 11 3371 8178 Regional Head Utility & Alternative Energy EMEA [email protected] Evan Li +852 2996 6599 Emma Townshend +27 21 794 8345 [email protected] [email protected] Filipe M Gouveia +55 11 3847 5451 [email protected] Jigar Mistry, CFA +91 22 2268 1079 Derryn Maade +27 11 676 4519 [email protected] [email protected] Asia Head of Resources & Energy Research, Darpan Thakkar +91 22 6164 0695 North America & Latin America Asia-Pacific [email protected] James Steel +1 212 525 3117 Thomas C. Hilboldt, CFA +852 2822 2922 [email protected] [email protected] Summer Y Y Huang +852 2996 6976 [email protected] Botir Sharipov, CFA +1 212 525 5150 John Chung +8862 6631 2868 [email protected] [email protected] Yeon Lee +822 3706 8778 [email protected] Leonardo Shinohara +55 11 8747 5433 Tingting Si +852 2996 6590 [email protected] [email protected] Simon Fang +852 2822 4665 [email protected] Osmar Camilo +55 11 3847 9502 Dennis Yoo, CFA +852 2996 6917 [email protected] [email protected] Latin America Francisco Navarrete +55 11 2169 4612 Asia Shishir Singh +852 2822 4292 [email protected] Head of Resources & Energy Research, [email protected] Asia-Pacific Arthur Pereira +55 11 2169 4415 Thomas C. Hilboldt, CFA +852 2822 2922 Kumar Manish +91 22 2268 1238 [email protected] [email protected] [email protected] CEEMEA Chris Chen +852 2822 4277 Alok P Deshpande +91 22 2268 1245 Analyst [email protected] [email protected] Levent Bayar +90 212 376 46 17 [email protected] Jeff Yuan +852 3941 7010 Vivek Priyadarshi +91 22 3396 0694 [email protected] [email protected] Dmytro Konovalov +7 495 258 3152 [email protected] Brian Cho +822 3706 8750 Wayne Wang +852 2914 9935 [email protected] [email protected] Alternative Energy Sean McLoughlin +44 20 7991 3464 [email protected] Jigar Mistry, CFA +91 22 2268 1079 Chemicals [email protected] Europe Evan Li +852 2996 6599 Rajesh V Lachhani +91 22 6164 0687 Global Sector Head, Chemicals [email protected] [email protected] Dr Geoff Haire +44 20 7991 6892 [email protected] Charanjit Singh +91 80 3001 3776 Kirtan Mehta, CFA +91 80 3001 3779 [email protected] [email protected] CEEMEA Yonah Weisz +972 3 710 1198 Simon Fang +852 2822 4665 [email protected] Energy [email protected] Europe Sriharsha Pappu, CFA +971 4 423 6924 Specialist Sales Global Sector Head, Oil and Gas [email protected] James Lesser +44 20 7991 1382 Gordon Gray +44 20 7991 6787 [email protected] [email protected] Nicholas Paton, CFA +971 4 423 6923 [email protected] Zara Nathan +44 20 7991 5761 Kim Fustier +44 20 3359 2136 [email protected] [email protected] Asia Dennis Yoo, CFA +852 2996 6917 Thomas White +44 20 7991 5996 Christoffer Gundersen +44 20 7992 1728 [email protected] [email protected] [email protected] Wayne Wang +852 2914 9935 Gregory Brown +44 207 991 3863 [email protected] [email protected] Utilities CEEMEA Bülent Yurdagül +90 212 376 46 12 Europe [email protected] Adam Dickens +44 20 7991 6798 [email protected] Ildar Khaziev, CFA +7 495 645 4549 [email protected] Verity Mitchell +44 20 7991 6840 [email protected]

Pablo Cuadrado +34 91 456 62 40 [email protected]

Charanjit Singh +91 80 3001 3776 [email protected]