Merchants Hldg Intl | July 23, 2015 MORGAN STANLEY RESEARCH

July 23, 2015 MORGAN STANLEY ASIA LIMITED+ Edward H Xu, CFA China Merchants Hldg Intl [email protected] +852 2239-1521 Watson Lau Solid Franchise Fairly Valued; Further [email protected] +852 2239-1523 Victoria Wong, CFA Uncertainties On Chiwan and [email protected] +852 2239-7817

Industry View Stock Rating Price Target In-Line Equal-weight HK$30.74 China Merchants Hldg Intl ( 0144.HK, 144 HK ) Hong Kong/China Transportation & Infrastructure / China Stock Rating Equal-weight We tweak our full-year traffic projections after a review of YTD Industry View In-Line performance, which showed a slowdown in organic growth. Maintain Price target HK$30.74 Up/downside to price target (%) 4 EW rating with a slightly lower PT of HK$30.74. Shr price, close (Jul 22, 2015) HK$29.70 52-Week Range HK$37.00-23.05 What's Changed? From: To: Sh out, dil, curr (mn) 3,035 Mkt cap, curr (mn) HK$90,126 China Merchants Hldg Intl EV, curr (mn) HK$108,312 Price Target HK$30.88 HK$30.74 Avg daily trading value (mn) HK$134 1H15 traffic performance: CMHI registered 5.2% YoY growth in total Fiscal Year Ending 12/14 12/15e 12/16e 12/17e throughput in 1H15, in-line with mgmt guidance but well below the 20.3% YoY ModelWare EPS (HK$) 1.59 1.74 1.94 2.17 Prior ModelWare EPS - 1.90 2.09 2.30 in 1H14. On an equity basis, however, throughput grew higher at 7.6% YoY. (HK$) Consensus EPS (HK$)§ 1.73 1.86 2.06 2.27 Earnings adjustment: We cut our full-year estimates by 8%, 7% and 6% for Revenue, net (HK$ mn) 8,257 8,810 9,404 10,050 2015-17e, to reflect slower traffic growth assumptions at 4%, 6% and 4% for EBITDA (HK$ mn) 8,453 10,648 11,632 12,651 ModelWare net inc 4,526 5,279 5,877 6,573 that period. We also factor in revised earnings from CIMC (2039.HK; EW; (HK$ mn) HK$17.80), an associate that is 25.54% held by CMHI. Our revised earnings are P/E 16.4 17.1 15.3 13.7 3% below consensus. Thus, we cut our PT to HK$30.74 from HK$30.88. P/BV 1.2 1.3 1.3 1.2 RNOA (%) 7.4 8.7 9.0 9.3 Uncertainties on Chiwan: CMHI’s 46%-owned subsidiary, Chiwan Wharf ROE (%) 9.3 7.8 8.5 9.1 EV/EBITDA 11.5 10.3 9.7 9.1 (000022.SZ; Not Rated), was suspended from trading in April pending the Div yld (%) 3.5 3.8 3.7 4.1 injection of Container Terminals Limited (SCT), an 80%-owned FCF yld ratio (%) (0.6) 0.2 1.6 2.1 subsidiary of CMHI, into Chiwan to further consolidate West Leverage (EOP) (%) 15.5 16.2 18.3 19.7 Unless otherwise noted, all metrics are based on Morgan Stanley ModelWare framework terminals. We have no knowledge at what level the transaction will take place § = Consensus data is provided by Thomson Reuters Estimates e = Morgan Stanley Research estimates or how it will be structured, but purely from a numerical standpoint our analysis shows an all-equity transaction to be earnings dilutive at below 31x P/E and accretive above 31x. However, our DCF fair value for SCT is HK$16,359m and should the transaction happen at above 15x, this would provide upside to our base case SOTP valuation and downside below 15x. Qianhai future opaque: Local government has made slow progress on how to develop the land, so visibility remains low on when and how the values of these assets owned by CIMC and CMHI in Shenzhen's Qianhai could be Morgan Stanley does and seeks to do business with monetized. On a long-term basis, we still see significant potential value in such companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict assets, given the strong appreciation in Shenzhen property prices YTD. of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan What could make us more positive? While we maintain our EW rating, we Stanley Research as only a single factor in making their appreciate the values in CMHI’s established franchise with stable cash flows. investment decision. For analyst certification and other important disclosures, We could turn more positive upon potential catalysts from: 1) improvement in refer to the Disclosure Section, located at the end of this the current traffic cycle led by better external demand; and 2) successfully report. unlocking the values of land assets in Qianhai. += Analysts employed by non-U.S. affiliates are not registered w ith FINRA, may not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications w ith a subject company, public appearances and trading securities held by a research analyst account.

1 China Merchants Hldg Intl | July 23, 2015 MORGAN STANLEY RESEARCH

CMHI: Financial Summary

Exhibit 1: CMHI: Financial Summary, 2013-17E

2 China Merchants Hldg Intl | July 23, 2015 MORGAN STANLEY RESEARCH

Risk-Reward Snapshot: CMHI (0144.HK, HK$30.00, EW, PT HK$30.74)

Risk-Reward View: Limited upside potential to PT Investment Thesis We trim our price target by 1% to HK$30.74, as we cut our full-year traffic projections after a review of YTD performance. Our revised PT implies 2% upside potential from current levels. Maintain EW. We lower our full-year estimates by 8%, 7% and 6% for 2015-17e, based on traffic growth assumptions at 4%, 6% and 4% (vs. 6%, 5%, 5% previously) for the same period. We expect further consolidation of West Shenzhen Ports, as CMHI's Chairman Li Jianhong has publicly announced a plan to inject Shekou Container Terminals' port assets into Chiwan. However, the outcome will depend on valuation of the transaction as earnings dilution risks could arise from any injection performed at low multiples. Price Target HK$30.74 Derived from a sum-of-the-parts valuation, probability-weighted: We think the shares look fairly valued at 15.5x bull (20%), base (70%), and bear (10%). 2016e P/E and 1.3x P/B, vs. historical averages of 13.5x and 1.5x. Bull HK$42.27 Mark-to-market valuation: We use market valuations for 24.6x 2015e base case P/E CMHI's shares in Shanghai International Port Group (SIPG) Key Value Drivers (24.5%), Shenzhen Chiwan Wharf (46%) and CIMC (25.5%). Volume growth potential. Base HK$28.76 Improved growth outlook with tariff hikes: 4-6% container Long-term tariff levels. 16.7x 2015e base case P/E traffic growth in 2015-17e with 3-5% tariff hikes in specific port Profitable ports land development project. areas. Potential Catalysts Bear HK$21.57 Double dip: 10% volume declines in 2015e and 2016e; failure of 12.5x 2015e base case P/E tariff hikes from 2015 onward. Further progress in Shanghai Free Trade Zone project development. Progress on West Shenzhen Ports Consolidation Potential value to be unlocked from Shenzhen Qianhai Development Planning and SIPG’s property development. Further progress in value-accretive investments or acquisitions.

Key Risks Downside risks: 1) Double dip in China’s exports; 2) Overpayment for potential overseas acquisitions; 3) Serious deterioration in PRD throughput led by plant relocations. Upside risks: 1) More sustainable volume rebound; 2) Less impact from RMB depreciation; 3) High exceptional gains, such as the Qianhai land development.

3 China Merchants Hldg Intl | July 23, 2015 MORGAN STANLEY RESEARCH

Investment Thesis

We maintain our EW rating on CMHI, after fine-tuning our model based on YTD traffic performance. For 1H15, CMHI delivered +5.2% YoY growth in total throughput, which was significantly below the +20.3% YoY seen in 1H14. Hence, we cut our full-year estimates by 8%, 7% and 6% for 2015-2017e to reflect our updated traffic assumptions and revised earnings contribution from CIMC, an associate held by CMHI. S cenario Analysis of Asset Injections to Chiwan

On April 22, 2015, Chiwan Wharf (000022.SZ; Not Rated) was suspended from trading, and on May 22 2015, it announced that this was due to a pending transaction related to terminal assets owned by CMHI in Shenzhen West. CMHI’s Chairman Li Jianhong announced a plan to inject the port assets of Shekou (SCT) into Chiwan, although the company has not announced any specific information as to how it intends to do this.

Given the more sizable profit contribution from SCT, we are concerned about potential downside risks from any earnings dilution as a result of the transaction. Therefore, we think the final outcome will depend on the multiple at which the transaction is done. We project effective profit contributions from Chiwan and SCT at HK$294m and HK$1,123m, respectively, in 2016e. While the company may consider other options and we have no knowledge of how the transaction will be structured, for the purposes of our analysis we focus on an all-equity transaction as we think this is the most logical course of action for the company to better manage its ports under one entity. We assume Chiwan issues new shares to CMHI in exchange for CMHI's 80% direct shareholding in SCT.

Downside risks to earnings... Our analysis shows no profit dilution risk to CMHI at 31x P/E for the asset injection. As shown in Exhibit 2, we calculate that at lower transaction multiples of 15x, 20x and 25x P/E this would lead to profit dilution by 13%, 7% and 3%, respectively.

...but upside potential to our fair value: Our DCF fair value for SCT is HK$16,359m, implying a more reasonable 15x 2016e P/E relative to Chiwan's 30x P/E on our estimates. Should the transaction happen at 20x, 25x and 31x P/E, it would imply upside potential to our base case SOTP valuation at 7%, 13% and 21%, respectively. H owever, note we assume no cash gains in this all-equity transaction. In this case, we think SCT's future valuation would likely depend on Chiwan's performance after the injection.

Exhibit 2: CMHI: Scenario analysis: No earnings dilution if SCT is injected into Chiwan at 31x 2016e P/E

Implied 2016E P/E SCT (Shekou) Injection Valuation 15x (Based on DCF 20x 25x 31x Valuation) Dilution of 2016e Net Profit attributable to CMHI from Chiwan and SCT 13% 7% 3% 0% CMHI Shareholding in Chiwan after Injection of SCT 70% 74% 77% 80%

Fair value upside from CMHI base case value 0% 7% 13% 21%

Source: Morgan Stanley Research Estimates

Key assumptions in our scenario analysis

1. 2016e effective profit contributions of HK$1,123m by Shekou (SCT - 80% owned directly) and HK$294m by Chiwan (46% owned).

2. DCF fair value of SCT at HK$16,359m, implying 15x 2016e P/E. 4 China Merchants Hldg Intl | July 23, 2015 MORGAN STANLEY RESEARCH

3. Chiwan to issue new A-shares to CMHI at Rmb26.69/share at last close on April 22, 2015.

Exhibit 3: Asset Injection of SCT into Chiwan Exhibit 4: Chiwan Share Issuance for CMHI's SCT Assets Valuation of 80% Shekou (SCT) Stake 2016e Net Profit for SCT (HKD m) 1,404 Chiwan Share Issuance for SCT Assets 2016e P/E 31.00 Share price of Chiwan A (4/22/2015) (Rmb) 26.69 Valuation of SCT (HKD m) 43,524 CMHI owns 80% 80% Share price of Chiwan (4/22/2015) (HKD) 33.31 Valuation of CMHI's stake in SCT (HKD m) 34,819 Share price of Chiwan B (4/22/2015) (Rmb) 19.59 Source: Morgan Stanley Research Estimates Share price of Chiwan (4/22/2015) (HKD) 24.45

Number of Shares Chiwan A 465 Number of Shares Chiwan B 180 Total number of shares Chiwan 644 Source: Morgan Stanley Research Estimates Exhibit 5: CMHI: Current Shareholding to Shekou Exhibit 6: CMHI: Shareholdings to Chiwan after (SCT) and Shenzhen Chiwan asset injection with no earnings dilution CMHI (0144.HK) CMHI (0144.HK) 80% 46% Shenzhen Chiwan Shekou (SCT) (000022.SZ)

Source: Company Data, Morgan Stanley Research; Note: CMHI has 80%* direct holdings in SCT of 80%. Shenzhen Chiwan (000022.SZ) (Shekou Injected*)

Source: Morgan Stanley Research Estimates; *calculation based on full injection of SCT into Chiwan at 31x estimated 2016 net profit of SCT and issuance of share at last close. 1 H15 Preview

With total throughput growth at 5.2% YoY in 1H15 and 3%-5% ASP increases in West Shenzhen Terminals and SIPG, we expect port earnings growth at ~13%. As we expect 45% YoY increase in CIMC's 1H15 profit, we project 18% YoY growth in CMHI's 1H15 net profit to HK$2,536m.

Bohai Rim: Volume rose by +5.0% YoY in 1H15, slow from +7.8% YoY in 1H14. Specifically, Tianjin and Qingdao Port registered growth of 4.1% and 5.4% YoY respectively in 1H15, down from 8.3% and 7.6% YoY in 1H14.

YRD Terminals: Volume grew by +5.3% YoY in 1H15, slightly below +6.4% YoY in 1H14. Specifically, Ningbo Daxie Port reached higher growth at +17.1% YoY, above +16.3% YoY growth in 1H14. SIPG, on the other hand, grew at 4.4% YoY in 1H15, below 5.7% YoY growth in 1H14.

PRD Ports: Volume declined by 6.2% YoY in 1H15. Specifically, weakness was found in West Shenzhen at 3.7% YoY, HK terminals at -26.8% YoY, CKRTT at 5.3% YoY, Zhanjiang at 27.1% and Zhangzhou at -16.9%.

Overseas Terminals: Growth maintained its momentum at +19.8% YoY in 1H15. Specifically, Terminal Link grew at 11.6%, Nigeria-Lagos grew at 6.7%, Kaohsiung grew at 22.4%, Djibouti grew at 1.6% and Sri Lanka - Colombo grew at 141.6% YoY in 1H15.

5 China Merchants Hldg Intl | July 23, 2015 MORGAN STANLEY RESEARCH Exhibit 7: CMHI: Throughput Volumes and YoY Growth

Source: Company data, Morgan Stanley Research

6 China Merchants Hldg Intl | July 23, 2015 MORGAN STANLEY RESEARCH

Earnings Outlook and Valuation

R evised Earnings Outlook for 2015-17e

We cut our earnings estimates by 8% 7% and 6%, to Exhibit 8: CMHI: Morgan Stanley Estimates vs. HK$5,279m and HK$5,877m and HK$6,573m for 2015- Consensus 2017, respectively. Our earnings estimates are 3% below consensus.

CIMC: We forecast 2015-17 profits at Rmb2,638m, Rmb3,301m and Rmb3,892m. As a result, we expect CIMC’s contribution to be 16%, 18% and 19% of CMHI’s Source: Thomson Reuters Consensus, Morgan Stanley Research net profits for the same period. estimates C utting PT to HK$30.74

We continue to value CMHI on a probability-weighted approach based on an SOTP model. We maintain our base-, bear- and bull-case weightings unchanged at 70%, 10% and 20%, respectively. We continue to place a 20% probability on our bull case because we believe port stocks could benefit from the increasing evidence of recovery in the US and possibly Europe, given their volume-driven nature with stable tariff regimes; we thus view our bear case scenario as relatively unlikely.

Base Case: 70% weighting (unchanged) Exhibit 9: CMHI: Probability-weighted Price Scenario Value: HK$28.76, from HK$28.89 Targe previously

Our base-case valuation is HK$28.76. The slight decrease in our scenario value is based on our adjustment in earnings estimates. We have left unchanged the variables in our WACC assumptions for Source: Morgan Stanley Research CMHI’s terminal valuation. As a result, our discount factor of 11.2% is also unchanged.

Bull Case: 20% weighting (unchanged) Exhibit 10: CMHI: WACC Assumption Scenario Value: HK$42.27, from HK$42.45 previously

Our bull-case scenario fair value reflects higher market expectations for the potential benefits from the Shanghai Free Trade Zone and higher valuation of the assets in Chiwan and CIMC. So our SOTP is based on mark-to-market valuation of CMHI’s stakes in SIPG, Shenzhen Chiwan and CIMC. Source: Morgan Stanley Research Bear Case: 10% weighting (unchanged) Scenario Value: HK$21.57, from HK$21.66 previously

Our bear-case scenario is based on the risk of a double dip in the global economy; 10% volume declines in 2015-17e, and failure of any tariff hikes from 2015 onward.

Major Risks to Our Earnings Estimates and Price Target :

7 China Merchants Hldg Intl | July 23, 2015 MORGAN STANLEY RESEARCH 1. Downside risks: 1) Double dip in China’s exports; 2) Overpayment for potential overseas acquisitions; 3) Serious deterioration in PRD throughput led by plant relocations. 2. Upside risks: 1) More sustainable volume rebound; 2) Less impact from RMB depreciation; 3) High exceptional gains, such as the Qianhai land development.

Exhibit 11: CMHI: Forward P/E, 2004 to Current Exhibit 12: CMHI: Forward P/B, 2004 to Current

35 4.0 20% 3.5 18% 30 16% 3.0 14% 25 Mean=13.54x E B 2.5 / / Mean=1.5x 12% P P

d d r 20 r 2.0 10% a a w w r r 8% o o 1.5 F 15 F 6% 1.0 10 4% 0.5 2% 5 - 0% 7 2 3 4 5 6 8 9 0 1 4 5 4 5 6 7 8 9 0 1 2 3 4 5 0 0 0 0 0 0 1 1 1 1 1 1 0 1 1 1 0 0 0 0 0 1 1 1 / / / / / / / / / / / / / / / / / / / / / / / / 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 / / / / / / / / / / / / / / / / / / / / / / / / 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Forward P/E Mean +1std -1std Forward P/B Mean +1std -1std ROE

Source: Bloomberg, Morgan Stanley Research Source: Bloomberg, Morgan Stanley Research

8 China Merchants Hldg Intl | July 23, 2015 MORGAN STANLEY RESEARCH Exhibit 13: CMHI: New vs. Old Estimates, 2015-17E

2015E 2016E 2017E Y/E D ec 31 (m n TE U s) N ew E st O rg E st % C hng N ew E st O rg E st % C hng N ew E st O rg E st % C hng M TL 4,428 5,486 -19% 4,517 5,596 -19% 4,562 5,652 -19% C M C ontainer S ervices 392 345 13% 404 356 13% 404 356 13% C M P ort S erv ices 1,432 1,475 -3% 1,475 1,519 -3% 1,475 1,519 -3% SC T 5,306 4,878 9% 5,528 5,066 9% 5,794 5,337 9% C hiwan W harf 481 506 -5% 491 516 -5% 495 521 -5% C hiwan C ontainer Term inal 3,120 3,695 -16% 3,182 3,769 -16% 3,214 3,807 -16% H aixing P ort 368 368 0% 368 368 0% 390 390 0% M awan P ort 1,271 1,155 10% 1,296 1,178 10% 1,335 1,213 10% Zhangzhou C M P ort 505 451 12% 555 496 12% 600 536 12% SIP G 37,049 37,049 0% 38,902 38,902 0% 40,069 40,069 0% N ingbo (N BC M IC T) 2,750 2,700 2% 2,970 2,916 2% 3,119 3,062 2% Tianjin Fiv e C ontinents 2,724 2,724 0% 2,860 2,860 0% 2,946 2,946 0% Q ingdao (Q Q C TU ) 6,643 6,763 -2% 7,440 7,575 -2% 8,035 8,181 -2% Tin C an Island 456 443 3% 469 456 3% 479 465 3% Kaosiung Term inal 1,573 1,794 -12% 1,730 1,974 -12% 1,886 2,151 -12% Sri-Lanka Term inal 1,374 1,237 11% 1,649 1,484 11% 1,896 1,707 11% O ther ov erseas - C M A C G M 9,466 9,556 -1% 9,939 10,034 -1% 10,436 10,536 -1% Total 79,337 80,626 -2% 83,775 85,065 -2% 87,134 88,447 -1% % C hng YoY 4.4% 5.5% 5.6% 5.5% 4.0% 4.0% C hina ex-H K 61,649 61,764 0% 65,067 65,165 0% 67,472 67,580 0% % C hng YoY 5.0% 5.6% 5.5% 5.5% 3.7% 3.7% H K & TW 6,393 7,626 -16% 6,651 7,926 -16% 6,851 8,159 -16% % C hng YoY -11.5% -1.5% 4.0% 3.9% 3.0% 2.9% O v erseas 11,296 11,236 1% 12,058 11,974 1% 12,811 12,708 1% % C hng YoY

2015E 2016E 2017E Year to Dec (HK$ Mn) New Est Org Est % Chng New Est Org Est % Chng New Est Org Est % Chng Turnover HK ports 115 105 10% 118 107 10% 118 107 10% CMCS - 100% 115 105 10% 118 107 10% 118 107 10% C hina ports 7,395 7,178 3% 7,816 7,581 3% 8,294 8,059 3% CMPS - 100% 530 553 -4% 541 565 -4% 541 565 -4% SCT Phase 1 - 50%/70%/73%/75% 747 762 -2% 747 762 -2% 747 762 -2% SCT Phase 2 - 51%/70%/73%/75% 750 764 -2% 750 764 -2% 750 764 -2% SCT Phase 3a - 100%/70%/73%/75% 569 580 -2% 615 626 -2% 676 689 -2% SCT Phase 3b - 100%/70%/73%/75% 702 488 44% 772 542 43% 850 623 36% Mawan Port - 30%/70% 709 646 10% 731 666 10% 765 698 10% Haixing - 33%/67% 373 376 -1% 373 376 -1% 381 384 -1% Zhangzhou CM Port - 60% 506 500 1% 528 521 1% 551 542 2% Qingdao CMICT - 90.1% 11 11 0% 14 14 0% 16 16 0% Gross rental income from investment properties 52 52 0% 52 52 0% 52 52 0% Bonded logistics / Cold chain 801 801 na 881 881 na 969 969 na Turnover 8,810 8,539 3% 9,404 9,104 3% 10,050 9,743 3% % Chng YoY 7% 3% 7% 7% 7% 7%

Operating expense (4,596) (4,390) 5% (4,909) (4,701) 4% (5,257) (5,067) 4%

Segment results HK ports 7 (3) -318% 10 (1) -1121% 10 (1) -1121% CMCS - 100% 7 (3) -318% 10 (1) -1121% 10 (1) -1121% China ports 3,828 3,698 3% 4,130 3,986 4% 4,460 4,309 3% CMPS - 100% 188 203 -7% 191 206 -7% 191 206 -7% SCT Phase 1 - 50%/70%/73%/75% 480 494 -3% 480 494 -3% 480 494 -3% SCT Phase 2 - 51%/70%/73%/75% 519 533 -3% 519 533 -3% 519 533 -3% SCT Phase 3a - 100%/70%/73%/75% 353 364 -3% 390 401 -3% 438 452 -3% SCT Phase 3b - 100%/70%/73%/75% 469 301 56% 525 344 53% 587 409 44% Mawan Port - 30%/70% 303 277 10% 321 293 10% 335 306 9% Haixing - 33%/67% 154 183 -16% 154 183 -16% 158 188 -16% Zhangzhou Ports - 60% 251 249 1% 268 265 1% 286 281 2% Qingdao CMICT - 90.1% 2 2 0% 2 2 0% 2 2 0% Rental income from investment properties 28 28 0% 28 28 0% 28 28 0% Property revaluation gain 445 445 0% 445 445 0% 445 445 0% Interest income 182 256 -29% 156 218 -29% 120 166 -27% Others -300 -300 0% -300 -300 0% -300 -300 0% Segment results 4,215 4,149 2% 4,495 4,403 2% 4,793 4,677 2%

Unallocated income less expenses (203) (203) 0% (223) (223) 0% (245) (245) 0% Finance costs (1,639) (1,639) 0% (1,639) (1,639) 0% (1,639) (1,639) 0%

HK ports 269 374 -28% 277 384 -28% 285 394 -28% MTL - 27.01% (associate) 269 374 -28% 277 384 -28% 285 394 -28% China ports 3,392 3,403 0% 3,732 3,747 0% 4,149 4,167 0% Ningbo Daxie Island - 45% (JCE) 211 205 3% 210 204 3% 226 221 3% SIPG -24.48% (associate) 2,325 2,325 0% 2,605 2,605 0% 2,905 2,905 0% Zhanjiang Port - 40.29% (JCE) 148 148 0% 168 168 0% 168 168 0% QQCTU - 50% (JCE) 272 290 -6% 308 329 -6% 403 426 -5% Ningbo Port Group - 5% 117 117 0% 119 119 0% 121 121 0% Others (associate) 84 84 0% 84 84 0% 84 84 0% CIMC - 25.54% (associate) 848 1,266 -33% 1,069 1,460 -27% 1,271 1,636 -22% AAT - 20% (associate) 32 32 0% 33 33 0% 33 33 0% Others -44 -44 0% -44 -44 0% -44 -44 0% Share of results of associates and JCEs 5,061 5,589 -9% 5,695 6,201 -8% 6,348 6,833 -7%

Profit before taxation 7,434 7,896 -6% 8,328 8,742 -5% 9,256 9,625 -4% Taxation (1,289) (1,283) 1% (1,553) (1,522) 2% (1,714) (1,684) 2% Profit before minority interests 6,145 6,614 -7% 6,775 7,220 -6% 7,543 7,942 -5% Minority interests (865) (856) 1% (898) (892) 1% (970) (964) 1%

Net profit 5,279 5,758 -8% 5,877 6,328 -7% 6,573 6,978 -6%

Source: Morgan Stanley Research estimates

9 China Merchants Hldg Intl | July 23, 2015 MORGAN STANLEY RESEARCH Exhibit 14: CMHI: Base case scenario SOTP Valuation

2015E 2015E 2015E Divisional Divisional Valuation Net Profit Valuation PE Divisions Methodology HK$ m HK$ m x HK ports 275 3,950 14 HK MTL - 27.01% DCF 269 3,800 CMCS - 100% DCF 6 150 China ports 5,047 63,709 13 SIPG - 24.5% DCF 2,325 18,606 CMPS -100% DCF 141 1,853 SCT Phase 1 - 80% DCF 300 3,587 SCT Phase 2 - 80% DCF 295 3,129 SCT Phase 3a - 80% DCF 237 3,499 SCT Phase 3b - 80% DCF 315 6,144 Qianhaiwan Port - 100% Cost of investment 0 1,747 Youlin Land - 100% Cost of investment 0 317 Nanshan Development - 37.01% DCF 331 4,999 CCT - 12% DCF 74 948 Mawan Port - 70% DCF 141 2,115 Haixing Port - 67% DCF 73 1,367 Zhangzhou Port - 60% DCF 90 1,613 Ningbo Daxie - 45% DCF 235 3,302 QQCTU - 50% DCF 272 8,096 Tianjin Five Continents -14% DCF 71 1,265 Zhanjiang Port - 40.29% DCF 148 989 CKRTT - 20% Cost of investment 131 Sri Lanka Project Cost of investment na 3315 Nigeria Project (TICT at Lagos) - 28.5% Cost of investment 1,201 Port de Djibouti - 23.5% Cost of investment 1,573 Kaosiung Terminal - 10% Cost of investment 384 Togo Lome CT - 50% Cost of investment 1,595 Terminal Link - 49% Cost of investment 4510 Ports 5,322 80,237 15

CIMC - 25.54% RI Valuation 848 12,174 Asia Freight Terminal - 20% PE multiple, 10x PE 32 320 10 HK Property Capitalized at 2% p.a. rental yield 28 1,421 50

Sub-total 6,230 94,151

Less: Forecast net debt as of Dec 2015 (1,750) (6,935)

Total 4,480 87,216

Total number of shares (million) 3,032.1

Per share (HK$) 28.76

Source: Morgan Stanley Research Estimates

10 China Merchants Hldg Intl | July 23, 2015 MORGAN STANLEY RESEARCH Exhibit 15: Global Port Operators Valuation Comps Sheet

Last px Target MS Mkt Cap Mkt Cap Share Price Perf. 52-wk CURR 7/21/15 Price Rating (LC Mn) (USD Mn) 1-mo 3-mo 12-mo High Low Ports China Merchants Holdings (International) Co. Ltd.* HKD 29.70 30.74 E 90,126 11,628 -9% -8% 17% 37.00 23.05 Cosco Pacific Ltd.* HKD 10.26 10.94 E 27,820 3,589 -3% -12% -6% 12.80 9.00 Xiamen International Port Co Ltd CNY 2.68 NC NC 7,306 943 -20% -42% 99% 5.78 1.30 Holdings Ltd HKD 1.74 NC NC 10,715 1,382 -11% -26% 41% 2.77 1.18 Dalian Port PDA Co Ltd CNY 6.46 NC NC 24,188 3,895 -21% -21% 133% 10.64 2.75 Shanghai International Port Group Co Ltd CNY 8.14 NC NC 188,634 30,377 -10% -18% 91% 11.09 4.39 Shenzhen Chiwan Wharf Holdings Ltd CNY 26.69 NC NC 15,235 2,453 NA NA NA 28.00 12.50 Tianjin Port Holdings Co Ltd CNY 13.65 NC NC 22,861 3,681 -23% -37% 76% 23.00 7.79 Ningbo Port Co Ltd CNY 8.11 NC NC 103,808 16,717 -22% 8% 253% 13.45 2.29 Shenzhen Yan Tian Port Holdings Co Ltd CNY 10.47 NC NC 20,335 3,275 -11% -17% 110% 14.98 4.98

Hutchison Port Holdings Trust* USD 0.60 0.58 E 40,848 5,270 -5% -12% -18% 0.75 0.60 DP World* USD 23.30 27.00 O 19,339 19,339 6% -1% 17% 23.85 18.51 Hamburger Hafen und Logistik AG* EUR 17.58 14.50 U 1,231 1,347 -2% -11% -8% 21.53 15.70 Santos Brasil Participacoes SA BRL 12.23 NC NC 1,629 514 -3% 4% -20% 17.74 10.11 Global Ports Investments PLC* USD 6.12 5.00 E 1,169 1,169 25% -3% -38% 11.00 2.29

P/E (x) P/B (x) ROE(%) EV/EBITDA (x) Dividend Yield (%) 14 15E 16E 14 15E 16E 14 15E 16E 14 15E 16E 14 15E 16E

China Merchants Holdings (International) Co. Ltd.* 16.4 17.1 15.3 1.2 1.3 1.3 9.3 7.8 8.5 11.5 10.3 9.7 3.5 3.8 3.7 Cosco Pacific Ltd.* 14.2 12.3 10.9 0.8 0.7 0.7 6.4 6.1 6.7 8.3 9.2 8.6 2.8 3.5 4.0 Xiamen International Port Co Ltd 15.6 12.1 11.8 1.2 1.1 1.1 7.8 9.5 9.3 6.7 5.1 4.9 2.7 3.0 3.2 Tianjin Port Development Holdings Ltd 13.8 12.7 12.3 0.9 NA NA 6.8 NA NA 6.0 6.3 6.4 3.0 3.3 3.6 Dalian Port PDA Co Ltd 28.5 NA NA 2.1 NA NA 7.4 NA NA 83.8 NA NA 0.2 NA NA Shanghai International Port Group Co Ltd 29.5 25.7 23.5 3.5 3.2 2.9 11.7 12.3 12.2 17.4 15.2 13.9 1.6 1.8 2.2 Shenzhen Chiwan Wharf Holdings Ltd 35.6 34.1 31.8 4.1 3.9 3.7 11.5 11.5 11.7 14.3 13.4 12.6 1.4 1.5 1.6 Tianjin Port Holdings Co Ltd 18.3 16.9 16.9 1.7 1.6 1.5 9.4 9.4 8.8 7.8 NA NA 2.6 1.6 1.7 Ningbo Port Co Ltd 34.3 32.4 28.6 3.4 3.2 3.0 9.9 9.9 10.6 NA NA NA 0.9 1.0 1.2 Shenzhen Yan Tian Port Holdings Co Ltd 174.5 47.6 NA 4.1 3.5 NA 2.4 7.4 NA 143.1 NA NA 0.2 NA NA Chinese Median 23.4 17.1 16.1 1.9 2.4 1.5 8.6 9.4 9.3 11.5 9.7 9.1 2.1 2.4 2.7

Hutchison Port Holdings Trust* 25.8 25.2 22.9 1.1 1.0 1.0 2.8 3.7 4.2 12.4 11.7 11.1 7.7 7.3 7.9 DP World* 25.8 25.0 20.0 2.1 2.1 2.0 7.9 9.1 10.6 12.7 13.3 11.1 1.1 1.2 1.4 Hamburger Hafen und Logistik AG* 23.1 21.7 17.3 2.5 2.4 2.3 9.5 11.7 14.0 6.8 6.9 6.3 3.0 3.0 3.2 Santos Brasil Participacoes SA 20.3 18.5 17.9 1.3 1.1 1.1 6.3 6.2 6.2 6.8 6.3 6.5 6.4 2.6 3.5 Global Ports Investments PLC* 2.2 15.6 12.7 1.3 2.7 2.2 17.8 20.4 20.8 4.5 8.1 8.2 4.9 0.0 0.0 Foreign Median 23.1 21.7 17.9 1.3 2.1 2.0 7.9 9.1 10.6 6.8 8.1 8.2 4.9 2.6 3.2

Mixed Median 24.5 21.7 17.6 1.9 2.3 2.0 8.6 9.4 10.6 11.5 9.7 9.1 2.7 2.2 2.7

Source: E = Morgan Stanley Research estimates for covered companies, Thomson Reuters consensus data for Not Rated companies; NA = Not available. Source: Thomson Reuters, Morgan Stanley Research.

11 China Merchants Hldg Intl | July 23, 2015 MORGAN STANLEY RESEARCH

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12 China Merchants Hldg Intl | July 23, 2015 MORGAN STANLEY RESEARCH

COVERAGE UNIVERSE INVESTMENT BANKING CLIENTS (IBC) STOCK RATING CATEGORY COUNT % OF TOTAL COUNT % OF TOTAL % OF RATING IBC CATEGORY Overweight/Buy 1183 35% 315 43% 27% Equal-weight/Hold 1456 44% 336 45% 23% Not-Rated/Hold 93 3% 9 1% 10% Underweight/Sell 613 18% 79 11% 13% TOTAL 3,345 739

Data include common stock and ADRs currently assigned ratings. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in the last 12 months. Analyst Stock Ratings Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Not-Rated (NR). Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months. Analyst Industry Views Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the relevant broad market benchmark, as indicated below. In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in line with the relevant broad market benchmark, as indicated below. Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant broad market benchmark, as indicated below. Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index; Europe - MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index or MSCI sub-regional index or MSCI AC Asia Pacific ex Japan Index. Stock Price, Price Target and Rating History (See Rating Definitions)

13 China Merchants Hldg Intl | July 23, 2015 MORGAN STANLEY RESEARCH

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15 China Merchants Hldg Intl | July 23, 2015 MORGAN STANLEY RESEARCH

INDUSTRY COVERAGE: Hong Kong/China Transportation & Infrastructure

COMPANY (TICKER) RATING (AS OF) PRICE* (07/22/2015)

Wong CFA, Victoria China COSCO (601919.SS) U (08/19/2014) Rmb10.00 China COSCO (1919.HK) U (08/19/2014) HK$4.14 China Merchants Energy Shipping Co. Ltd. (601872.SS) O (06/25/2015) Rmb8.64 China Shipping CL (2866.HK) E (07/09/2012) HK$2.63 China Shipping CL (601866.SS) U (08/19/2014) Rmb7.91 China Shipping Development (1138.HK) O (10/23/2013) HK$5.23 China Shipping Development (600026.SS) O (06/25/2015) Rmb10.20 Hopewell Highway Infrastructure (0737.HK) E (08/12/2014) HK$3.81 Jiangsu Expressway Company Limited (600377.SS) O (08/12/2014) Rmb8.73 Jiangsu Expressway Company Limited (0177.HK) O (08/12/2014) HK$10.26 Orient Overseas Int'l Limited (0316.HK) O (03/05/2014) HK$39.65 Pacific Basin Shipping (2343.HK) O (11/03/2014) HK$2.84 Zhejiang Expressway Company (0576.HK) U (07/16/2013) HK$9.69

Xu CFA, Edward H Air China Limited (0753.HK) E (12/16/2014) HK$8.76 Air China Limited (601111.SS) U (12/16/2014) Rmb15.36 Beijing Capital Int'l Airport (0694.HK) E (12/17/2013) HK$8.89 Cathay Pacific Airways (0293.HK) E (08/19/2013) HK$19.12 China Eastern Airlines (0670.HK) E (12/16/2014) HK$6.90 China Eastern Airlines (600115.SS) U (12/16/2014) Rmb11.99 China Merchants Hldg Intl (0144.HK) E (04/01/2015) HK$29.70 China Southern Airlines (600029.SS) U (04/08/2015) Rmb13.20 China Southern Airlines (1055.HK) O (12/16/2014) HK$8.62 CIMC (2039.HK) E (07/14/2014) HK$17.38 CIMC (000039.SZ) U (01/19/2015) Rmb23.76 COSCO Pacific (1199.HK) E (03/25/2015) HK$10.26 Daqin Railway Co. Ltd. (601006.SS) O (01/07/2010) Rmb11.36 Guangshen Railway (0525.HK) U (04/28/2014) HK$3.86 Guangshen Railway (601333.SS) U (07/18/2014) Rmb5.92 Hutchison Port Holdings Trust (HPHT.SI) E (03/05/2014) US$0.61 Kerry Logistics Network (0636.HK) O (03/27/2015) HK$11.86 Shanghai International Airport (600009.SS) U (06/24/2015) Rmb29.61 Shenzhen International Holdings (0152.HK) O (05/27/2014) HK$13.84 Sichuan Haite High-Tech (002023.SZ) O (06/16/2015) Rmb22.73 Sinotrans Air Transportation Development (600270.SS) E (05/18/2015) Rmb29.09 Sinotrans Limited (0598.HK) O (05/27/2014) HK$5.06 SITC International Holdings Company (1308.HK) O (08/08/2011) HK$4.80 Spring Airlines (601021.SS) O (02/24/2015) Rmb121.13

Stock Ratings are subject to change. Please see latest research for each company. * Historical prices are not split adjusted.

© 2015 Morgan Stanley

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