Guosen Morning Note

Macro Commentary 09 May 2017 / Indices Last 1Dchg(%) 1Mchg(%)  On the last trading day, HSI closed at 24,578 (+0.41%) with trading HSI 24,577.9 0.4 1.3 volume at HKD63.6bn; HSCEI closed at 9,982 (+0.57%) with trading HSCEI 9,982.4 0.6 (2.8) volume at HKD11.5bn. Constituent stocks see consumer product HSCCI 3,838.8 (0.1) (4.9) manufacturer leading gain. -Hong Kong stock connect CSI300 3,358.8 (0.7) (4.5) (Southbound) turnover of HKD6,951m made up 10.3% of total HK market SH Composite 3,078.6 (0.8) (6.3) Shanghai A 3,223.9 (0.8) (6.3) turnover of HKD67.3bn (May 5: 8.4% and May 4: 9.0%). Top stock Shanghai B 324.9 (1.3) (5.8) turnovers came from Tencent at HK867m, with HSBC and Citic SZ Composite 1,835.6 (2.0) (9.5) standing at second and third for top stock turnovers at HKD802m and A 1,920.0 (2.0) (9.5) HKD651m respectively. Besides, the Shenzhen-Hong Kong Stock Shenzhen B 1,086.1 (1.4) (6.0) Connect’s Southbound turnover of HKD1,505m corresponded to 12.1% of NIKKEI 225 19,895.7 2.3 6.6 S&P500 2,399.4 0.0 1.9 the daily quota (RMB10.5bn). While its top three actively traded shares DOW JONES 21,012.3 0.0 1.7 were IGG (HKD164m), Fullshare (HKD110m) and Tencent (HKD90m). On NASDAQ 100 5,659.1 0.2 4.4 the same day, the top three stocks with highest turnovers in HK Stock Source: Bloomberg Exchange were Tencent (HKD4,732m), HSBC (HKD2,456m) and Geely Auto (HKD1,405m).

Southbound SH-HK stock connect turnover

HKD in bn HSI vs. CSI300(rebased to 100) 18.00% 12.00 16.00% 10.00 160 14.00% 12.00% 8.00 140 10.00% 6.00 120 8.00% 6.00% 4.00 100 4.00% 2.00 2.00% 80

0.00% 0.00 60 Jan-15 Sep-15 May-16

Southbound SH-HK stock turnover vs Mainboard (%) HSI SHSZ300

Source: Wind, Bloomberg, Guosen Securities (HK) Research Source: Bloomberg

Southbound stock net buy/sell turnover

HKD in bn 5

4 HSI Top 5 Movers Close Points 3 Stock Name (HK$) %Chg Moved 0939 CCB 6.2 0.8 16.5 2 0700 Tencent 244.8 0.4 11.5 1 0005 HSBC 66.8 0.5 11.3 1398 ICBC 5.0 1.0 11.3 0 Geely 0175 10.7 4.5 7.5 -1 Automobile Source: Bloomberg -2

Southbound SH-HK stock net buy/sell turnover Sorthbound SZ-HK stock net buy/sell trade turnover HSI Top 5 Shakers Source: Wind, Bloomberg, Guosen Securities (HK) Research Close Points Global Stock Name (HK$) %Chg Moved 1299 AIA 54.5 (0.3) (5.5)  Dow Jones Industrial Average rose 0.03% at 21,012, S&P 500 Index ended 0027 Galaxy 40.0 (1.4) (4.0) at 2,399 (+0.00%), Nasdaq Composite closed at 6,103 (+0.03%). 1928 Sands China 34.4 (1.1) (3.0) 0688 COLI 21.7 (0.9) (2.3) 0762 China Unicom 10.0 (0.6) (1.1) Source: Bloomberg

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Guosen Morning Note

Guosen (HK) Latest Research Company Research Livzon Pharm (1513 HK) Gliding over easily Jason Siu PhD, +852 2899 6747, [email protected] Link to Full Report On 28 April, Livzon announced its 1Q17 core profit at RMB283m surged 25.9% y-o-y (1Q16: 35.3%), 29.3% of our FY17F full-year total (1Q16: 27.7%). As seen in 1Q17, good sales and wider margin from chemical drugs and bulk medicines will continue to achieve its full year FY17F earnings growth. Disposal of its old site redevelopment project on 19 April, will yield RMB3.5bn one-time profit in FY17F. We keep our forecast with TP to stay at HKD54.85. Maintain BUY. Company Research Sinopharm (1099 HK) 1Q17 result: Mixed Jason Siu PhD, +852 2899 6747, [email protected] Link to Full Report Ahead of market open on 26 April 2017, Sinopharm reported its 1Q17 net profit at RMB1,252m, surged 23% y-o-y, 25% of our FY17F full-year forecast (1Q16: 22%). While its core earnings at RMB1,422m rose 22% y-o-y, making up 28% of our FY17F full year total (1Q16: 25%). However, total revenue of RMB68,425m decelerated to a 9% y-o-y growth from 1Q16’s 14%, but consistent with our 2017’s full-year estimate at 11% y-o-y (FY16: 14%). Post Management’s update over the teleconference call, we note that the hospital purchase orders to distributors were slower and smaller compared to 1Q16. Sector Newsflash China Healthcare More drugs sacrifice prices for volume jump Jason Siu PhD, +852 2899 6747, [email protected] Link to Full Report On 14 April 2017, China's Ministry of Human Resources and Social Security of China (人社部) announced a total of 44 medicines were included into the National Drug Reimbursement List (NDRL) of medical insurances for basic medical, work injury and fertility, after having negotiated on further price cut. Within the list, the number of chemical drugs, Chinese medicines, and bio- medicines were 21 (48% of total), 8 (18%) and 15 (34%) respectively, while 7 of the biomedicine names came from monoclonal antibodies (16%). Sector Newsflash China Healthcare TCM granules & devices as the policy winners Jason Siu PhD, +852 2899 6747, [email protected] Link to Full Report 10 April 2017 marked the first working day for ’s over 3,000 medical centres to participate the integrated medical reform, according to Yaozh.com. This included the cancellation of: (1) markup for hospital sales of medicines to patients vs 25% markup previously; (2) medical registration fee; and (3) certain doctor’s diagnostics fee. The latter also includes upward and downward adjustments of medical fees for outpatients on different hospital classes.

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Guosen Morning Note

Research Analysts Directory Name Sector coverage Phone Email address Jason Siu Healthcare/ Head of Research 00852-28996747 [email protected] Janice Yu Economics 00852-28996758 [email protected] Raymond Lam Retail/ Sports/ Leisure 00852-28993141 [email protected] Team Coverage [email protected]

Source: Guosen Securities (HK) Research

Guosen Securities (HK) Brokerage Co., Ltd Address：Suites 42/F, Two International Finance Centre, 8 Finance Street, Central, HK Phone：（852）28998300 Fax：（852）28998397 Email：[email protected]

Guosen Securities (HK) Institutional Sales Address：Suites 42/F, Two International Finance Centre, 8 Finance Street, Central, HK Phone：（852）22483555 Fax：（852）28997252 Email：[email protected]

Guosen Securities (HK) Asset Management Company Limited Address：Suites 42/F, Two International Finance Centre, 8 Finance Street, Central, HK Phone：（852）28998300 Fax：（852）28998346 Email：[email protected]

Guosen Securities (HK) Capital Company Limited Address：Suites 42/F, Two International Finance Centre, 8 Finance Street, Central, HK Phone：（852）28997200 Fax：（852）28997240 Email：[email protected]

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Guosen Morning Note

Information Disclosures Stock ratings, sector ratings and related definitions

Stock Ratings: Buy: A return potential of 10 % or more relative to overall market within 6 – 12 months. Neutral: A return potential ranging from -10% to 10% relative to overall market within 6 – 12 months. Sell: A negative return of 10% or more relative to overall market within 6 –12 months. Sector Ratings: Overweight: The sector will outperform the overall market by 10% or higher within 6 –12 months. Neutral: The sector performance will range from -10% to 10% relative to overall market within 6 –12 months. Underweight: The sector will underperform the overall market by 10% or lower within 6 – 12 months.

Interest disclosure statement

The analyst is licensed by the Hong Kong Securities and Futures Commission. Neither the analyst nor his/her associates serves as an officer of the listed companies covered in this report and has no financial interests in the companies.

Guosen Securities (HK) Brokerage Co., Ltd. and its associated companies (collectively “Guosen Securities (HK)”) has no disclo sable financial interests (including securities holding) or make a market in the securities in respect of the listed companies. Guosen Securities (HK) has no investment banking relationship within the past 12 months, to the listed companies. Guosen Securities (HK) has no individual employed by the listed companies.

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