We Expect Hang Seng Index to Decline This Month Due to Profit Taking with a Technical Support at 20,000

6th May, 2016

Hang Seng Index Performance Index Performance

Abs chg % Change Hong Kong Close 1-Day 1-Day 1-Mth 3-Mth Hang Seng Index 20,449.82 -76.01 -0.37 1.20 6.02 HSCI 2,792.77 -13.92 -0.50 0.56 6.86 HSCCI (Red Chips) 3,641.98 -33.91 -0.92 -0.44 7.01 HSCEI (H-Shares) 8,626.73 -70.64 -0.81 -0.48 7.10 Mkt T/O ($ Mn) 56,469.88 -4,968.92 -8.09 -20.08 1.93

Oversea DJIA 17,660.71 9.45 0.05 -0.31 8.98 NASDAQ 4,717.09 -8.55 -0.18 -4.14 8.11 Shanghai SE Composite 2,997.84 6.57 0.22 -1.73 8.48 Crude Oil Futures (US$) 44.32 0.00 0.00 17.40 43.48 Gold Futures (US$) 1,278.70 6.40 0.50 4.49 10.45 Baltic Dry Index 642.00 -10.00 -1.53 28.40 116.16 USD / Euro 1.1399 -0.0013 -0.11 -0.14 2.10 Yen / USD 107.380 0.1000 -0.09 2.18 7.69

HSCEI HSI 20-Day MA 8,979.88 21,024.95 Source: Bloomberg 50-Day MA 8,712.86 20,462.28 9-Day RSI 30.89 32.61

Market Outlook Eric Yuen - [email protected] Hang Seng Index closed down 0.4% at 20,450. Market turnover decreased to $56.5 billion. Heavily weighted HSBC (5) and Tencent (700) cut 1.4% and 0.8% respectively. AIA Group (1299) surged 2.0%. Cheung Kong Infrastructure (1038) We expect Hang Seng climbed 2.4%, the most in Hang Seng Index. Hong Kong utilities and gaming stocks ended higher. Power Assets (6), CLP Holdings (2) and HK & China Gas (3) rose 0.1%- Index to decline this 0.9%. Sands China (1928) and Galaxy Entertainment (27) added 0.2%-0.4%. month due to profit Consumption and local property stocks tumbled. Henderson Land (12), New World Development (17) and Hang Lung Properties (101) tumbled 1.5%-1.7%. Hengan taking with a technical Int’l (1044), Belle Int’l (1880) and China Mengniu Dairy (2319) shrank 1.6%-2.3%. support at 20,000. HSCEI declined 0.8% led by power, cement and railway stocks. CGN Power (1816) and China Longyuan (916) plunged 1.6%-2.5%. Anhui Conch (914) and CNBM (3323) lost 1.0%-3.0%. China Railway Group (390), CRRC Corporation (1766) and CCCC (1800) slid 1.6%-3.1%. Securities, insurance and banking shares in HSCEI dropped an average 0.9%, 0.6% and 0.6% respectively. Air China (753), the best performing HSCEI stock, advanced 0.7%. We expect Hang Seng Index to decline this month due to profit taking with a technical support at 20,000.

Remarks: Mason Securities Ltd (“Mason Securities”) is licensed by the Securities and Futures Commission to carry on ｜｜ Types 1, 4, and 6 regulated activities in Hong Kong. Mason Futures Ltd is licensed by the Securities and Futures Securities Futures Bullion Commission to carry on Type 2 regulated activity in Hong Kong. Bullion trading service is provided by Mason Bullion Ltd.

Industry / Corporate News Becky Yuen, CFA – [email protected] Initiate BUY on Tongda Group (698) as company continues to win market share in metal handset casings

Initiate BUY • Well-positioned to benefit from increasing adoption of metal casings of low- and mid-end smartphones thanks to high cost-performance ratio of its metal casing products Risk Level: Medium • Gross margin expansion to continue thanks to better product mix Time Horizon: Medium • Valuation is undemanding at 9.2x 2016 PER with a 38% EPS growth Tongda Group (698, $1.61) released a 1Q16 business update on operating performance on April 27, with turnover up 16.7% yoy to $1.4bn. Specifically, company cited that the metal handset casings orders from key customers increased as company started to produce some major handset models during the period, including Huawei Maimang 4, OPPO A53 and R9, Xiaomi Redmi 3, Redmi Note 3 and Xiaomi 4c. As a result, sales derived from Tongda’s top five customers in 1Q16 increased 21% yoy to $872mn, among which sales from handset customers grew 38% yoy to $799mn. Comment: We see the strong growth of handset-related sales in 1Q16 as a positive sign of Tongda’s rosy business outlook in 2016. Even though the strong growth from smartphone-related orders was largely driven by the launch of Xiaomi new models in 1Q16, we expect the strong momentum to continue as other Chinese smartphone brands are also pushing the adoption of metal casings for their new low- and mid-end models. We believe Tongda is a beneficiary of this trend thanks to its ability to offer a lower-cost option to smartphone brands with the use of Nano Molding Technology (NMT) as compared to the traditional use of pure CNC machines for metal casing manufacturing. Due to the high cost-performance ratio of Tongda’s metal casing products, we believe the company will be able to grab more market share from upcoming low- and mid-end smartphone models. Note that leading Chinese smartphone brands Huawei, Xiaomi and OPPO are all major customers of Tongda, together accounted for close to 50% of company’s overall revenue in 2015. Tongda used to focus on plastic handset casing production in the past, and only started manufacturing of metal casings in 2H14. Yet the transformation was doing well and we saw revenue contribution of metal casings jumped from 6% in 2H14 to 12% in 1H15 and 35% in 2H15. As a result, handsets-related products now accounted for 61% of total revenue in 2015 as compared to 50.4% in 2014 even though China’s smartphone sales witnessed a slowdown during the period. Given that metal casing products enjoy a much higher gross margin of around 30% compared to approximately 20%-25% for plastic casings, a higher sales contribution from metal casing actually bodes well for Tongda’s profitability. In fact, we saw that Tongda’s overall gross margin had a huge enhancement in 2H15, up 1.5ppts yoy and 2.6ppts hoh respectively to 26.1%. In view of Tongda’s in line 1Q16 sales performance and management guidance of 35-40mn units of metal casings shipment in 2016 (12mn units were shipped in 2015), we estimate that company’s sales in 2016 will up 39.5% yoy to $8,471mn with metal casings accounted for 51% of overall sales. With an improved product mix, we expect gross margin of Tongda will further expand to 26.0% in 2016 whilst operating margin will increase 1.1ppts to 16.2%. This leads to our earnings forecast of $998.9mn, up 42% yoy. EPS growth will be 38% yoy to $0.174 due to the dilution from issuance of new shares. Counter is now trading at 9.2x 2016 PER that we think is undemanding. As such, we initiate BUY with 6-month target price of $1.92, equivalent to 11x 2016 PER. Recent Recommendations Stock Pick Rating Recommendation Highlights TP Geely Automobile (175) is no longer undervalued by historical standard or Geely Automobile (175) SELL $3.60 compared to peers – SELL Xinhua Winshare Publishing BUY BUY Xinhua Winshare Publishing (811) ahead of A shares IPO $9.0 (811) Ju Teng (3336) BUY Reiterate Buy on Ju Teng (3336) as we expect margin expansion to continue in 2016 $5.0 Fortune REIT (778) BUY Fortune REIT (778) offers high dividend yield and low earnings risk – Maintain BUY $9.60 Texwinca (321) BUY BUY Texwinca (321) on recovery of the U.S. business and high dividend yield $8.70 Pacific Basin (2343) BUY BUY Pacific Basin (2343) on distressed valuation $1.70 China High Speed BUY Reiterate BUY on China High Speed Transmission (658) on attractive valuation $8.9 Transmission (658) China Machinery Engineering BUY Weakness in share price offers a good buying opportunity – BUY CMEC (1829) $6.45 Corporation (1829) Reiterate BUY on Lee & Man Paper (2314) on improving containerboard industry Lee & Man Paper (2314) BUY $5.8 outlook Underweight HK property stock, SELL CK Property (1113), SHK Properties (16) and Henderson Land (12) SELL $42.0

Henderson Land (12)

Technical Ideas

Risk: Low Cheung Kong Infrastructure (1038, $75.20) TP: $82.7 BUY Time Horizon: Short

• Cheung Kong Infrastructure develops, invests in, and operates infrastructure projects such as power plants, toll roads, and toll bridges in Hong Kong, China, Australia and other countries. The company also manufactures and sells infrastructure materials including cement, concrete, asphalt and aggregates.

• Counter corrected a max of 10.9% from its intraday high of $81.1 in early-March, but found initial support at sma100. Yesterday, it rose 2.4% with 9-day RSI surged above 50, indicating a pick-up of momentum.

• BUY. Short-term target at $82.7. Cut loss at $69.8.

Consensus 2016 PER: 17.8x

Consensus target price: $74.36 Source: Bloomberg, Mason Securities

Risk: Medium China Agri-Industries (606, $2.81) TP: $3.10 BUY Time Horizon: Short

• China Agri-Industries produces biofuel and biochemical. The company also processes oilseed and wheat, and produces malt used for beer brewage.

• Counter’s trend gradually improved after it formed a Hammer pattern on Apr 29, indicating the counter may have found support along sma20. Yesterday, it rose 3.3% with expanding turnover, retesting the critical resistance of $2.70.

• BUY. Short-term target at $3.10. Cut loss at $2.57.

Consensus 2016 PBR: 0.56x

Consensus target price: $3.13 Source: Bloomberg, Mason Securities

RSI Indicator Overbought (9-day RSI> 80) Oversold (9-day RSI<20) Tickers Tickers

582, 630, 855, 886, 975, 1098, 1348, 1462, 1515, 1673, 2317, 2371, 3683, 3993, 283, 530, 585, 861, 915, 981, 1223, 1321, 1663, 1685, 1811, 2326, 2868 6183

Exceptional Turnover & Price Movements

Stock Last Price Turnover / 3-mth Target price up / 2016 Rating*^ Stock Code Price ($) Change (%) daily avg turnover downside (%)* PER* Mongolian Mining Corporation 975 0.14 78.2 11.7 N/A N/A N/A Huscoke Resources 704 0.09 60.0 70.7 N/A N/A N/A Amco United Holding 630 0.53 47.2 2.9 N/A N/A N/A Winsway Enterprises Holdings 1733 0.20 39.6 13.1 N/A N/A N/A Synertone Communication 1613 0.21 23.3 21.3 N/A N/A N/A China Finance Investment 875 0.23 16.4 5.2 N/A N/A N/A Hanny Holdings 275 0.31 13.0 11.3 N/A N/A N/A Great Harvest Maeta Group 3683 1.42 10.9 9.5 N/A N/A N/A Shengjing Bank 2066 12.00 9.3 4.2 -5.8 3.7 8.2 Walker Group 1386 1.53 8.5 2.7 N/A N/A N/A China Molybdenum 3993 1.47 8.1 4.7 2.7 3.5 21.2 Landing International Development 582 0.25 7.8 2.7 N/A N/A N/A Goodbaby International 1086 4.61 4.8 2.1 -1.3 4.8 18.0 Sa Sa International 178 2.48 4.6 4.4 -13.6 1.8 15.4 Phoenix Healthcare Group 1515 12.48 2.8 2.8 1.2 3.7 32.9 Melco International Development 200 8.92 2.5 2.1 31.0 3.1 40.7

Cheung Wo International 9 0.85 2.4 7.2 N/A N/A N/A Source: Bloomberg, Mason Securities; *Based on consensus estimates ^ The “Rating” indicates analysts’ opinions on the security. It is calculated by converting analysts’ recommendations into a number from 1-5 and taking the average. “5” is the best while “1” is the worst.

A-H Share Premium / Discount (%) Average AH Shanghai Listed -40.8% Shenzhen-listed stocks are not included in the upcoming Remark: Premium/Discount (%) Shenzhen Listed -43.3% cross-border stock trading pilot program

A-H Shares – Shanghai Listed A-H Shares – Shanghai Listed H Share A Share A Close H Close AH Price H Share A Share A Close H Close AH Price Gap Company Name Company Name Code Code (RMB) (HKD) Gap (%) Code Code (RMB) (HKD) (%) 1108 600876 Luoyang Glass 29.58 5.04 -86 390 601390 China Railway 7.62 6.03 -34 300 600806 Shenji Group 8.65 2.93 -72 548 600548 Shenzhen Express 8.41 6.87 -32 187 600860 Beijing Jingcheng 9.51 3.23 -72 1138 600026 China Shipping 6.64 5.43 -31 1033 600871 SSC 4.61 1.63 -70 6837 600837 Haitong Securities 15.02 12.52 -30 553 600775 Nanjing Panda 15.85 5.75 -70 1088 601088 China Shenhua 14.49 12.4 -28 2238 601238 GAC Group 23.25 8.66 -69 1288 601288 ABC 3.13 2.72 -27 2727 601727 Shanghai Electric 8.3 3.18 -68 3328 601328 BoComm 5.42 4.76 -26 38 601038 First Tractor 10.8 4.21 -67 2607 601607 Shanghai Pharm 18.51 16.58 -25 2866 601866 China Shipping 4.51 1.76 -67 6886 601688 Huatai Securities Co 17.75 15.96 -25 1171 600188 Yanzhou Coal 10.57 4.33 -66 3988 601988 Bank of China 3.37 3.07 -24 3993 603993 China 3.37 1.47 -63 1186 601186 CRCC 10.52 9.68 -23 1053 601005 Chongqing Iron 2.76 1.24 -62 6818 601818 China Everbright 3.69 3.43 -22 995 600012 Anhui Expressway 13.82 6.22 -62 525 601333 Guangshen Railway 4.28 3.99 -22 317 600685 Guangzhou 26.5 12.2 -61 1398 601398 ICBC 4.28 4.03 -21 2883 601808 China Oilfield 13.09 6.37 -59 3968 600036 China Merchants 17.62 16.64 -21 1919 601919 China Cosco 5.83 2.95 -58 2601 601601 CPIC 27.22 26 -20 1065 600874 Tianjin Capital 8.27 4.19 -58 168 600600 Tsingtao Brewery 29.7 29.25 -17 564 601717 Zhengzhou Coal 6.31 3.22 -57 6030 600030 Citic Securities 16.73 16.6 -17 991 601991 Datang Intl Power 4.21 2.15 -57 939 601939 CCB 4.74 4.83 -15 338 600688 Sinopec Shanghai 6.89 3.75 -54 2196 600196 Shanghai Fosun 19.72 20.9 -11 1072 600875 Dongfang Electric 10.51 5.84 -53 386 600028 Sinopec 4.8 5.21 -9 1618 601618 MCC 4.06 2.26 -53 2318 601318 Ping An Insurance 5.7 35.45 -7 2880 601880 Dalian Port 6.15 3.44 -53 3606 600660 Fuyao Glass 14.38 17.44 2 588 601588 Beijing North Star 4.3 2.44 -52 914 600585 Anhui Conch 6.7 19.3 2 2600 601600 Chalco 4.27 2.5 -51 177 600377 Jiangsu Express 8.4 10.46 4 323 600808 Magang 2.78 1.67 -50 107 601107 Sichuan 4.46 2.74 -49 A-H Shares – Shenzhen Listed 2009 601992 BBMG 8.87 5.45 -49 568 002490 Shandong Molong 9.46 3.08 -73 1336 601336 New China Life 39.78 24.95 -47 1057 002703 Zhejiang Shibao 25.28 8.59 -72 358 600362 Jiangxi Copper 14.07 8.96 -47 719 000756 Shandong Xinhua 12.01 4.75 -67 670 600115 China Eastern 6.97 4.47 -46 42 000585 Northeast Electric 7.44 2.98 -66 2333 601633 Great Wall Motor 8.94 5.77 -46 921 000921 Hisense Kelon 7.92 3.72 -61 1898 601898 China Coal Energy 5.23 3.41 -45 1157 000157 Zoomlion Heavy 4.35 2.46 -53 1055 600029 China Southern 7.07 5.02 -40 895 002672 Dongjiang Env 17.75 11.6 -45 902 600011 Huaneng Power 7.57 5.54 -39 1812 000488 Shandong Chenming 8.78 6.07 -42 1071 600027 Huadian Power 5.37 3.97 -38 1211 002594 BYD 63.47 43.9 -42 857 601857 Petrochina 7.46 5.54 -38 2039 000039 China International 14.73 11.2 -36 874 600332 Guangzhou Pharm 23.16 17.48 -37 2208 002202 Xinjiang Goldwind 16.41 12.48 -36 1988 600016 China Minsheng 9.36 7.1 -36 2202 000002 China Vanke 24.43 18.88 -35 1766 601766 CRRC Corp 9.6 7.34 -36 763 000063 ZTE Corp 14.59 11.72 -33 2899 601899 Zijin Mining 3.25 2.51 -35 1513 000513 Livzon Pharm 46.03 38.4 -30 753 601111 Air China 7.47 5.78 -35 347 000898 Angang Steel 4.21 3.54 -30 998 601998 China Citic Bank 5.97 4.68 -34 1776 000776 GF Securities Co Ltd 16.23 17.36 -10 1800 601800 CCCC 11.62 9.14 -34 2338 000338 Weichai Power 8.24 9.3 -5 2628 601628 China Life 21.97 17.34 -34

HSI & HSCEI Constituents Performance

Price Change (%) Outperform Ports, Utility (HK) vs 3M Index 5 D 1 M 3 M High Underperform Coal, Gas, Oil, Oilfield Services Hang Seng Index -4 1 6 -5 Mixed Automobile, Consumer, Gaming, Global Player, Insurance Hang Seng China Ent Index -5 -1 7 -7

Price Change (%) Price Change (%) Stock vs 3M Stock vs 3M Company Name 5 D 1 M 3 M Company Name 5 D 1 M 3 M Code High Code High 6 Power Assets 2 -2 6 -5 3988 Bank of China -4 -1 0 -6 1038 CKI Holdings 2 -1 3 -6 390 China Railway -4 4 20 -9 66 MTR Corporation 1 2 9 -1 939 CCB -4 0 4 -5 2 CLP Hldgs 0 5 11 -1 293 Cathay Pac Air -4 -5 10 -11 3699 Dalian Wanda 0 13 46 0 914 Anhui Conch -4 -6 31 -14 3968 CM Bank 0 4 18 -4 1766 CRRC -4 -1 4 -10 1800 China Comm Cons -1 1 36 -10 857 PetroChina -5 14 18 -6 753 Air China -1 -2 24 -8 902 Huaneng Power -5 -17 -10 -24 3 HK & China Gas -1 2 4 -5 1398 ICBC -5 -2 1 -8 168 Tsingtao Brew -2 5 2 -4 17 New World Dev -5 3 25 -6 728 China Telecom -2 -8 2 -13 998 CITIC Bank -5 2 7 -7 1928 Sands China -2 -6 10 -13 12 Henderson Land -5 1 17 -6 823 Link REIT -2 3 9 -3 2319 China Mengniu -5 3 10 -8 19 Swire Pacific 'A' -2 5 14 -3 916 Longyuan Power -5 -11 27 -18 1211 BYD Company -2 7 21 -4 1088 China Shenhua -5 7 9 -10 1 CK Hutchison -2 -6 -3 -10 2318 Ping An -5 0 5 -7 836 China Resources -2 -8 8 -15 386 Sinopec Corp -5 6 19 -7 11 Hang Seng Bank -2 3 12 -4 688 China Overseas -5 -1 7 -10 1099 Sinopharm -2 -4 23 -8 6837 Haitong Securities -5 -3 11 -8 1044 Hengan Int'l -2 3 -1 -8 6030 CITIC Securities -6 -5 13 -12 23 Bank of E Asia -3 0 25 -4 494 Li & Fung -6 3 1 -7 1816 CGN Power -3 -2 12 -11 2333 GreatWall Motor -6 -1 6 -18 83 Sino Land -3 3 20 -8 16 SHK Prop -6 2 14 -6 101 Hang Lung Prop -3 7 11 -6 3328 BOCOM -6 -2 6 -7 1776 GF Securities -3 -6 14 -11 5 HSBC Hldgs -6 6 -2 -7 151 Want Want -3 4 12 -9 2388 BOC Hong Kong -6 -1 13 -9 1109 China Res Land -3 -5 3 -10 6886 HTSC -6 -9 11 -15 1299 AIA -3 7 16 -3 2628 China Life -6 -5 -1 -12 144 China Mer Hldgs -3 0 9 -9 1880 Belle Int'l -7 4 -17 -20 4 Wharf -4 5 15 -5 489 Dongfeng Group -7 -10 -10 -18 1288 ABC -4 -1 0 -5 3323 CNBM -7 2 20 -14 1988 Minsheng Bank -4 1 7 -5 1113 CK Property -7 1 24 -8 267 CITIC Ltd -4 -4 5 -10 1339 PICC Group -7 -7 4 -12 762 China Unicom -4 -9 5 -12 2328 PICC P&C -7 -1 11 -8 1336 New China Life -4 -6 2 -10 27 Galaxy -7 -4 10 -13 322 Tingyi -4 0 3 -8 2601 China Pacific -8 -7 -1 -12 2202 China Vanke -4 0 7 -6 883 CNOOC -8 6 16 -11 1359 China Cinda -4 -6 6 -9 135 Kunlun Gas -9 -6 9 -10 700 Tencent -4 -2 6 -8 992 Lenovo -9 2 -15 -15 388 HKEx -4 5 14 -6 2883 China Oilfield -10 12 20 -10 941 China Mobile -4 3 4 -4

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