10th Aug, 2016

Hang Seng Index Performance Index Performance

Abs chg % Change Close 1-Day 1-Day 1-Mth 3-Mth Hang Seng Index 22,465.61 -29.15 -0.13 9.25 10.98 HSCI 3,030.77 0.91 0.03 8.63 10.07 HSCCI (Red Chips) 3,845.15 25.79 0.68 7.43 8.27 HSCEI (H-Shares) 9,301.17 24.61 0.27 8.98 9.60 Mkt T/O ($ Mn) 53,244.88 -7,549.20 -12.42 12.82 -2.51

Oversea DJIA 18,533.05 3.76 0.02 2.13 3.37 NASDAQ 5,225.48 12.34 0.24 5.42 8.64 Shanghai SE Composite 3,025.68 21.40 0.71 1.26 6.82 Crude Oil Futures (US$) 42.68 -0.09 -0.21 -6.01 -4.43 Gold Futures (US$) 1,344.50 2.40 0.18 -1.02 6.30 Baltic Dry Index 631.00 -5.00 -0.79 -10.24 2.44 USD / Euro 1.1135 0.0032 0.29 0.74 -2.17 Yen / USD 101.570 -0.3800 0.37 1.17 7.59

HSCEI HSI 20-Day MA 9,054.58 21,915.29 50-Day MA 8,826.52 21,167.16 Source: Bloomberg 9-Day RSI 68.34 67.61

Market Outlook Eric Yuen - [email protected] Hang Seng Index closed down 0.1% at 22,465. Market turnover decreased to $53.2 billion. Heavily weighted Tencent (700) and HSBC (5) both decreased 0.3%. Mobile (941) cut 1.2%. Local banks and property stocks were mixed. We expect HSI to move CK Property (1113) and BOC Hong Kong (2388) climbed 0.2%-0.7%. Link REIT (823) and Hang Seng Bank (11) shrank 2.4% and 0.7% respectively. Eight largest within a trading range Chinese property developers grew an average 1.7%. Gaming operators Sands of 21,300-22,800 in China (1928) and Galaxy Entertainment (27) soared 0.8%-1.7%. Food & beverage companies like Tingyi (322) and Want Want China (151) added 1.1%- August but the risk is 3.1%. CITIC Ltd (267), the best performing index stock, jumped 3.5%. on the downside HSCEI advanced 0.3%. China Railway Group (390) surged 3.8%, the most in HSCEI. Sinopharm (1099) and China Oilfield Services (2883) increased 1.9%- 2.0%. Huaneng Power (902) and CGN Power (1816) rose 1.3%-1.5%. Financial stocks moved without a clear direction. ICBC (1398) and CCB (939) went up 0.4%-0.6% whilst China Merchants Bank (3968) retreated 0.3%. Haitong Securities (6837) and CITIC Securities (6030) saw a gain of 0.5%-0.8%. PICC P&C (2328) and New China Life (1336) both declined 1.0%. We expect Hang Seng Index to move within a trading range of 21,300-22,800 this month but the risk is on the downside.

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 Eric Yuen - [email protected] Maintain BUY China State Construction Int’l (3311) ahead of strong interim results announcement

Maintain BUY • Earnings dilution from recent share placement has been discounted in share price Risk Level: Medium • Signed two JVs in July to expand investment in China’s infrastructure projects • Cheap valuation at 2016 PER of 9.1x with 2-year EPS CAGR of 15% Time Horizon: Long China State Construction International (3311, CSCI, $10.96) surged 5.0% since our latest commentary dated July 12 but underperformed Hang Seng Index by 2.4% over the same period. We believe the dilution effect from the share placement with major shareholder in May to finance acquisition of an investment property has been fully discounted. The release of strong interim results on August 15 and increased exposure to China’s infrastructure investments may trigger a re-rating of CSCI. In July this year, CSCI formed a 50:50 JV with a subsidiary of its parent company to undertake the infrastructure works in Chengdu. The aggregate investment of the Chengdu JV is RMB600mn. CSCI also established a 72:18:10 JV with a subsidiary of its parent company and Tangshan Caofeidian for financing and investing in the infrastructure projects in Tangshan City, Hebei Province. The Tangshan JV shall have a registered capital of RMB527mn. CSCI is one of the largest affordable housing contractors in China and a leading building contractor in HK/Macau. It has strong execution capability and proven track record of delivering decent earnings growth. From 2012 to 2015, CSCI’s revenue and earnings increased at a CAGR of 24.2% and 24.9% respectively. EPS CAGR stood at 21.6% and gross margin was stable at 13.3%-13.8% during the period. In 2015, the company’s revenue increased by 10.1% to $37.91bn of which 43%, 39% and 14% were contributed by the Hong Kong, Mainland China and Macau markets respectively. Net profits surged 20.1% to $4.15bn. Net margin improved from 10.0% to 11.0% partly due to lower effective tax rate. EPS grew 16.2%. DPS rose 26.9% to $0.33 implying an increase in dividend payout ratio from 29.3% to 32.0%. In 1Q16, the company’s revenue grew 18.2% yoy to $8.72bn while the operating profits expanded 20.2% yoy to $1.29bn. CSCI’s new contracts value increased by 16.3% yoy to $70.1bn in 2015 of which the Hong Kong market, Mainland China market and the Macau market accounted for 19.5%, 68.9% and 7.8% respectively. Management target for new contracts to be awarded this year is no less than $78.0bn, representing an 11.4% increase over the actual contract value achieved in 2015. In the first half of 2016, the company recorded an accumulated new contract value of $43.0bn and hence achieved a 55% completion of the full year target. As of 30 June 2016, the company’s on-hand contract value amounted to $239.0bn among which the backlog was approximately $145.5bn, equivalent to 3.8 times of the company’s revenue in 2015. Obviously, the company has sufficient projects to ensure earnings growth in coming two years. According to Bloomberg estimates, the company’s earnings are expected to reach $5.12bn in 2016 and $6.15bn in 2017, up 23% and 20% yoy respectively. Due to dilution from share placement, we expect EPS growth to be 16% in 2016 and 14% in 2017. Traded at 2016 PER of 9.1x with 2-year EPS CAGR of 15% from 2015 to 2017, valuation of CSCI is undervalued compared to its 5-year average forward PER of 13.2x. We maintain a BUY on CSCI with an unchanged 12-month price target of $13.0 based on 2016 PER of 11.0x. Analysts’ consensus price target is $14.7.

Recent Recommendations

Stock Pick Rating Recommendation Highlights TP Lai Sun Development (488) BUY BUY Lai Sun Development (488) on distressed valuation $0.185 Reiterate BUY on Galaxy Entertainment (27) as valuation turns attractive after Galaxy Entertainment (27) BUY $32.3 recent retreat (2007) BUY BUY Country Garden (2007) as interim results may beat market expectation $3.75 Trading BUY on Maanshan Iron (323) as its 2Q16 earnings recovery beat our Maanshan Iron (323) BUY $2.08 expectation Huadian Fuxin Energy (816) BUY Maintain BUY Huadian Fuxin Energy (816) on attractive valuation $2.30 Lee & Man Paper (2314) BUY Maintain BUY on Lee & Man Paper (2314) amid solid interim earnings $7.39 Hua Hong Semiconductor 2Q16 earnings beat market expectation - Maintain BUY Hua Hong BUY $9.30 (1347) Semiconductor (1347) Xinyi Glass (868) BUY Maintain BUY on Xinyi Glass (868) amid strong interim results $7.82 SHK Properties (16) BUY Maintain SHK Properties (16) due to a recovery of residential market $121.0 Johnson Electric (179) BUY Recommend BUY on Johnson Electric (179) on potential earnings recovery $21.72

Technical Ideas

Risk: Medium AVIC Int’l (232, $0.59) TP: $0.68 BUY Time Horizon: Short

• AVIC International manufactures and markets aircraft. The company produces fighters, trainers, bombers, helicopters, transporters, general aviation aircraft, associated airborne equipment, and spare parts.

• Counter rose 9.3% yesterday with exceptional turnover, breaking through sma50 whilst testing sma100. MACD showed positive crossing, indicating a bullish trend ahead.

• BUY. Short-term target at $0.68. Cut loss at $0.53.

Consensus 2016 PER: N.A. Consensus target price: N.A.

Source: Bloomberg, Mason Securities

Risk: Low Longfor Properties (960, $11.44) TP: $12.7 BUY Time Horizon: Short

• Longfor Properties operates in the property development, property investment and property management businesses in China.

• Counter rose 2.0% yesterday, breaking out from the upper-end of its 13-month trading range. Turnover was huge, with trading volume equals to 5.2x of its 3-month daily average. MACD showed positive crossing, indicating a bullish trend ahead.

• BUY. Short-term target at $12.7. Cut loss at $10.6.

Consensus 2016 PER: 7.0x Consensus target price: $13.90

Source: Bloomberg, Mason Securities

RSI Indicator Overbought (9-day RSI> 80) Oversold (9-day RSI<20) Tickers Tickers 5, 47, 62, 119, 123, 283, 343, 363, 370, 420, 519, 576, 604, 683, 737, 750, 821, 832, 842, 855, 868, 881, 884, 921, 952, 1030, 1098, 1115, 1124, 1233, 1238, 1219, 1321, 1993, 3823 1333, 1438, 1443, 1628, 1813, 1893, 1918, 1986, 2202, 2345, 2678, 2698, 2778, 2868, 2869, 3300, 3301, 3308, 3315, 3333, 3360, 3366, 3380, 3638, 3998, 6865

Exceptional Turnover & Price Movements

Stock Last Price Turnover / 3-mth Target price up / 2016 Stock Rating*^ Code Price ($) Change (%) daily avg turnover downside (%)* PER* Coastal Greenland 1124 0.25 31.6 230.3 N/A N/A N/A Pacific Plywood 767 0.59 13.5 4.8 N/A N/A N/A Sino Prosper Group 766 0.26 12.1 104.8 N/A N/A N/A West China Cement 2233 0.77 10.0 4.7 36.6 3.3 27.5 AVIC International 232 0.59 9.3 5.9 N/A N/A N/A Shenzhen Investment 604 3.59 8.8 6.2 32.0 4.9 8.7 Renhe Commercial 1387 0.23 7.6 4.5 N/A N/A N/A Nagacorp 3918 5.78 7.2 19.9 11.6 4.9 10.1 119 2.35 6.8 5.2 -17.0 2.2 31.8 123 1.11 6.7 2.0 10.6 3.6 9.3 China Modern Dairy 1117 1.11 6.7 2.5 9.4 2.5 15.4 Chinese Estates 127 23.85 6.5 13.4 N/A N/A N/A China Agri-Industries 606 2.97 5.3 3.7 22.2 3.7 29.7 Tibet Water Resources 1115 3.00 4.9 7.3 N/A 5.0 N/A 817 2.36 4.9 2.6 17.9 4.4 7.1 SOHO China 410 4.13 4.8 2.2 -13.5 2.7 35.5 KWG Property 1813 5.25 4.8 3.3 24.4 4.6 4.3 China Best Group 370 0.24 4.0 13.8 N/A N/A N/A Shanghai Industrial 363 19.74 3.9 2.1 22.8 4.9 8.2 3900 6.20 3.9 3.0 23.8 4.1 6.2 China Aerospace International 31 1.08 3.8 4.6 N/A N/A N/A HC International I 2280 4.88 3.8 3.2 21.4 3.8 26.3 China Railway Group 390 6.31 3.8 3.4 9.1 4.1 9.5 Huabao International 336 2.89 3.6 3.0 11.8 5.0 6.0 Logan Property 3380 3.31 3.4 5.5 32.9 5.0 5.5 1109 21.40 3.4 3.0 26.6 4.9 9.0 China Ocean Industry Group 651 0.19 3.3 6.1 N/A N/A N/A China Overseas Grand Oceans 81 2.40 3.0 8.8 9.2 3.3 4.0 SIM Holdings 880 5.20 3.0 9.5 1.7 2.9 15.4 813 11.00 2.8 2.0 12.2 4.0 4.8 BYD Electronic 285 6.15 2.5 2.6 -4.2 4.0 10.1 CIFI Holdings 884 2.20 2.3 3.3 13.6 4.9 4.6 Longfor Properties 960 11.44 2.0 5.2 21.5 4.9 7.0

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 -36.4% Shenzhen-listed stocks are not included in the upcoming Remark: Premium/Discount (%) Shenzhen Listed -39.2% 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 26.25 4.6 -85 1800 601800 CCCC 10.8 9.34 -26 1053 601005 Chongqing Iron 7.78 2.06 -77 2628 601628 China Life Insurance 20.77 18 -26 187 600860 Beijing Jingcheng 10.59 3.16 -74 6886 601688 Huatai Securities Co 18.73 16.38 -25 300 600806 ShenjiMachinery Group 6.74 2.24 -71 2196 600196 ShanghaiLtd Fosun 21.6 19 -24 1171 600188 YanzhouKunming Coal 12.99 5.01 -67 1988 600016 ChinaPharm Minsheng 9.24 8.3 -23 1033 600871 MiningSSC 3.85 1.51 -66 548 600548 ShenzhenBank Express 8.29 7.53 -22 2727 601727 Shanghai Electric 8.09 3.27 -65 390 601390 China Railway 7 6.31 -23 553 600775 Nanjing Panda 15.77 6.4 -65 6818 601818 ChinaGroup Everbright 3.85 3.51 -22 317 600685 GuangzhouElectronics 29.11 12.06 -64 1288 601288 BankABC 3.12 2.94 -19 2866 601866 ChinaShipyard Shipping 4.01 1.73 -63 525 601333 Guangshen Railway 4.11 3.92 -18 38 601038 FirstContainer Tractor 9.39 4.1 -63 2607 601607 Shanghai Pharm 19.91 19.06 -18 2238 601238 GAC Group 24.83 10.94 -62 168 600600 Tsingtao Brewery 29.66 28.6 -17 3993 603993 China Moly 4.05 1.81 -62 3328 601328 BoComm 5.61 5.47 -16 995 600012 Anhui Expressway 13.56 6.3 -60 1088 601088 China Shenhua 15.14 14.94 -15 1065 600874 Tianjin Capital 7.98 3.81 -59 3988 601988 BankEnergy of China 3.34 3.3 -15 991 601991 DatangEnvironment Intl Power 4.05 2.02 -57 3968 600036 China Merchants 17.15 17.34 -13 2883 601808 China Oilfield 12.17 6.11 -57 2601 601601 BankCPIC 26.85 27.85 -11 1919 601919 ChinaServices Cosco 5.19 2.75 -55 6030 600030 Citic Securities 16.32 17.02 -10 107 601107 Sichuan 4.73 2.74 -50 1398 601398 ICBC 4.33 4.55 -10 564 601717 ZhengzhouExpressway Coal 5.71 3.34 -50 939 601939 CCB 5.09 5.44 -8 588 601588 BeijingMining North Star 4.27 2.53 -49 1186 601186 CRCC 8.94 9.95 -4 1072 600875 Dongfang Electric 9.87 6.13 -47 386 600028 Sinopec 4.84 5.56 -1 670 600115 China Eastern 6.82 4.31 -46 2318 601318 Ping An Insurance 32.45 37.35 -1 358 600362 JiangxiAirlines Copper 14.87 9.43 -46 177 600377 JiangsuGroup Express 8.98 11.04 6 2880 601880 Dalian Port 2.49 1.59 -45 3606 600660 Fuyao Glass 16.64 20.75 7 338 600688 Sinopec Shanghai 6.09 3.92 -45 914 600585 Anhui Conch 16.92 21.85 11 1055 600029 ChinaPetrochem Southern 7.84 5.07 -44 Cement Air 902 600011 Huaneng Power 7.19 4.69 -44 A-H Shares – Shenzhen Listed 1618 601618 MCCIntl 3.76 2.48 -43 1057 002703 Zhejiang Shibao 30.17 9.22 -74 1898 601898 China Coal Energy 5.91 4.15 -40 568 002490 Shandong Molong 8.47 3.21 -67 1071 600027 Huadian Power 5.26 3.7 -40 42 000585 NortheastPetroleum Electric 6.09 2.74 -61 1336 601336 New ChinaIntl Life 40.14 28.5 -39 719 000756 ShandongDevelop Xinhua 11.22 5.38 -59 323 600808 InsuranceMagang 2.69 1.89 -40 921 000921 HisensePharm Kelon 11.18 5.37 -59 2600 601600 Chalco 3.94 2.8 -39 1157 000157 Zoomlion Heavy 4.2 2.64 -46 1138 600026 China Shipping 6.45 4.64 -38 2039 000039 ChinaIndustry International 13.8 9.05 -44 857 601857 DevelopmentPetrochina 7.25 5.33 -37 895 002672 DongjiangMarine Env 19.14 13 -42 753 601111 Air China 7.86 5.88 -36 2208 002202 Xinjiang Goldwind 15.98 11.62 -38 2009 601992 BBMG 4.13 3.09 -36 763 000063 ZTESci&Tec Corp 14.77 11.08 -36 811 601811 Xinhua Winshare 11.28 8.57 -35 1812 000488 Shandong Chenming 8.85 6.95 -33 874 600332 Guangzhou Pharm 25.95 19.8 -34 1211 002594 PaperBYD 58.79 49.65 -27 2333 601633 Great Wall Motor 10.6 8.45 -32 1513 000513 Livzon Pharm 47.95 40.8 -27 1766 601766 CRRC Corp 8.92 7.35 -29 2202 000002 China 21.55 19.34 -23 998 601998 China Citic Bank 6.02 5.02 -28 347 000898 Angang Steel 4.26 4.02 -19 2899 601899 Zijin Mining 3.47 2.94 -27 1776 000776 GF Securities Co Ltd 16.71 17.72 -9 6837 600837 Haitong Securities 15.42 13.14 -27 2338 000338 Weichai Power 9.06 10.22 -3

HSI & HSCEI Constituents Performance

Price Change (%) Outperform Cement, Infrastructure, Healthcare, PRC Properties vs 3M Index 5 D 1 M 3 M High Underperform HK Utilities, Auto, Coal Hang Seng Index 2 9 11 0 Mixed Global Player, Power, Food & Beverage Hang Seng China Ent Index 2 9 10 0

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 1109 China Res Land 10 18 22 0 728 China Telecom 1 13 9 0 2202 China Vanke 9 21 10 0 3 HK & China Gas 1 5 12 -1 390 China Railway 8 14 12 0 2318 Ping An 1 13 10 0 322 Tingyi 8 2 -11 -17 101 Hang Lung Prop 1 11 20 0 5 HSBC Hldgs 7 16 14 0 1336 New China Life 1 6 18 -1 1800 China Comm Cons 7 17 9 0 1288 ABC 1 6 17 0 914 Anhui Conch 7 17 24 0 883 CNOOC 1 -1 7 -6 992 Lenovo 6 21 -1 -1 2388 BOC Hong Kong 1 13 22 0 1099 Sinopharm 6 9 26 0 16 SHK Prop 1 14 21 -1 168 Tsingtao Brew 5 10 0 0 388 HKEx 1 6 5 0 267 CITIC Ltd 5 12 14 0 2883 China Oilfield 1 5 3 -9 1816 CGN Power 4 12 1 -3 293 Cathay Pac Air 1 14 6 -1 3323 CNBM 4 10 6 -1 762 China Unicom 1 4 -3 -4 1339 PICC Group 4 8 6 -2 135 Kunlun Gas 1 -4 -4 -11 688 China Overseas 4 8 21 0 1299 AIA 1 8 12 -1 6886 HTSC 4 2 12 -5 1988 Minsheng Bank 1 13 21 0 6837 Haitong Securities 4 5 13 0 1880 Belle Int'l 1 25 24 -1 1776 GF Securities 3 4 14 -2 857 PetroChina 0 2 0 -7 1766 CRRC 3 6 5 -1 2333 GreatWall Motor 0 29 57 0 3328 BOCOM 3 13 25 0 1211 BYD Company 0 6 19 -5 6030 CITIC Securities 3 3 12 -2 386 Sinopec Corp 0 4 9 -4 1359 China Cinda 3 8 12 0 12 Henderson Land 0 8 12 -1 1 CK Hutchison 3 15 4 0 2319 China Mengniu 0 2 7 -5 1928 SandsHldgs China Ltd 3 23 17 0 1044 HenganDairy Int'l 0 1 4 -5 916 Longyuan Power 3 8 34 -1 19 Swire Pacific 'A' 0 6 11 -2 1398 ICBC 2 11 23 0 753 Air China 0 9 5 -2 17 New World Dev 2 20 29 0 66 MTR Corporation 0 10 22 -1 2601 China Pacific 2 12 17 -1 836 China Resources -1 16 2 -1 939 InsuranceCCB 2 8 23 0 1038 CKIPower Holdings -1 10 -4 -6 3699 Dalian Wanda 2 8 1 0 4 Wharf -1 14 27 -1 3968 CM Bank 2 4 11 0 494 Li & Fung -1 3 -11 -12 23 Bank of E Asia 2 12 16 0 1088 China Shenhua -1 8 26 -2 700 Tencent 2 6 22 0 6 Power Assets -1 9 3 -1 27 Galaxy 2 17 7 0 941 China Mobile -1 10 14 -2 1113 EntertainmentCK Property 2 16 20 0 823 Link REIT -2 4 21 -5 2628 China Life 2 11 10 0 2 CLP Hldgs -2 2 11 -4 144 China Mer Hldgs 2 11 8 0 902 Huaneng Power -2 7 -3 -3 3988 Bank of China 2 9 17 0 11 Hang Seng Bank -3 2 -2 -5 2328 PICC P&C 1 7 -4 -11 83 Sino Land -3 7 17 -4 151 Want Want 1 -3 -14 -14 489 Dongfeng Group -5 19 23 -5 998 CITIC Bank 1 9 15 0

Upcoming Events Date Stock Code Company Name Event Aug 10 3355 ASMC Interim Aug 10 557 City E-Solutions Interim Aug 10 1778 Colour Life Services Interim Aug 10 6878 Differ Group Holding Interim Aug 10 1777 Interim Aug 10 45 Hongkong & Shanghai Hotels Interim Aug 10 388 HKEx Interim Aug 10 6823 HKT Trust and HKT Ltd Interim Aug 10 2331 Li Ning Interim Aug 10 432 Pacific Century Premium Development Interim Aug 10 1238 Powerlong Real Estate Interim Aug 10 2378 Prudential Interim Aug 10 981 SMIC Interim Aug 10 6808 Sun Art Retail Interim Aug 10 4 Wharf Interim Aug 10 2268 Youyuan International Interim

Disclosures Investment Rating System Ratings Description Mason Securities Limited’s investment Buy Expected positive return of > 10 % rating system is divided into investment Investment Ratings Hold Expected return range of ~ ±10 % ratings, risk rating and investment time Sell Expected negative return > 10% horizon. The rating scale is subject to change upon periodic review of market by High (H) 90-day volatility of > 50% research department. Assigned ratings are Risk Ratings Medium (M) 90-day volatility of > 30-50% based on company and sector historical Low (L) 90-day volatility of < 30% performance and analysts’ intrinsic Long (L) 6 – 12 Months Investment Time valuation of the stock Medium (M) 3 – 6 Months Horizon Short (S) Less than 1 Month Note: 90-day volatility is measured from the security’s standard deviation of day to day logarithmic historical price changes. The 90-day price volatility equals the annualized standard deviation of the relative price change for the 90 most recent trading days closing price, expressed as a percentage

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