Equity Research February 6, 2018

China Merchants Port Holdings Attractive valuation and dividend creates bottom-fishing opportunity

Company Update Maintain BUY

What's new Ticker 00144.HK Merchants Port Holdings (CMPort) says it will sell its equity CICC investment rating BUY interest in Chiwan (000022.SZ) to China Merchants Group Last close HK$19.20 for Rmb25.47/Chiwan A-share and HK$13.35/Chiwan B-share. CICC target HK$29.34

52wk price range HK$25.81~18.60 Comments Market cap (bn) HK$63

Unlocking shareholder value. The prices value Chiwan A-shares at Daily value (mn) HK$194.53 Shares outstanding (mn) 3,278 30.1x LTM P/E and Chiwan B-shares at 13.4x LTM P/B, both higher Free float (%) 100 than CMPort’s 10.8x 2018e P/E. We estimate net disposal gains at Daily volume (mn sh) 9.49 HK$3.88bn, of which CMPort says it will pay out 40–50% as a Business sector Ports

dividend. The company will receive cash consideration of HK$5.75bn and plans to use this to invest overseas. 00144.HK HSCEI 140

Throughput to see mild organic growth, firm to keep growing overseas. CMPort expects organic throughput growth this year in the 130 low single digits domestically and high single digits overseas. It plans to target gateway ports or transshipment hubs to ensure returns (it 120

expects investments in Sri Lanka’s Hambantota port and Brazil’s TCP (%) Value Relative 110 in 2017 to yield IRRs of 9% and 11%, respectively). In 2016, overseas 100 ports accounted for 20% of CMPort’s earnings and assets. Feb-2017 May-2017 Aug-2017 Nov-2017 Feb-2018

Tariff cut priced in; correction overdone. CMPort’s actual ASPs are lower than standard port fees, due to discounts for shipping firms. (HK$ mn) 2016A 2017E 2018E 2019E West Shenzhen tariffs are to drop 33% from Rmn1,200/TEU in 2017 Revenue 7,976 8,860 9,309 9,746 to Rmnb800/TEU in 2018, but the company’s ASP in 2016 was around (+/-) -3.1% 11.1% 5.1% 4.7% Rmb480, far below the standard fee—so the tariff cut should have Net profit 5,494 7,065 5,650 6,378 less effect than it would seem at first glance. We believe a correction (+/-) 14.3% 28.6% -20.0% 12.9% triggered by worries about the tariff cut is overdone—the stock has EPS 1.73 2.23 1.78 2.01 fallen 29% since September—and see a bottom-fishing opportunity. BPS 20.78 22.36 23.51 24.80 DPS 0.73 2.12 0.75 0.84 Huge land value in . We conservatively value CMPort’s interest in Qianhai land at Rmb9.3bn, or about 18% of its market cap. CPS 1.75 1.65 2.18 2.00 P/E 11.1 8.6 10.8 9.5 P/B 0.9 0.9 0.8 0.8 Valuation and recommendation EV/EBITDA 8.6 7.5 8.3 7.6

CMPort trades at 10.8x 2018e P/E and 0.8x P/B and offers a 3.8% Dividend yield 3.6% 10.7% 3.8% 4.3% dividend yield—or 6.7% if including expected disposal gains (45% ROAA 5.3% 6.7% 5.1% 5.6% payout ratio assumed). We raise our 2017 and 2018 earnings ROAE 8.2% 10.3% 7.8% 8.3% forecasts by 21% and 9% to HK$7,065mn and HK$5,650mn, and maintain BUY for its attractive valuation with a HK$29.34 target.

Risks Source: Wind, Bloomberg, company data, CICC Research Throughput growth disappoints, tariffs decrease more than expected

Xin YANG, CFA Gangxian LIU

Analyst Associate [email protected] [email protected] SAC Reg. No.: S0080511080003 SAC Reg. No.: S0080117080022 SFC CE Ref: APY553

Please read carefully the important disclosures at the end of this report CICC Research: February 6, 2018

Financial summary

Financial statement (HKD mn) 2016A 2017E 2018E 2019E Financial ratios 2016A 2017E 2018E 2019E Income statement Growth ability Revenue 7,976 8,860 9,309 9,746 Revenue -3.1% 11.1% 5.1% 4.7% COGS -4,621 -4,557 -4,813 -5,029 Operating profit 30.7% -10.9% 3.9% 4.6% Selling expenses 0 0 0 0 EBITDA 8.6% 23.0% -12.3% 7.3% Administrative expenses -1,019 -1,132 -1,189 -1,245 Net profit 14.3% 28.6% -20.0% 12.9% Other ops income (expense) 1,561 300 300 300 Profitability Operating profit 3,897 3,471 3,606 3,772 Gross margin 42.1% 48.6% 48.3% 48.4% Finance costs -900 -1,037 -1,177 -982 Operating margin 48.9% 39.2% 38.7% 38.7% Other income (expense) 3,686 6,027 4,641 5,080 EBITDA margin 102.8% 113.8% 95.0% 97.4% Profit before income tax 6,683 8,461 7,069 7,869 Net margin 68.9% 79.7% 60.7% 65.4% Income tax -477 -748 -737 -775 Liquidity Minority interest -712 -648 -682 -715 Current ratio 0.66 0.14 0.51 0.79 Net profit 5,494 7,065 5,650 6,378 Quick ratio 0.65 0.13 0.50 0.78 EBITDA 8,203 10,087 8,846 9,491 Cash ratio 0.40 -0.11 0.19 0.43 Recurrent net income 4,267 6,082 5,650 6,378 Liabilities / assets 28.5% 26.4% 25.0% 23.3% Balance sheet Net debt / equity 2.2% 7.9% 4.3% 1.4% Cash and bank balances 3,637 -975 1,656 3,515 Return Trade and bill receivables 2,296 2,551 2,680 2,805 RoA 5.3% 6.7% 5.1% 5.6% Inventories 77 86 90 94 RoE 8.2% 10.3% 7.8% 8.3% Other current assets 3 -415 3 3 Per-share data Total current assets 6,013 1,246 4,429 6,418 EPS (HKD) 1.73 2.23 1.78 2.01 Fixed assets and CIP 18,459 17,688 16,897 16,087 BPS (HKD) 20.78 22.36 23.51 24.80 Intangible assets and others 78,641 88,949 90,269 92,901 DPS (HKD) 0.73 2.12 0.75 0.84 Total non-current assets 97,100 106,637 107,166 108,988 Cash flow per share (HKD) 1.75 1.65 2.18 2.00 Total assets 103,113 107,883 111,594 115,405 Valuation Short-term borrowings 4,963 5,000 5,000 4,500 P/E 11.1 8.6 10.8 9.5 Trade and bill payables 3,896 3,432 3,282 3,275 P/B 0.9 0.9 0.8 0.8 Other current liabilities 285 317 333 348 EV/EBITDA 8.6 7.5 8.3 7.6 Total current liabilities 9,144 8,749 8,615 8,123 Dividend yield 3.6% 10.7% 3.8% 4.3%

Long-term borrowings 279 279 279 279 Total non-current liabilities 20,231 19,731 19,231 18,731 Total liabilities 29,375 28,480 27,846 26,854 Share capital 19,548 19,548 19,548 19,548 Retained profit 31,141 36,157 39,821 43,908 Equity 65,908 70,924 74,588 78,675 Total liabilities & equity 103,113 107,883 111,594 115,405 Cash flow statement Pretax profit 6,683 8,461 7,069 7,869 Depreciation & amortization 560 579 598 618 Change in working capital 758 -345 -292 -146 Others -2,449 -3,456 -459 -2,005 Cash flow from operations 5,552 5,239 6,917 6,336 Capital expenditure 1,658 396 396 396 Others -12,514 -6,708 -599 -578 Cash flow from investing -10,856 -6,312 -203 -181 Equity financing 0 0 0 0 Bank borrowings 3,562 -862 -500 -1,000 Others -4,705 -3,095 -3,165 -3,296 Cash flow from financing -1,143 -3,957 -3,665 -4,296 Foreign exchange gain (loss) 0 0 0 0 Net changes in cash -6,447 -5,030 3,049 1,859

Source: Company data, CICC Research

Company description

China Merchants Port Holdings is one of the largest public port operators in China with investments in Mainland China, Hong Kong and overseas. Its nationwide port network expands across the Bohai Economic Zone, the Yangtze River Delta, the Xiamen Bay Economic Zone, the Pearl River Delta, and the Southwest region. After investing in overseas markets for recent years, CMPort is expanding its port network to South Asia, Africa, Europe and North America. In addition to the container business, the company is developing value-added marine logistics services to support the port industry.

Please read carefully the important disclosures at the end of this report 2 CICC Research: February 6, 2018

Attractive valuation & dividend presents chance to bottom-fish

To realize gains on disposal of Chiwan Wharf

CMPort has announced it will sell its equity stake in Shenzhen Chiwan Wharf (000022.SZ) to China Merchants Group (CMG). The firm will sell a 57.52% stake in Chiwan A-shares for Rmb25.47/share (a 6% premium to the last closing price) and 8.58% stake in Chiwan B-shares at HK$13.35/share (2%). The prices value Chiwan A-shares at 30.1x LTM P/E and Chiwan B-shares at 13.4x LTM P/B, both higher than CMPort’s 10.8x 2018e P/E. After the deal, both CMPort and Chiwan will operate as container ports under CMG. Non-compete issues will not be completely resolved, but we see the disposal as an important step and expect it to provide a platform for CMG to further restructure.

Unlocking shareholder value: CMPort increased its stake in Chiwan from 29.3% to 45.7% over 2010–2016, but Chiwan’s container throughput grew more slowly than CMPort’s, so the investment’s contribution to CMPort’s total container throughput decreased and its net profit contribution stayed flat (5% in 2016). The disposal of equity should not have a material influence on CMPort earnings, but it should unlock shareholder value as the company expects to use the proceeds to invest in other high-quality overseas projects.

Cash inflows and disposal gains: CMPort will receive a total cash consideration of HK$5.75bn from the deal and recognize disposal gains of HK$3.88bn (including HK$2.82bn recorded by CMPort and HK$1.06bn shared from CND). CMPort does not plan to declare a special dividend but will maintain a stable dividend payout of 40–50% of net profits attributable to shareholders.

Figure 1: Deal structure

Source: Company data, CICC Research

Container handling throughput to see mild organic growth; tariff cuts priced in

Modest growth expected for throughput

CMPort’s total container throughput rose 7.5% in 2017 to a record 102.9mn TEU on growth in the global economy and international trade. CMPort expects organic throughput growth this year in the low single digits domestically (limited by base effect and capacity constraints) and high single digits overseas (mostly emerging markets).

Please read carefully the important disclosures at the end of this report 3 CICC Research: February 6, 2018

Will continue to expand overseas

With China’s economy growing but gradually maturing, growth in the country’s international trade (hence container throughput) should naturally slow. CMPort has invested in China’s five key port areas, has started to diversify globally and will focus more on overseas in the future. CMPort intends to target gateway ports or transshipment hubs to ensure returns (it expects investments in Sri Lanka’s Hambantota port and Brazil’s TCP in 2017 to yield IRRs of 9% and 11%, respectively). In 2016, overseas ports accounted for 20% of CMPort’s earnings and assets. Its success with the port-park-city (PPC) model should ensure sustainable, long-term growth.

Tariff cuts priced in; correction overdone

On November 15, the National Development and Reform Commission released the results of an investigation finding that some port firms may have broken antitrust laws1. As punishment, tariffs for international trade container handling (but not transshipment) at ports in Shanghai, Ningbo, Qingdao and Tianjin will be lowered 11–21%. On February 12, the NDRC said tariffs at ports in Dalian, Guangzhou and Shenzhen (Yantian, and Chiwan) would be cut 21–33%.

Actual effects, however, are unlikely to be as large as the calculated numbers.

► Only some container operations will be affected. Tariffs will cut for non-transshipment international trade containers but not for transshipment or domestic trade containers.

► The tariffs in the NDRC announcements are based on standard fees and vary markedly from CMPort’s actual ASPs, because port operators normally offer discounts to shipping firms based on volume and product mix. With the West Shenzhen port, for example, tariffs are to drop 33% from Rmn1,200/TEU in 2017 to Rmnb800/TEU in 2018. However, we estimate CMPort’s blended ASP at the port (based on its annual report) at a far lower HK$537/TEU or Rmb480/TEU (based on volume of 10.97mn TEU and revenue of HK$5890mn in 2016). In short, a 33% decline in standard tariff does not equate to the same for realized ASP.

► CMPort owns approximately 25% of Shanghai International Port Group (SIPG). We estimate that even if SIPG’s international trade container handling revenue is cut by 20% in 2018, CMPort’s profit will decline only around Rmb250mn.

► On the other hand, the NDRC has its own estimate of how much logistics cost will be reduced at all the ports involved: Rmb4.45 (Rmb3.5bn for the first set of ports plus Rmb960mn for the second). On average, we estimate the impact on revenue at each port at around 600mn.

1 http://www.ndrc.gov.cn/xwzx/xwfb/201711/t20171115_867070.html 2 http://www.ndrc.gov.cn/gzdt/201802/t20180201_876457.html

Please read carefully the important disclosures at the end of this report 4 CICC Research: February 6, 2018

Figure 2: Tariff standard cuts effective in 2018 Figure 3: Realized ASP far below fee standard

0% ASP New standard Old standard -5% (Rmb/TEU) -10% 1,400 -15% -11% 1,200 -20% -17% -25% -19% -21% -21% 1,000 -30% -27% -35% -30% -33% 800

600

Dalian Tianjin

Yantian 400

Qingdao Shanghai

Guangzhou 200

- West Shenzhen West

2013 2014 2015 2016 Ningbo-Zhoushan

Source: NDRC, CICC Research Source: NDRC, Company data, CICC Research

Hurt by the news, CMPort shares fell 7.25% and 5.2% on the days of the NDRC announcements and have dropped 16% since November 15 and 29% from their September high. We think the correction has priced in the potential negative effects of tariff cuts and the market has overreacted, providing an opportunity for bottom-fishing.

Huge land value in Qianhai

We conservatively value CMPort’s interest in Qianhai land at Rmb9.3bn, or about 18% of its market cap (at HK$3.45/share). This includes: 1) Rmb7.1bn or HK$2.62/share for a 7% stake in a JV with China Merchant Shekou to develop around 2.9sqkm of land; and 2) Rmb 2.2bn or HK$0.83/share in the Qianhaiwan Garden. CMPort also owns a 60% equity interest in Shantou Port Group (SPG), which has around 1mn sqm of land in the Zhuchi Port Area, which is located in the city center and has high potential for appreciation.

Attractive valuation and dividend creates bottom-fishing opportunity

SIPG’s 2017 preannounce results beat our expectations; CMPort’s share of SIPG’s profits should also. Given this, we raise our 2017 earnings forecast by 21% to HK$7,065mn. Because the Chiwan disposal is not yet complete, we do not include it in our forecasts, but we raise our 2018 earnings forecast for CMPort by 9% to reflect upward revisions to our SIPG earnings forecasts.

CMPort trades at 10.8x 2018e P/E and 0.8x P/B and offers a 3.8% dividend yield—or 6.7% if including the expected Chiwan disposal gain and assuming a 45% payout ratio. We maintain BUY on the stock for its attractive valuation with a target of HK$29.34. We see potential catalysts in further consolidation of West Shenzhen of if land is developed in Qianhai faster than expected.

Please read carefully the important disclosures at the end of this report 5 CICC Research: February 6, 2018

Figure 4: earnings forecast revisions HK$ mn 2017E 2018E Revenue Before Revision 8,830 9,340 After Revision 8,860 9,309 (+/-%) 0% 0% Net Profit Before Revision 5,816 5,164 After Revision 7,065 5,650 (+/-%) 21% 9% EPS Before Revision 1.83 1.63 After Revision 2.23 1.78 (+/-%) 21% 9% Source: Company data, CICC research

Figure 5: Historical forward P/E Figure 6: Historical forward P/B

144 HK Equity Average 144 HK Equity Average 5.0 Average+1xSTDEV Average-1xSTDEV Average+1xSTDEV Average-1xSTDEV 30 4.5 4.0 25 3.5 3.0 20 2.5 2.0 15 1.5 1.0 10 0.5 0.0

5

11/Jul

08/Oct 14/Apr

06/Jan 12/Jun 17/Jan

15/Mar 16/Feb

06/Dec 07/Nov 17/Dec

09/Sep 10/Aug

13/May 12/Jul

17/Jul

15/Jan 10/Jan

14/Mar

10/Nov 15/Nov

11/Sep 16/Sep 13/May

Source: Company data, Wind Info, CICC research Source: Company data, Wind Info, CICC research

Figure 7: Valuations of comparable companies

Company name TP Price Currency PE PB ROE Dividend yield 2016A 2017E 2018E 2019E 2016A 2017E 2018E 2019E 2016A 2017E 2018E 2016A 2017E 2018E 2019E International listed company Stobart Group LTD. n.a n.a 2.37 GBP 29.4 43.0 11.5 56.3 1.8 n.a n.a n.a 6% n.a n.a n.a 3% 3% 4% 7% Port of TAURANGA n.a n.a 5.10 NZD 41.1 43.6 39.8 37.2 3.7 4.0 3.8 3.9 9% 9% 10% 10% 2% 2% 3% 3% ICT SI n.a n.a 109.50 USD 37.7 32.4 25.9 21.5 3.0 4.9 4.6 3.9 8% 15% 18% 18% 0% 0% 0% n.a Average 36.1 39.6 25.8 38.3 2.8 4.5 4.2 3.9 8% 12% 14% 14% 2% 2% 2% 5% Median 37.7 43.0 25.9 37.2 3.0 4.5 4.2 3.9 8% 12% 14% 14% 2% 2% 3% 5% H listed companies Qingdao Port* BUY 7.04 5.62 CNY 13.9 10.1 8.0 7.2 2.1 1.3 1.1 1.0 16% 15% 14% 14% 3% 3% 4% 5% CM Port* BUY 29.34 19.20 HKD 11.1 8.6 10.8 9.5 0.9 0.9 0.8 0.8 8% 10% 7% 8% 4% 13% 4% 4% Xiamen International Port n.a n.a 1.53 CNY 11.7 9.4 7.1 6.4 0.7 0.7 0.6 0.6 6% 7% 9% 9% 5% 7% n.a n.a Dalian Port n.a n.a 1.43 CNY 30.4 n.a n.a n.a 0.9 n.a n.a n.a 3% n.a n.a n.a 1% 1% n.a n.a Tianjin Port Dev n.a n.a 5.62 HKD 65.3 n.a n.a n.a 2.9 n.a n.a n.a 4% n.a n.a n.a 1% 1% n.a n.a Average 25.2 9.8 8.8 8.1 1.3 0.9 0.8 0.7 7% 9% 9% 9% 3% 5% 5% 28% Median 13.9 10.1 8.6 8.3 0.9 0.9 0.8 0.7 6% 8% 8% 9% 3% 4% 4% 5% Domestic container port companies SIPG* BUY 7.05 7.61 CNY 25.4 15.5 18.7 16.9 2.9 2.6 2.4 2.2 12% 18% 13% 14% 2% 2% 3% 3% Shenzhen Chiwan Wharf A n.a n.a 24.14 CNY 29.2 27.4 25.7 n.a 3.2 n.a n.a n.a 11% n.a n.a n.a 2% 2% n.a n.a Yantian Port n.a n.a 7.74 CNY 43.0 n.a n.a n.a 2.4 n.a n.a n.a 6% n.a n.a n.a 0% 0% n.a n.a Shenzhen Chiwan Wharf B n.a n.a 13.06 CNY 15.8 14.8 13.9 n.a 1.7 n.a n.a n.a 11% n.a n.a n.a 4% 4% n.a n.a Average 28.4 19.3 19.4 16.9 2.6 2.6 2.4 2.2 10% 18% 13% 14% 2% 2% 3% 3% Median 27.3 15.5 18.7 16.9 2.7 2.6 2.4 2.2 11% 18% 13% 14% 2% 2% 3% 3% Domestic Integrated port companies Tianjin Port* HOLD 11.05 10.53 CNY 14.0 16.5 13.8 13.4 1.1 1.1 1.0 1.0 8% 7% 8% 8% 2% 2% 2% 2% Ningbo Port* HOLD 5.47 5.27 CNY 30.2 25.1 25.7 23.3 2.0 1.9 1.8 1.7 7% 8% 7% 7% 1% 2% 2% 2% Dalian Port n.a n.a 2.62 CNY 62.4 n.a n.a n.a 1.9 n.a n.a n.a 3% n.a n.a n.a 1% 1% n.a n.a Lianyun Port n.a n.a 4.38 CNY 438.0 109.5 87.6 n.a 1.4 n.a n.a n.a 0% n.a n.a n.a 0% 0% n.a n.a Average 136.1 50.4 42.4 18.4 1.6 1.5 1.4 1.4 5% 7% 7% 8% 1% 1% 2% 2% Median 46.3 25.1 25.7 18.4 1.6 1.5 1.4 1.4 5% 7% 7% 8% 1% 1% 2% 2% Domestic bulk port companies Tangshan Port* HOLD 5.07 4.88 CNY 16.8 14.5 13.3 12.4 1.6 1.5 1.4 1.3 11% 11% 11% 11% 2% 2% 3% 3% Yingkou Port n.a n.a 3.06 CNY 40.3 34.0 30.6 30.6 1.9 1.8 1.7 1.7 5% 5% 6% 5% 1% 1% 1% 1% Jinzhou Port n.a n.a 3.96 CNY 141.4 n.a n.a n.a 1.3 n.a n.a n.a 1% n.a n.a n.a 0% 0% n.a n.a Rizhao Port n.a n.a 3.89 CNY 64.8 41.8 37.8 35.4 1.1 1.1 1.1 1.1 2% 3% 3% 3% 0% 0% n.a n.a Xiamen Port n.a n.a 10.07 CNY 25.8 n.a n.a n.a 2.0 n.a n.a n.a 8% n.a n.a n.a 1% 1% n.a n.a Average 57.8 30.1 27.2 26.1 1.6 1.5 1.4 1.3 5% 6% 6% 6% 1% 1% 2% 2% Median 40.3 34.0 30.6 30.6 1.6 1.5 1.4 1.3 5% 5% 6% 5% 1% 1% 2% 2% *Figures are CICC estimates; others are market consensus from Bloomberg. Source: Company data, Bloomberg, CICC research

Please read carefully the important disclosures at the end of this report 6 CICC Research

Important legal disclosures

General Disclosures This report has been produced by China International Capital Corporation Hong Kong Securities Limited (CICCHKS). This report is based on information available to the public that we consider reliable, but CICCHKS and its associated company(ies)(collectively, hereinafter “CICC”) do not represent that it is accurate or complete. The information and opinions contained herein are for investors’ reference only and do not take into account the particular investment objectives, financial situation, or needs of any client, and are not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. Under no circumstances shall the information contained herein or the opinions expressed herein constitute a personal recommendation to anyone. Investors should make their own independent evaluation of the information contained in this research report, consider their own individual investment objectives, financial situation and particular needs. CICC does not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. Neither CICC nor its related persons shall be liable in any manner whatsoever for any consequences of any reliance thereon or usage thereof.

The performance information (including any expression of opinion or forecast) herein reflect the most up-to-date opinions, speculations and forecasts at the time of the report’s production and publication. Such opinions, speculations and forecasts are subject to change and may be amended without any notification. At different periods, CICC may release reports which are inconsistent with the opinions, speculations and forecasts contained herein.

The analysts named in this report may have from time to time discussed with our clients, including CICC salespeople, traders, and other professionals, or may discuss in this report, trading strategies that reference catalysts or events that may have a near-term impact on the market price of the equity securities discussed in this report, which impact may be directionally counter to the analysts' published price target expectations for such stocks. Any such trading strategies are distinct from and do not affect the analysts' fundamental equity rating for such stocks as described herein.

CICC’s salespeople, traders, and other professionals may provide oral or written market commentary or trading ideas that may be inconsistent with, and reach different conclusions from, the recommendations and opinions presented in this report. Such ideas or recommendations reflect the different assumptions, views and analytical methods of the persons who prepared them, and CICC is under no obligation to ensure that such other trading ideas or recommendations are brought to the attention of any recipient of this report. CICC’s asset management area, proprietary trading desks and other investing businesses may make investment decisions that are inconsistent with the recommendations or opinions expressed in this report.

Unless stated otherwise, any performance data quoted represents past performance. Past performance is not a indicator of future performance. No representation or warranty is made that any returns indicated will be achieved. Certain assumptions may have been made in this analysis which have resulted in any returns detailed herein. Changes to the assumptions may have a material impact on any returns detailed.

To the extent this material is provided to any recipient, this material is provided solely on the basis that the recipient has the capability to independently evaluate investment risk and is exercising independent judgment in evaluating investment decisions in that its investment decisions will be based on its own independent assessment of the opportunities and risks presented by a potential investment, market factors and other investment considerations.

This report is distributed in Hong Kong by CICCHKS, which is regulated by the Securities and Futures Commission. Queries concerning CICC Research from readers in Hong Kong should be directed to our Hong Kong sales representatives. The CE numbers of SFC licensed authors of this report are disclosed by the authors’ names on the cover page.

This report is distributed in Singapore only to accredited investors and/or institutional investors, as defined in the Securities and Futures Act, by China International Capital Corporation (Singapore) Pte. Limited (“CICCSG”), which is regulated by the Monetary Authority of Singapore. By virtue of distribution by CICCSG to these categories of investors in Singapore, disclosure under Section 36 of the Financial Adviser Act (which relates to disclosure of a financial adviser’s interest and/or its representative’s interest in securities) is not required. Recipients of this report in Singapore should contact CICCSG in respect of any matter arising from or in connection with this report. This report is not intended for and should not be distributed or passed on, directly or indirectly, to any other person in the jurisdiction of Singapore.

This report is distributed in the United Kingdom by China International Capital Corporation (UK) Limited (“CICCUK”), which is authorised and regulated by the Financial Conduct Authority. The investments and services to which this report relates are only available to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. This report is not intended for retail clients. In other EEA countries, the report is issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. This report will be made available in other jurisdictions pursuant to the applicable laws and regulations in those particular jurisdictions.

Continued on next page

CICC Research

Special Disclosures CICC does and seeks to do business with companies covered in CICC Research. As a result, investors should be aware that CICC and/or its associated persons may have a conflict of interest that could affect the objectivity of this report.

Disclosures in relation to the Companies contained this report could be found at http://research.cicc.com/disclosure_en, or in the published latest company-specific research.

Distribution of ratings is available at http://research.cicc.com/en/disclosure/general.xhtml.

Explanation of stock ratings: “BUY” indicates analyst perceives absolute return of 20% or more over the next 6~12 months; “HOLD” between +20% and -10%; “SELL” -10% and below. Asterisk denotes coverage initiation or resumption.

Explanation of sector ratings: Analyst expects a sector rated “OVERWEIGHT” to outperform the market by 10% or more over the next 6~12 months, “EQUAL-WEIGHT” to end up between 10% below and 10% above the market, and “UNDERWEIGHT” to fall behind the market by 10% or more, over the next 6~12 months.

Copyright of this report belongs to CICC. Any form of unauthorized distribution, reproduction, publication, release or quotation is prohibited without CICC’s written permission. V160908 Editing: Stephen FOSTER

Beijing Shanghai Hong Kong China International Capital China International Capital China International Capital Corporation Limited Corporation Limited – Shanghai Branch Corporation (Hong Kong) Limited 28th Floor, China World Office 2 32nd Floor Azia Center 29th Floor, One International Finance Centre 1 Jianguomenwai Avenue 1233 Lujiazui Ring Road 1 Harbour View Street Beijing 100004, P.R. China Shanghai 200120, P.R. China Central, Hong Kong Tel: (86-10) 6505-1166 Tel: (86-21) 5879-6226 Tel: (852) 2872-2000 Fax: (86-10) 6505-1156 Fax: (86-21) 5888-8976 Fax: (852) 2872-2100

Shenzhen Singapore United Kingdom China International Capital China International Capital China International Capital Corporation Limited – Shenzhen Branch Corporation (Singapore) Pte. Limited Corporation (UK) Limited #2503, 25th Floor, Tower #39-04, 6 Battery Road Level 25, 125 Old Broad Street 7088 Shennan Boulevard, Singapore 049909 London EC2N 1AR, United Kingdom Shenzhen 518040, P.R. China Tel: (65) 6572-1999 Tel: (44-20) 7367-5718 Tel: (86-755) 8319-5000 Fax: (65) 6327-1278 Fax: (44-20) 7367-5719 Fax: (86-755) 8319-9229

Beijing Jianguomenwai Avenue Branch Beijing Kexueyuan South Road Branch Shanghai Pudong New District Century Avenue 1st Floor, Capital Tower Room 1311, Block B, Raycom Infotech Park Branch 6A Jianguomenwai Avenue 2 Kexueyuan South Road, Haidian District Unit 4609-14, 46th Floor, Phase II Shanghai IFC, No.8 Beijing 100022, P.R. China Beijing 100022, P.R. China Century Avenue, China (Shanghai) Pilot Free Trade Tel: (86-10) 8567-9238 Tel: (86-10) 8286-1086 Zone, Shanghai, 200120, P.R. China Fax: (86-10) 8567-9235 Fax: (86-10) 8286 1106 Tel: (86-21) 5359-9800 Fax: (86-21) 2057-9488

Shanghai Huangpu District Hubin Road Branch Shenzhen Fuhuayilu Branch Hangzhou Jiaogong Road Branch 18th Floor, 3 Corporate Avenue,No.168 Room 201, Annex Building 1st Floor, Euro American Center Hubin Road, Huangpu District, Shenzhen Duty Free Commercial Tower 18 Jiaogong Road Shanghai 200021, P.R. China 6 Fuhua 1st Road, Futian District Hangzhou 310012, P.R. China Tel: (86-21) 6386-1195 Shenzhen 518048, P.R. China Tel: (86-571) 8849-8000 Fax: (86-21) 6386-1180 Tel: (86-755) 8832-2388 Fax: (86-571) 8735-7743 Fax: (86-755) 8254-8243

Nanjing Hanzhong Road Branch Guangzhou Tianhe Road Branch Chengdu Binjiang Road (East) Branch Section C, 30th Floor, Asia Pacific Tower 40th Floor, Teemtower 1st & 16th Floors, Shangri-La Center 2 Hanzhong Road, Gulou District 208 Tianhe Road Block 9B, Binjiang Road (East) Nanjing 210005, P.R. China Guangzhou 510620, P.R. China Chengdu 610021, P.R. China Tel: (86-25) 8316-8988 Tel: (86-20) 8396-3968 Tel: (86-28) 8612-8188 Fax: (86-25) 8316-8397 Fax: (86-20) 8516-8198 Fax: (86-28) 8444-7010

Xiamen Lianyue Road Branch Wuhan Zhongnan Road Branch Qingdao Middle Hongkong Road Branch 4th Floor, Office Building, Paragon Center 4301-B, Poly Plaza 11th Floor, Shangri-La Center 1 Lianyue Road, Siming District 99 Zhongnan Road, Wuchang District Block 9, Hongkong Road (M), South District Xiamen 361012, P.R. China Wuhan 430070, P.R. China Qingdao 266071, P.R. China Tel: (86-592) 515-7000 Tel: (86-27) 8334-3099 Tel: (86-532) 6670-6789 Fax: (86-592) 511-5527 Fax: (86-27) 8359-0535 Fax: (86-532) 6887-7018

Chongqing Honghu Road (West) Branch Tianjin Nanjing Road Branch Dalian Gangxing Road Branch 1st & 10th Floors, Ourui Lanjue Center 10th Floor, Tianjin Global Trading Center 16th Floor, Wanda Center Block 9, Honghu Road (W), New North District 219 Nanjing Road, Heping District 6 Gangxing Road, Zhongshan District Chongqing 401120, P.R. China Tianjin 300051, P.R. China Dalian 116001, P.R. China Tel: (86-23) 6307-7088 Tel: (86-22) 2317-6188 Tel: (86-411) 8237-2388 Fax: (86-23) 6739-6636 Fax: (86-22) 2321-5079 Fax: (86-411) 8814-2933

Foshan Jihua 5th Road Branch Yunfu Xinxing Dongdi North Road Branch Changsha Chezhan Road (North) Branch 12th Floor, Trend International Business Building 2nd Floor, Service Building C1, Wens Science & 3rd Floor, Annex Building, Securities Tower 2 Jihua 5th Road, Chancheng District Technology Garden, Dongdi North Road 459 Chezhan Road (North), Furong District Foshan 528000, P.R. China Xincheng Town, Xinxing County Changsha 410001, P.R. China Tel: (86-757) 8290-3588 Yunfu 527499, P.R. China Tel: (86-731) 8878-7088 Fax: (86-757) 8303-6299 Tel: (86-766) 2985-088 Fax: (86-731) 8446-2455 Fax: (86-766) 2985-018

Ningbo Yangfan Road Branch Fuzhou Wusi Road Branch Xi’an Yanta Branch 11th Floor, Building Five, 999 Yangfan Road 38th Floor, Henglicheng Office Building 21th Floor, Capitaland West Tower, Hi-tech Industrial Development Zone No.128 Wusi Road, Gulou District No.64 Second Ring South Road West Section, Ningbo 315103, P.R. China Fuzhou 350001, P.R. China Yanta District, Xi'an 710065, P.R. China Tel: (86-574) 8907-7288 Tel: (86-591) 8625 3088 Tel: (+86-29) 8648-6888 Fax: (86-574) 8907-7328 Fax: (86-591) 8625 3050 Fax: (+86-29) 8648-6868